Blockbuster

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Blockbuster Inc.: Corporate Information Systems: Strategy and Implementation

By Patrick Appiah-Kubi, Alex Czisny, and Keith Konecke

Part A: Strategy

Introduction

Blockbuster Inc. is the world’s largest video rental chain. Serving approximately three million customers each day in 25 countries, Blockbuster provides in-home rental, retail movie, and game entertainment.[i] With approximately 8,000 stores worldwide, the company is one of the strongest entertainment brands in the world, with worldwide revenues totaling over $5.5 billion in 2006.[ii]

Company History

Blockbuster Inc., headquartered in Dallas, TX, was founded in 1985 by David Cook. Cook, who had sold his computer services company, used his expertise to create a computerized video store. One year later, he branded his company “Blockbuster Entertainment.” The company was taken over by entrepreneur Wayne Huizenga in 1987. Huizenga injected $18 million into Blockbuster and, by the end of the year, had outright bought the company. Through acquisitions, Huizenga was able to increase the number of stores from 600 to 1,500 by 1990.[iii]

In 1993, Blockbuster acquired a majority stake in Spelling Entertainment, which itself was acquired by Viacom in 1994. Huizenga left the company following this deal. iii After several years of poor business decisions and executive departures, Viacom sold a minority stake in the company in 1999, selling their remaining interest in 2004.i As of July, 2006, Blockbuster is an entirely independent company.[iv]

In 2001, Blockbuster began to reduce floor space for VHS cassettes and video games to make more room for the expanding DVD market. The same year, Blockbuster and Radio Shack formed a deal that would allow Radio Shack to sell their products in Blockbuster’s stores. The deal, however, fell through within a year.iii

In 2004 and 2005, Blockbuster made several attempts to acquire their competitor Hollywood Video. All of Blockbuster’s offers, which were raised as high as $1.3 billion, were rejected by Hollywood, and Blockbuster eventually abandoned the plan. Later that year, Blockbuster began a promotion eliminating late fees on DVDs and video games in an attempt to attract more customers. The promotion cost Blockbuster an estimated $60 million, as well as over $500 million in late-fee revenues. Many franchises dropped the promotion due to lost revenues and bad press generated by Blockbuster not articulating the details of the promotion, most notably the fact that the customer would be charged full retail price of the movie once it was over seven days late.iii

Blockbuster introduced Blockbuster Total Access in 2006. The Total Access program allows online customers to return titles they receive in the mail to a local store in exchange for a free store rental. They also offer a number of in-store programs. Blockbuster Movie Pass and Blockbuster Game Pass are subscription-based in-store programs that allow customers to keep a certain number of titles at any given time for a monthly fee. Blockbuster Rewards is a loyalty program that rewards frequent in-store customers with free rentals. ii

Governance

Blockbuster has a traditional hierarchical governance structure, with a board of directors, CEO, and two executive vice presidents, one of whom is also the company’s CFO.[v] Members of the board of directors are split among three committees: Audit, Compensation, and Nominating/Corporate Governance.[vi] The company has explicitly defined governance documentation, including a code of ethics, board committee charters, a business conduct statement, and corporate governance guidelines.[vii]

Despite their traditional structure, Blockbuster has shown they can be innovative. In March of 2008 it was announced that the company would begin allowing shareholders to voice approval or disapproval of executive salaries in 2009. According to CEO James Keyes, this move “reinforces our commitment to...
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