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suffered a $3.2 million loss. Wayne Huizenga brought the company with a couple of
other investors in 1987. David Cook left the company after the purchase. Under
Huizenga the company expanded to 415 stores, making it the largest video rental
company in the country. In 1992 the company decided to start diversifying. They opened
250 music stores and spread into 13 different countries. In 1994, they merged with
Viacom which turned out to hurt both companys stock value. Also in 1994, Wayne
Huizenga stepped down and was replaced by Steve Berrard. Steve was replaced by
William Fields in 1996. William Fields was replaced in 1997 by John Antioco. In 1996
the stock value had dropped to half of its 1993 peak. In 1998, Blockbuster moved
headquarters from Fort Lauderdale, FL to Dallas, TX. Their cash flow decreased 70%.
They also made an agreement with America Online to create Blockbuster.com. In 2005,
they tried a new marketing venture in which they stopped charging late fees. If a
customer kept the movie a week past the due date the rental changed to a purchase.
They had to pay $630,000 in legal fees to settle the lawsuits for false advertising. They
also lost $500 million in late fee revenue. They also started a mail-order video rental
system. Blockbuster had to settle with Netflix for patent infringement. In 2007, they
acquired Movielink to gain a downloadable movie library. They had to close 300 stores
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in 2006 and another 280 in 2007. James Keyes took over for John Antioco also in 2007.
regain and maintain its spot at the top of the video rental market. I think Blockbuster has
made a couple of great moves however they seem to get in legal trouble every time
they do. After several legal issues has left Blockbuster hurting financially. We will take a
look at the situation analysis, SWOT analysis, strategy formulation, and strategic
alternative implementation. Blockbuster has some things they need to do to avoid being
known as lackluster.
current situation Blockbuster faces. The situation analysis has four parts. They are
these four parts is very important. They are important because they have the ability to
affect the company either in a positive or negative manner. Since they have this power
The environmental analysis consists of six trends. The trends are technological,
company to understand these trends because they can have and already have had a
dramatic impact.
The first trend is technological. This is the trend that has had the biggest impact
on Blockbuster. In the beginning Blockbuster only had to worry about video cassettes.
The technology in this field has grown extremely fast. Just when people finally get on
board with DVDs they come out with Blu-Rays. Blu-Rays are much larger than DVDs do
its way out the door. Movies can also now be downloaded
and there is no way to lose or return the video late. Downloadable movies also greater
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lower a companys risk because their product cannot be damaged. There is also a direct
mail system of renting movies. A customer gets online and selects a couple of movies
they want to watch and a business mails them directly to you. As soon as the customer
puts the first movie in the mailbox and it is scanned in by the postal service they send
out the next one. These are just some of the advances in technology over the past 24
The second trend is demographic. This trend has not had much affect on
Blockbuster. Their target market is people of all ages. They have classics and new
releases in several different types of mediums, which appeal to a wide range of people
The third trend is economic. The current economy is in the gutter. A lot of people
are losing their jobs. With less money moving around people are deciding to save it as
opposed to spending it on renting some movies. Interest rates are at all time lows. This
gives Blockbuster the opportunity to borrow money to expand. The American dollar is in
poor condition compared to foreign currency. This hurts the exchange rates. Blockbuster
is in thirteen different countries. Since the dollar is hurting they are having a harder time
maintaining those stores. Their marketing and maintenance costs are up which may
The fourth trend is political/ legal. There have not been many political issues that
have affected Blockbuster. Movie rental is not on Washingtons agenda. They have had
a couple of legal issues. They were sued by forty seven states for false advertising.
They advertised no more late fees. However, if a customer kept a movie too long past
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the due date the rental was converted to sale which caused a fee for the total cost of the
movie. They settled the lawsuit for $630,000. They were also sued by their competitor
Netflix. Netflix claimed that Blockbuster infringed on their patent when they started their
mail order video delivery system. They settled the lawsuit for an undisclosed amount in
2005.
The fifth trend is sociocultural. There are not many sociocultural issues affecting
Blockbuster. The biggest sociocultural issue affecting them is the new health movement.
More and more families are trying to become more health conscious. Sitting around
watching movies is not as healthy as other activities that involve physical exercise.
different cultures. If they are not aware of the different cultures of the countries they are
in they could inadvertently insult potential customers in their marketing and advertising.
