BlockBuster

STRATEGIC MANAGEMENT
1. Blockbuster Entertainment was established in 1985
2. Its domain business is mainly in the brick-and-mortar based video rental industry.
3. It became the largest video rental company in the US in 1989 with 415 stores.
4. In the early 1990 it failed to change its business model
5. In 1999, the company decided to develop a new distribution channel; blockbuster.com
6. In 2007 and 2008, Blockbuster offered new technologies
Geographical Zones

Main areas
• USA
• Australia
• Hong Kong

Running in 28 countries
General External Environment
 External Environment

Factors

Political/Legal Demographic
Factors Factors

Antitrust laws Age structure:

Taxation laws 0-14 years: 20.2%

15-64 years: 67%
65 years & over: 12.8%
Industries chosen for
deregulation
 Socio – Cultural Factors

In the United States, entertainment industry is very profitable.

Entertainment with 8.4% return on assets was the third lucrative

industry in the US (1986-1997).
 Technology alters with fast speed even
more than ever

 Firms should carefully track the

technological changes and utilize them
quickly and properly to outperform and
outplay in today business environment.
 Economic Factors
The US has the largest and most technologically powerful economy in the
world, with a GDP of $46,900

private individuals and business firms make most of the decisions

GDP (Purchasing Power Parity)

$14.25 trillion (2009 est.)
Country comparison to the world: 2
$14.61 trillion (2008 est.)
$14.56 trillion (2007 est.)

Population below poverty line: 12% (2004 est.)

Distribution of family income-Gini index : 45(2007)

 Global Factors

1. New global markets

2. existing markets that are changing
3. important international political events
4. critical cultural and institutional characteristics
of global markets
5. because of the number of American channels
and their huge advertisements on their products
including their movies the popularity of
Hollywood movies is increasing
 Industry Analysis

Competitor analysis has two primary activities :

1. Obtaining information about important competitors

2. Using that information to predict competitor behavior

 Threat Of Substitutes

 Substitute products to video rentals are abundant

 items such as pay-per-view, video-on-demand, and streaming on-

line video

 As these are all viable alternatives, delivering a nearly identical

product, the threat of substitutes plays the role of yet another
intensifier.
 Major film production companies

Fox Entertainment, paramount Motion Pictures Group, Sony Pictures Entertainment,

NBC Universal, Buena Vista motion Pictures Group, Lions Gate Entertainment, The
Weinstein Company

 The consolidation of television and movie studios into mega media corporations has
caused intricacies in doing business with suppliers

 Movie studios
Consumers can gain movie
DVDs through several channels :

1. Retail Outlet such as Wal-Mart

2. Rental Outlet such as Blockbuster
3. Websites of both brick
4. Internet-only retailers such as Amazon
5. Online rental services such as Netflix

As consumers have several alternatives to

obtain movies DVDs with different prices
hence the bargaining power of buyers is high.
Two main types of players:
Traditional renters, such as Blockbuster, who operate physical store
locations, and mail-order renters such as Netflix

There are strong exit barriers for firms such as Blockbuster (high
fixed cost).
 The largest competitor
 Young and dynamic firm
 Use an innovative e-business strategy
• The second largest movie retail company in the USA
• Dynamic website with free delivery
• Very dynamic firm
• Weak financial background
A third largest video rental company

Based on the traditional brick-and-mortar

An important regional competitor

 Traditional business strategy

 Brick-and-mortar + online presence

 Good advertisement
 “ Specialist Retailer of the Year 2007 ”

Strength : convenience for customers

Select the movie on line

Pick up the movie at the desired Redbox kiosk

( more than 6800 kiosk in USA)
- Consumer spending for in-home movie
viewing is expected to increase.

- Wide-screen TVs have rejuvenate sales

of movie DVDs.
 Growing number of households who have an
access to high speed internet to download
movies

 Cable and satellite TV companies are trying

to offer their DVD services and make many
more movies titles available to their
customers
 Strategic Analysis

Blockbuster has realized that they will have to provide

flexible options to meet their customers’ needs.

1. Business-Level strategy
2. Competitive strategy
3. Corporate Strategy
Corporate level strategy :

Divestment

Acquisition

Alliance

Business-Level strategy
Differentiation
1. Competitive marketing activities such marketing
alliances with well-known firms

2. Skillful and knowledgeable CEO

3. Brand recognition
Tangible Intangible
Financial Human resources
Physical Innovation resources
Technological Reputational Resources
Organizational
 Tangible
Financial
Annual Financial 2006 2007 2008
Data, in millions($)
Revenue 5,523.5 5,542.4 5,287.9
Gross Profit 3,407.8 2,864.6 2,722.5
Operating Income 79.1 39.1 (293.3)
Net Income 43.4 (85.1) (385.4)

Blockbuster at a glance
ROA -17.7% Very low
ROE -133.4 Very low
Debt to Equity 15.3 Very high
Interest Covarage
-3.44 low
Ratio
 Tangible

Financial
From the annual financial data can be seen, it
experienced the decline in its income and gross profit

Blockbuster has high amount of debt

As can seen Return on equity and Return on

asset is very low
 Physical

Blockbuster has plenty stores and outlets:

- 5194 stores within the united states
- 3166 stores in 22 market outside of the United State

Their primary distribution centers are located in

McKinney, Texas, with an additional 35 Online
distribution centers spread through the United
Stated
 Technological

