Blockbuster Case Study
1. Analyze Blockbuster's current position (based on its brick-and-mortar business model) using Porter's 5-forces model. What are the conclusions of your analysis?
In Porter's 5 forces model, the five underlying forces for an industry's structural attractiveness are the barriers to entry for new competitors, the intensity of rivalry among existing competitors, the threat of substitute products or services, the bargaining power of suppliers, and the bargaining power of buyers. In analyzing Blockbuster's business model and current position, it is evident that it faces issues in all five areas.
Barriers to entry
In the brick and mortar movie rental industry, Blockbuster is clearly the leader. With the merger of Hollywood Video and Movie Gallery, that leaves on two major players in the brick and mortar movie rental industry. Essentially, this has created many barriers for traditional mom-and-pop video stores to maintain consistent revenues or expand and open new stores, ultimately driving many out of business. In the early '90s, there were some 70,000 stores nationwide that rented movies, compared to 18,000 today (Graham). The appearance of a new brick-and-mortar competitor for Blockbuster is an unlikely event.
Online however, Blockbuster faces different circumstances. In general, the internet will reduce barriers to entry for new companies by eliminating the need for an established sales force and existing channels. In addition, the internet makes applications difficult to keep proprietary. The internet has allowed Netflix to enter and become the leader in the online video rental business. Netflix has lower proportional upfront capital requirements than a chain of traditional movie rental stores. In addition, its distribution centers can be built in low-cost areas, and current distribution centers can cater to distant customers until local penetration rates justify building new ones (Jackson). Netflix, along with smaller players Wal-Mart and
In Porter's 5 forces model, the five underlying forces for an industry's structural attractiveness are the barriers to entry for new competitors, the intensity of rivalry among existing competitors, the threat of substitute products or services, the bargaining power of suppliers, and the bargaining power of buyers. In analyzing Blockbuster's business model and current position, it is evident that it faces issues in all five areas.
Barriers to entry
In the brick and mortar movie rental industry, Blockbuster is clearly the leader. With the merger of Hollywood Video and Movie Gallery, that leaves on two major players in the brick and mortar movie rental industry. Essentially, this has created many barriers for traditional mom-and-pop video stores to maintain consistent revenues or expand and open new stores, ultimately driving many out of business. In the early '90s, there were some 70,000 stores nationwide that rented movies, compared to 18,000 today (Graham). The appearance of a new brick-and-mortar competitor for Blockbuster is an unlikely event.
Online however, Blockbuster faces different circumstances. In general, the internet will reduce barriers to entry for new companies by eliminating the need for an established sales force and existing channels. In addition, the internet makes applications difficult to keep proprietary. The internet has allowed Netflix to enter and become the leader in the online video rental business. Netflix has lower proportional upfront capital requirements than a chain of traditional movie rental stores. In addition, its distribution centers can be built in low-cost areas, and current distribution centers can cater to distant customers until local penetration rates justify building new ones (Jackson). Netflix, along with smaller players Wal-Mart and