April 27, 2007
Table of Contents
Competition and the State of the Rental Industry5
The Strategy to Remain Competitive6
Supply Chain Strategy11
Sales, Service and Promotion Strategy13
Exhibit 1 Blockbuster SWOT Analysis17
Blockbuster Video Facts17
Hollywood Video Facts17
Exhibit 3 U.S. Home Video Industry: Historical Statistics………………….……19
Blockbuster Video is facing many challenges in trying to remain competitive in the video rental industry. Besides strong competition from Hollywood Video and Netflix, consumers are migrating to new choices, including video-on-demand and DIVX (Digital Video Express), an alternative rental option that allows consumers to eventually own the movie. This report will describe Blockbuster’s strategy and will compare Blockbuster to its main competitors, Hollywood Video and Netflix (see exhibit 2). The research and analysis will attempt to answer the question of whether Blockbuster can survive in the fast changing video rental industry.
A competitive comparison will be done between Blockbuster Video, Hollywood Video and Netflix, with regards to the state of the rental industry, strategy to remain competitive, economic factors, innovation and development strategies, the supply chain strategy and the sales, service and promotion strategy.
The first Blockbuster Video store opened on October 19, 1985 in Dallas, Texas. David P. Cook, the founder, with the help of CEO, Wayne Huizenga, grew the business from a $7 million business with 19 stores to a $4 billion global enterprise with more than 3,700 stores in 11 countries. In 1994, Blockbuster sold to Viacom for $8.4 billion in stock. Following the deal, Huizenga left the company. Over the next few years, Blockbuster experienced poor business decisions and executive departures, starting with Steven Berrard (CEO after Viacom's 1994 takeover), who resigned in 1996 to head Huizenga's used-car operations. Wal-Mart’s Bill Fields replaced him and started promoting the retailer as a "neighborhood entertainment center," selling videotapes (in addition to renting them), books, CDs, gift items, and music. In 1997, Fields resigned and current chairman and CEO John Antioco replaced him. By the time Antioco took over, Blockbuster was widely described as a mess. Cash flow was down, and major marketing initiatives such as selling magazines and candy in the stores had flopped. Its performance was dragging down Viacom's stock. Antioco immediately started unraveling many of Fields' efforts, especially his focus on non-rental operations. Then in 1997, with the help of Blockbusters large market share he forced the movie studios into a revenue-sharing agreement that replaced the standard practice of buying rental copies for as much as $120 each. It not only saved money, but it allowed Blockbuster to stock more copies for less. By 1999 Viacom spun off a minority stake in Blockbuster and the company split into three new operating units that oversee its retail outlets, e-commerce operations, and database and brand marketing. Viacom later sold off the rest of Blockbuster in 2004. In 2001 Blockbuster announced that it would decrease its VHS and video game inventory by 25% to make room for more DVDs. In 2004, Blockbuster eliminated late fees on all of its in-store rentals at locations in the US and Canada. This was in response to competitor Netflix policy of not charging late fees for returned DVD’s. Later in 2004, Blockbuster launched a $700 million takeover bid for Hollywood Video, a move that the FTC was very concerned about and attempted to block. Hollywood Video refused to consider the offer...