Blockbusters Challenges in the Video Rental Industry

Muhammad Haseeb Yamna Ihtisham Yawar Khilji Abbas Iqbal Abdul Haseeb Imran Shehzad

HISTORY

David Cook,

Started his career in petroleum industry. In 1983 due to OPEC cartel opted out. Opened first rental store in Dallas (1985)

VIDEO SUPERSTORE CONCEPT

Cooks superstore concept was based on several components. 1. Stand alone stores, big and flashy

2. Gigantic collection covering over 30 categories

3. Flexible timings and rates 4. Targeted large demographic segments 5. Check out time convenience

GROWTH AND EXPANSION

In 1987, CEO David Cook decided to take his money and leave Blockbuster Disaster management team bought 33% of shared before taking on Blockbuster

EXPLOSIVE GROWTH
Location Store location is a critical issue
to a video-rental
Luigi Sal- vaneschi helped Blockbuster over come this issue Cluster strategy eventually brought Blockbuster into 133 television markets, where it reached 75 to 85% of the U.S. population.

Marketing (Tom Gruber) 1988, he introduced Blockbuster Kids kids clubhouse Youth-Restricted Viewing Videos Are Free Joint promotions between Blockbuster and companies like Dominos Pizza, McDonalds, and Pepsi-Cola, something it
continues to do today

Operations Blockbuster opened a 25,000-square-foot distribution center in 1986 in

Dallas. Blockbuster established three operating divisions 1. Distribution Corp 2. Management Corp 3. Computer Systems Inc

NEW-STORE EXPANSION
Huizinga believed in rapid expansion,

Under his leadership, Blockbuster opened new stores quickly, developed a franchising program, and began to acquire competitors to increase the number of its stores. 1993, it owned over 2,500 video stores.

ACQUISITIONS

In 1987, 29 video stores of Movies To Go in 1989, it acquired 175 video stores from Major Video Corp

In 1991, it took over 209 Erols Inc

In 1993, the company spent $248 million to buy the 400 stores of its two largest franchisees, and, with a new store opening every day, by the end of 1993 it owned over 2,500 stores.

NEW TECHNOLOGY
New technological threats included payper-view (PPV) or video-on-demand (VOD) systems, digital compression, and direct broadcast satellites.

BLOCKBUSTERS EMERGING STRATEGIES

Blockbuster started to expand internationaly In 1989, stores were opened in Canada and the UK. In 1990, Blockbuster opened its rst store in Puerto Rico.

To expand in the UK in 1992, Blockbuster purchased Cityvision PLC, the UKs largest video retailer,for $81 million cash and 3.9 million shares of stock. 1995, the company had over 2,000 stores in nine foreign countries.

HUIZINGA SELLS BLOCKBUSTER

1994 Viacom acquired the company for $8.4 billion in stock In 1995, a tidal wave of problems hit the Blockbuster chain.
1. Brutal price war 2. Movie Studio put cut on tape prices 3. Over expansion a major headache

BLOCKBUSTER, 19961998
Redstone found William Fields an expert of low-cost merchandising. Feilds started working on New distribution channel New point of sale instruments Fields added more retail merchandise to Blockbusters product mix, such as candy, comics, and In the rst quarter of 1997 with a drop in prot of 20% Fields resigned in April 1997 John Antioco, took charge and started focusing on inventory Blockbuster's high price purchases from big banners (65$) Antioce and Redstone signed a deal with studios to share profits at 50/50 After deal market share grew from 30 to 40% in 5 years
audio books.

In October 1998, the company sold its 378 Blockbuster music chains to
Wherehouse Entertainment for $115 million.

By the end of 1998, there were continuing signs of recovery.

BLOCKBUSTER, 19992002

A new opportunity arose in 1999 with the introduction of DVDs. Warner Brothers offered Blockbuster a DVD revenue-sharing deal. Antioco turned down the offer. For testing the popularity of DVD rentals, in 2000 Blockbuster increased the number of DVD titles it carried because they had much higher profit margins than VHS tapesDVDs rented for a couple of dollars more. The result was dramatic, revenues soared and the pace of change speeded up.

In 2001, Blockbuster abandoned attempts to customize tape offerings to local markets and eliminated 25% of the companys less productive VHS tapes. Result: Record revenues by the end of 2001, Strong cash flows, Lowered debt by more than $430 million, Turned cash flow from negative to $250 million DVDs would account for 40% of the chains rental inventory. DVD rentals increased 115%, and in the spring of 2002 Blockbuster made $66 million in net income.

THE GROWING USE OF BROADBAND

In 2000, recognizing the growing importance of satellite programming in PPV delivery, Blockbuster formed an alliance with DIRECTTV to provide a cobranded PPV service on DIRECTTV. In 2000 Blockbuster announced an agreement with MGM to digitally stream and download recent theatrical releases, films, and television programming from the MGM library

THE REDUNDANCY OF BLOCKBUSTER PPV

Five major movie studios, Sony, Time Warner, Universal, MGM, and Paramount announced a plan to bypass powerful middlemen, and offer their own PPV service directly to customers. Disney and Twentieth-Century Fox were planning their own PPV services, and in 2006 Disney announced its intention of being the hub of the future PPV service.

THE NETFLIX BATTLE

Block buster has also had to deal with the growing threat from online DVD rental services, such as that offered by Netflix, which has cut into its rental business. THE MISTAKE Blockbuster was offered the chance to buy Netflix in the early 2000s for $100 million, but Antioco refused; he did not consider this market segment big enough to be profitable,

RECOMMENDATIONS

Closing down the stores and concentrate more on online offerings. New PPV technology should be introduced. A more strong competitive edge should be strived for, as Netflix had been a big competitor. Merging with the new software producers, for speedy online services. Campaigning against piracy, discouraging such efforts.