The sixth and final trend is global. There are not any global issues that have
been mentioned previously affect Blockbuster. Blockbuster may become more globally
Michael Porter created the framework for analyzing an Industry. He called his
framework the five forces model. The five forces are potential entrants, substitute
products, suppliers, buyers, and rivalry among existing firms. It is important for a
company to be aware of the industry in which they operate. Failure to know your own
The first force is potential entrants. It is pretty easy for a new firm to open up a
rental store. Video rental companies can pop up at any time. There are not economies
of scale problems for rental stores. A company does not to be big to enter the market.
Anybody with a decent video collection can start renting out movies and open there own
business. Smaller companies may also be able to provide a more personal movie rental
experience. They can get to know their customers better and know what kind of movies
they may be interested in. The capital requirements are pretty low comparatively. A
company would just need a good size movie collection. They do not even need a
building with the advent of direct mail rentals and internet downloads. There are no
switching costs. They could get their movies from several different suppliers without a
great change in cost. There is not a whole lot of room for differentiation. There are
several different genres of movies but they are still movies. A company could try to
focus on classic movies but I do not think they would be able to get a very large portion
of the market. There is a very easy access to distribution channels. A person can go to
Wal-Mart and purchase all of the movies they need to start their own store. There are no
The second force is substitute products. There is a very high risk for substitute
products. There have already been a couple of substitute products that have entered
their market. Some of the substitute products that have recently entered their market
are DVDs, Blu-Ray, downloadable movies, movies on demand, and direct mail movies. I
believe innovations in the movie industry will continue to happen. The popularity of
The third force is the bargaining power of suppliers. In the movie rental market
there is not much bargaining power of suppliers. The movie producers could raise
movie prices however it would have to be across the board. That means all movie rental
companies would have to raise their prices as well as companies that sell movies such
as Wal-Mart and Best Buy. It is unlikely that a single movie producer would raise their
prices. If one producer raised their prices they other companies would capitalize on that
opportunity by keeping their prices the same. Imagine if one gas station was thirty cents
higher a gallon than every other gas station. It would take all of the producers to raise
their prices together. It is not very often that competitors would come together in a joint
The fourth force is bargaining power of buyers. The buyers do have a lot of
power. Customers buy a large portion of the firms total output. Blockbuster does not sell
to other companies they mainly deal with customers directly. This makes Blockbuster
totally dependent on customers for their sales revenue. It is very easy for a customer to
switch movie rental companies and buy their products instead. The movies are the
same regardless of which company there are purchased from. The format and delivery
method may be slightly different but the movies are the same. They can also stop
making purchases with a company with no regret or damage done to the customers.
The fifth force is rivalry among existing firms. There is competitive rivalry among
the different companies in the movie rental industry. If you store lowers their rates you
can bet the other companies will follow suit. If one company starts a program that
seems to draw in customers the other competitors will follow suit. There is very little
differentiation in the products and services that the different movie rental companies
Individual Analysis
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provide. There are no switching costs for changing movie rental companies. It is very
easy for a customer to get a membership to any movie rental company. There are
several equally balanced competitors. This means that no one firm dominates the
industry. The growth of the industry has slowed in recent months. This increases the
pressure on the companies to perform to the best of their ability. The strategic stakes
are pretty high as well. If one company has a couple of poor strategies implemented
that may lead to their failure because the companies are so close in size. The fixed
costs and storage costs are not very high. This does not increase rivalry. The exit
barriers are not high either. It would not be a problem for a video rental company to
close up shop and leave. This also does not increase rivalry. The last two items do not
increase rivalry among the existing movie rental companies however; the other items
The first factor we will look at is Netflixs strategic intent. Netflix wants to be the
top dog in the movie rental company. They are willing and able to move around their
Netflixs current strategy is to provide the products that customers want as fast
and as effective as possible. As soon as the mail carrier scans the DVD into their
system to return to Netflix they send the next one out. Another part of their strategy is
delivery movies instead of having traditional brick and mortar stores. This cuts down on
their expenses by eliminating the costs that comes along with operating out of several
buildings.
Netflix has a couple of key strengths. The first one is their marketing. Every time
you watch TV you see one of their commercials. Another strength they have is their
partnership with Microsoft. On the X-box 360s online system they have a place where
you can download movies directly from their website for a free. This is just another
example of Netflixs ability to provide their customers with the products they want as
quickly as possible.