Tangible

 The online service system

 In 2007 Blockbuster bought Movie link
 Management use information system for
 Organizational

Blockbuster has enhanced their enterprise

planning system and upgrade their corporate
productivity tools .
Intangible  Human resources
Blockbuster hired James Keys in July 2007,
former president and chief executive officer of 7-Eleven Inc.
 Innovation resources
• The online rental program
• Offer both HDDVD and Blue-ray DVDs as rental options to
customer.
Intangible Reputational Resources :

• Lack of late fees

• Online or in-store options
• Price reduction
 It merely packages and distributes

 Purchase by two Method for US:

I. Title-by-title
II. Revenue-sharing

 Purchase by three method for overseas

 Purchase general merchandise that is

Complementary to rental &retail movie And
video game inventory .

 Particular agreement with Weinstein company

 Information obtain from:
1. Their membership transaction database
2. Their real estate database
3. Outside research agencies
Involve with recruiting, hiring, training, developing ,
compensating personnel and experience of high rate of turnover
at high level corporate position

 A new Chief Executive Officer

 A new CFO
 A new CIO
 Vice President of Merchandising , Distribution &Logistics
 Laying off COO to cut cost
 GM, planning ,finance , accounting, legal support,
government relationship to support value chain

GM is very weak

New CEO is successful in accessing online renter market

Facing dire financial strain with possibility of getting worse

Inferior to their competitors in identify threats and

opportunities as their current financial status

Firm Infrastructure
The Source of the sustainable competitive advantage
Blockbuster does not have any competency to be
utilized to gain a sustainable competitive advantage .
Sustainable competitive advantage

capabilities value rare Costly to imitate no substitute

Market saturation and ability to YES YES YES NO

reach US customers

Variety of product rental options YES YES YES YES

(online, in-store, download)

Complete entertainment YES NO NO NO

package offered for entire
family

New upper management YES N/A YES NO

Extensive use of Information YES NO NO NO

Management Systems

Exclusive relationship with YES YES YES NO

certain suppliers
Ability to compete with Netflix YES YES YES YES
Two distinct core competencies that
Possibly offer a sustainable competitive
advantage:
1. Variety of product rental option
2. Ability to compete with Netflix
1. Skillful and experienced CEO (the successful former CEO of 7-eleven)
2. Marketing alliances with well-known companies such as Coca-Cola , Direct TV and
also favorite social website such as Facebook
3. Global network of stores
4. One of the largest company in the brick-and-mortar video rental industry
5. Operating in an industry that is wide open to innovation
6. Multiple delivery methods
1. Weak financial background

2. Lack of innovative and suitable strategy for today’s business environment

3. Lack of proper investment in new technologies with limited business late

4. Inconvenience of going to a store with limited business hours
5. Fail to assess customer behavior and channel preferences put themselves at incredible risk
1. Newcomers with different business model
2. Free-downloading movie websites
3. Cable and pay-per-view services have been a threat
4. Illegal access to websites and hack them
5. Slow movie rental market
6. Video-on-demand as a huge threat for DVD rentals
1. The biggest opportunity for this company is to innovate new ways
of delivering value to the customers

2. Applying the latest technology to transfer the value

3. Growth through partnerships

 PEST

Political : local, national and international political developments

Economic : international trade/monetary issues , taxation issues

Social : lifestyle trends , ethical issues , advertising and publicity

Technological: information and communications

The company faces adversity in all of its dealing with its supply chain,
new entrants using new technology and innovation to erode its
traditional revenue base and continuing lack of confidence from
industry followers and analyst .
Strategy Formulation Recommendation:

 The key strategic choices revolve around two fundamental choice:

 Where to compete (corporate strategies)
 How to compete (business or competitive strategy)
Corporate strategies:

Divestment

Acquisition

Alliance
 Divestment

 the company can close some of non-profitable stores and instead concentrate on
its core assets and new technologies.

 Reducing the number of retail locations which are not lucrative and have no
material
Acquisition

Blockbuster by acquiring the competitors which add value to the

company’s overall performance, not only can expand its
operation but also become more competitive in the market place.
 Strategic alliance

 the company can expand internationally by making alliances with other

country’s counterparts

 This company also can rent out space to restaurants or potentially coffee shops.

 It also benefit by gaining access to the grocer’s customers, opening up cross-

promoting opportunities which could drive additional revenues
 Business or competitive strategy

Differentiation
 Focusing on improving customer experience across all of its delivery methods.
 Customers what prevails is the access to choices and convenience.
 Easy access to account activity and digitally delivering entertainment content to its
customers’ electronic and portable devices and so offering them extra convenience.
Focus

 A focus strategy when they plan to utilize their

core competencies to serve the needs of a
particular industry segment or niche to the
exclusion of others such as

1. a particular buyer group

2. a different segment of a product line
Since the company vies with giant retail outlets such as Wal-Mart, Best
buy and Red box Automated Retail which are pioneers in implementing
cost leadership strategies,

The company should cut the additional cost and more importantly fixed
costs to offer value to the customers at the lowest cost.
Technology strategy:
 the Internet has changed dramatically the field of home entertainment
 new competitors and new ways to compete
Marketing strategy:
 Through marketing, the company has multiple channels to maintain
market share and to enhance brand awareness.
Supply Chain:
 focus to a more electronic distribution