A New Blockbuster Image

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V. Case Studies
A New Blockbuster Image

In the fall of 1993, Chairman H. Wayne Huizenga of Blockbuster faced a host of difficult decisions concerning the future of the company. Should he slow down the diversification of the company? Was his approach too scattered? A year earlier, in 1992, Blockbuster was merely a video-rental giant. Steps taken in the past months, however, had set Blockbuster on a course toward becoming a full-fledged entertainment company. But the steps taken were not without a few stumbles, and criticism about Huizenga’s decisions was multiplying. As 1993 drew to a close, Huizenga had reason to consider rethinking what he wanted for the company.

Blockbuster began in 1985 with one store. Within three years, there were 415 stores around the country As of October 1993 there were more than 3, 200 stores in 10 countries around the world. In a word, Blockbuster has enjoyed tremendous success.

According to former McDonald’s marketing executive Tom Gruber, chief marketing officer at Blockbuster in 1990, the key to the company’s success lies in its “McMarketing” principles: fast service, convenient locations, family orientation, and kid appeal. “The same factors at work in fast food retailing are at work in video retailing,” said Gruber. By 1989, Blockbuster capitalized on its image as “America’s Family Video Store.”

But by 1993 Blockbuster was seeking a new image- that of a multimedia company. The video chain with 1.2 billion dollars in sales considered itself stuck in a market promising little or no growth in the near future. Although more than 66 percent of U.S. households own at least one VCR, the advent of interactive technologies including 500- channel TV and video-on-demand calls into question the future of video rentals. So Huizenga took numerous measures to diversify blockbuster.

In the meantime, however, the video rental business is thriving. Herein lies one of the reasons opponents criticize Huizenga’s diversification strategy; not all people believe that the video- rental business is doomed. Even Huizenga predicts that it will remain healthy for the next decade. During the first half of 1993, revenues in existing Blockbuster locations climbed 6.1 percent, and analysts expect 1993 revenues to soar75 percent.

But Huizenga is not waiting for the market to evaporate before acting. He started transforming Blockbuster’s business in 1992, heralded by the sponsorship of Paul McCartney’s concert tour. In 1993 the company sponsored Rod Stewart’s tour. “We wanted to signal to everyone who had anything to do with Blockbuster that we are a big-time entertainment company,” asserted current chief marketing officer James L. Hilmer.

In the meantime, Huizenga has already taken deliberate steps to turn Blockbuster into “a global entertainment company with different forms of distribution.” In November 1992, Huizenga entered music retailing by acquiring Sound Warehouse and Music Plus chains. Today, blockbuster is the No. 3 music retailer in the United States. In December 1992, a joint venture was formed with Virgin Retail Group to open “megastores” in the United States, Europe, and Australia. Then, in February 1993, Huizenga turned his attention to television and film, buying Republic Pictures, then in April acquiring a majority interest in Spelling Entertainment Group. Also in April, Huizenga bought 21 percent of Discovery centers. In August, Huizenga changed gears again with the buyout of the two largest video-stores franchises. September witnessed a 600 million dollars investment in Viacom, in support of its bid for Paramount Communications.

Plans are in the works for indoor neighborhood entertainment centers. The company recently revealed plans to create “game zones” within video stores that will feature video games. Sega of North America Inc. already rents video games through Blockbuster and uses the stores to try out leading- edge hardware, such as the new virtual- reality goggles....
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