Netflix does also have a couple of weaknesses. Since they do not have any brick
and mortar stores people cannot drive by and spontaneously stop in and make a
purchase. The other weakness they have is their product mix. Netflix does not have any
other products of than videos for rent. They do not have any snacks or drinks a
and weaknesses. We will also look at strengths and weaknesses in the SWOT analysis.
Their operations have been declining over the past three years. Their revenues have
decreased 179.4 million. Their profits have decreased 296.2 million. Their cost of sales
has increased 116.8 million. Their base movie rentals have decreased 11.8%.
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As the previous charts illustrate there have been some significant changes in
how Blockbuster is earning revenues. Their base movie rental decreased 11.8%. Their
base game rental decreased 10.5%. Their subscription rental increased 112%. Their
previously rented product sales increased 6.6%. Their movie sales fell 5.8%. Their
game sales sank 38.8%. There general merchandise sales rose 10.1%. The royalties
sank 42.9%. The product that performed the best was their subscription rentals. The
2) Marketing 2) Employees
companies are successful because they use the vest strategy. Companies that fail
I created several different strategies in the SWOT analysis. We will take a look at
three of them in more detail. They are capitalizing on the increase of a family mentality
with their own sense of morals, lower the new product prices to better compete, and
The first strategy we will look at is capitalizing on the new importance of family
with their own moral standards. Blockbuster has a high set of morals compared to other
video rental companies. They do not rent or sell pornographic movies. This decision has
given Blockbuster the wholesome image. Recently there has been a push from several
sources about increasing family time. ESPN is running commercials encouraging men
to be a dad today. President Barrack Obama has expressed several times that dads
need to step up and care for their families. I think Blockbuster can capitalize on this with
a clever advertising campaign. The campaign should say something like spend time
with your family by gathering around the TV and watching a family movie. They should
show kids leaving the house daily with the parents sitting around with dumbfounded
faces. Then one of them gets the idea to get to grab a movie from Blockbuster and the
next night after dinner when all the kids get up to leave the house they pull out the
movie and the kids decide to stay in and watch. Then the commercial should end with
problem with this strategy is it may single out people without families and people who
enjoy pornography.
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The second strategy is lower their new product prices. When new movies come
to Wal-Mart, Meijer or Best Buy they are released at a discounted price. Blockbuster
does not do this! They have some of the most expensive movies for sale. Their new
movie sales are only 6.10% of their total revenues. I know their main focus is on renting
movies but their sales should be more than what they are. They should be pushing
more new movies. They need to become know as a place to buy movies as well as
renting them. Their previously viewed movies sales are good. They are one of the few
categories that actually increased in 2007. I think if they lower their prices to regular
market prices that revenue stream would increase too. The problem with this strategy is
they would lose some of their profit margin on the sale of new movies.
The third strategy is creating new products to help the overall industry. It is hard
to predict the future of technology but here are a couple of things I think they can do.
Netflix has a partnership with Microsoft I think Blockbuster to try to form a partnership
with Sony and Apple. With the Sony partnership they can sell downloadable movies on
the Playstation 3s network. The partnership with Apple can allow them to sell
downloadable movies on the super popular I-pod. The problem with this strategy is the
cost to get it off the ground. Apple and Sony are huge companies and I am positive they
focus on family values with their own morals. This strategy gives them the most wiggle
room. It is also the cheapest to get off the ground. The gains outweigh the risks which is
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the best idea for a company who has been bitten by some of their most recent moves in
the market.
Figuring out which strategy to use is only the first step. The next step is put that
strategy into action. To put a plan into action the company must figure out the two main
steps. They are what items they need to begin the strategy and a plan to get the
strategy going.
The first step is to figure out what items they need to implement their strategy.
They do not need many items. They need some actors to participate in the
commercials. They should get several actors with different appearances and from
different ethnic groups to illustrate that watching movies as a family applies to all
families. The other thing they need is TV time. They should advertise during prime time
television to gain access to the most potential customers. They should also advertise
during sporting events to appeal to fathers. They will also need to increase their family
oriented movies. They need to load up on G and PG rated movies. The recent Disney
Pixar movies have had great success as well as great reviews. Blockbuster needs to
The plan for implementing this strategy is simple. That is just do it. They need to
get the items discussed earlier and just do it. They need to stay focused on family and
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on their own morals. They need to advertise that they are a family friendly company.
They need to load up on family friendly movies. Their staff needs to focus on family
attitudes and appearance. I think if they implement this strategy their market share will
increase.