Executive Summary – Blockbuster Video
Blockbuster Inc. is an American chain of rental stores that offers movies, video games, and other forms of media entertainment on a subscription or a rental basis to consumers. The case highlights the implications of a revenue sharing business model in the Video Rental Industry where the Movie Studios are the upstream players (Suppliers) and the Video Rental Stores constitute the downstream players (Retailers). Under the revenue sharing model, the Video Rentals Stores such as Blockbuster procure tapes at a reduced initial cost from the Movie Studios and share a percentage of their rental revenues with the Studios. The following are some of the key benefits of a Revenue Sharing business model- Effective demand management
The Video Rentals business is impacted by significant fluctuations in demand. First, it is difficult to predict the success or popularity of a movie prior to its release. Second, the demand for a video tape is at its peak when a new movie is released and declines continuously thereafter (30-60 days post release date). The rental stores are often in a scenario where they have to decide on the number of copies of the video tape for a movie prior to knowing its success in the box office. Higher upfront cost to procure the tapes would make the video rental stores to stock conservatively leading to increased stock outs. Partial financing of the inventory costs by the movie studios incentivizes the retailers to keep sufficiently higher number of video tapes thereby increasing the availability and copy depth. This in turn leads to better demand realization and increased rental transactions. Leveraging value chain synergies
The movie studios and the video rental stores have combined stakes in the success of a movie. A successful movie ensures higher returns from exhibitions in theatres and increased rental revenues by...
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