With the introduction of new technologies and the development of electronics products, people are now having more opportunities to view movies. However, home viewing is still the most popular way of watching movies. Accordingly, Movie rental has become an industry. This essay will give a detailed analysis of the global leader in the movie rental industry, Blockbuster.
Evaluating Blockbuster’s External Environment
External environment is very important for managers to make decision about the company’s direction and strategy. In order to gain a deep understanding of Blockbuster’s industry and competitive environment, the following seven questions need to be answered. Q1: What are the industry’s dominant economic features? Economic Feature Market size and The movie DVD rentals amounted to $9.5 billion in 2007. The movie rental industry consists of four segments: In-store rentals ($5.8 billion) Rentals via mail ($2.0 billion) Video-on-demand (1.3 billion) Vending machines ($400 million) It has been estimated that online subscription on renting DVDs would increase 68 percent between 2007 and 2011, reaching to about $3.2 billion. This figure would be 37.5 percent of the total video rental market. Number of rivals The movie rental industry is dominated by Blockbuster and Netflix, other rivals such as Wal-Mart occupies a little market share. Scope of For the business of Netflix, the geographic area is basic covered within U.S., Blockbuster is a globally recognized brand. As the growth of movie rental
industry in the world, expansion of international market becomes more important to Blockbuster’s long-term competitive success. Number of buyers More and more people were attracted to rent movies on line. By 2008, Blockbuster had 2.2 million online subscribers and Netflix had 8.4 million subscribers. The market demand is consisted by many buyers; most of them prefer home viewing of movies. The buyers do not have bargaining power because there are millions of buyers in the market. Degree of product The products of rivals are becoming more differentiated than Blockbuster. differentiation For example, based on the six-pronged strategy, Netflix will provide better service than before. The heightened price competition does not happen because Blockbuster’s strategy for a given studio entailed purchasing rental inventory on a title-bytitle basis. And Blockbuster makes a revenue-sharing arrangement with studio publisher to hold down the purchasing cost. Product innovation Rapid product innovation involved in the movie rental industry, especially in the online rental service. R&D and product innovation, for example, Total Access program, provide subscribers more options to rent movies. It is very hard to overtake key rivals by being first-to-market with nextgeneration products. The best way is to offer better service to defeat rivals. Supply/demand conditions The surplus of capacity is not driving down the profit margins. There is no overcrowded with too many competitors because the market is still dominated by Blockbuster and Netflix and there are considerable amount of existing customers and potential customers in the market. Pace technological change of Advancing technology plays a very important role in movie rental industry. The wide use of streaming rented movies directly to big-screen highdefinition TVs is approaching. It would be the future in viewing movies at home. Therefore, blockbuster has to be ready to provide this high quality service. Most movie rental industry members, such as Blockbuster and Netflix have strong technological capabilities. Both of them have software or system to
support their online rental service and quick delivery system. Most of competitors operate in multiple stage of the industry. It includes purchasing, distribution, delivery etc. Economies of scale Blockbuster combines the scales in purchasing,...