Introduction
Blockbuster LLC first came into existence in 1985 as Blockbuster Video in Dallas, Texas. Its founder, David Cook was a computer programmer whose experience was helpful in inventory activities and in determining which genres of films were the most saleable and rentable. Soon shares in the firm were purchased by a firm called Waste Management, which then initiated the company’s expansion, believing in the on-product model of the firm which then had mass appeal (Hyatt, 2003). Waste Management then purchased the firm and its franchises. After an almost-merger with Viacom, as the company’s share prices fell, Blockbuster was then purchased by Viacom in 1994 (Sheridan, 1994). In 2004, after a number of acquisitions, Blockbuster then separated from Viacom, and continued with its sales of DVDs and other video products. Eventually in 2010, its external auditors, Price-Waterhouse Cooper provided an opinion that there were doubts about the firm’s being a going concern, with the firm’s inability to pay off all its bondholders. Blockbuster was then purchased by the Dish Network, which then went on to downsize the firm, closing a substantial number of stores around the world.
Problem
The main issue in the story of Blockbuster LLC is to find out what exactly caused its difficulties and ultimately, its demise when it was sold off to the Dish Network. The issues could be classified as first, the economy and then events in the business environment, the advances in technology, the economy, and the growth of competitors. These will all be examined in the course of the discussion of the case.
Economy and the Business Environment
Blockbuster failed to take note of the changing trends in the entertainment market. In the middle of the first decade of the 21st century, it remained a DVD rental company despite the changing customer preferences. In the late 1990s and early 2000s, DVD rentals may have still been the choice of those seeking video entertainment, but with the advent of new technologies and marketing methods, the choices of the video and movie-watching public were altered as well. What was also quite the norm at the time was that Blockbuster continued to charge its patrons late fees – penalties for the late return of rented videos and games, and make quite a hefty sum out of this. Netflix’ business model did not follow the pattern of opening stores for video rentals, but rather charged subscription rates online, allowing customers to select and watch, and keep on watching for as long as their subscriptions would allow them to. The late fees were done away with in this case. Borrowers did not have to walk or drive to the Blockbuster store in order to rent a movie or a game, or both. These changes in service alone made the customers of Blockbuster change their minds and move to this new competitor (Satell, 2014).
Of course the economy did not help. When the sub-prime mortgage market in 2007 exploded, those who lost their jobs, or found new jobs with lower incomes tended to scrimp on their expenses – they watched movies on the regular cable channels instead of purchasing movies. Anyway, a fixed subscription rate that allowed one to watch so many movies was still more appetizing that what Blockbuster had to offer.
Events in the Business Environment/Growth of Competitors
Many other video rental companies and distribution firms came into existence at the time that Blockbuster was enjoying its position of leadership in the video rental industry. There is Family Video, based in Illinois, and is very strong in the region. There is also Hastings Video, based in Texas, which has a strong brick-and-mortar type presence, but also an equally strong online presence. The firm not only rents out or sells videos and games, but other products such as books, DVD players, and other movie equipment online. There is Movie Gallery, Inc., that concentrates in the smaller suburban areas, where people do have time to go to the store and pick out a video or a game. However, in 2007, the firm also filed for bankruptcy. Walmart, Target and other retail stores have also offered the same products and services of Blockbuster – thus making their stores one-stop shops for those who have to perform other tasks such as grocery shopping as well (Ireland, Hoskisson and Hitt, 2009).
Netflix was the pioneer in the online roll-out of videos and games, and there are also other firms that either purchased Internet service provider firms, thus providing an online avenue for the delivery of their products This offered more convenience on the part of the consumer, who did not have to make a separate trip to the video rental store anymore.
The Role of Technology
Technology also had a role to play in the ‘demise’ of Blockbuster LLC. The CEO of Netflix then, Reed Hastings, was a visionary in the sense that he recognized that the delivery of videos and games would then move to one that would make use of enhanced broadband and Internet technologies. He realized that an open-source model of delivery that would make use of cable service, the Internet and other technology channels would be the new business model for this type of enterprise. He combined this with centralizing operations in a single office that would be responsible for the delivery of the firm’s products. He also invested heavily in the new technologies that would make it easier for the firm to operate out of a single office without the need for costly store rentals (Gandel, 2010).
Analysis
An analysis of the situation of Blockbuster LLC during the times when new competitors were coming in can be broken down as follows. The first is that the competition in the industry became very tight and cutthroat. The business rivalry with the emergence of more dynamic and proactive competitors may have had a hand in the eventual failure of Blockbuster LLC. Several of the rivals made use of innovations in technology (such as online streaming) that were perfectly timed to match the emergence of enhanced internet technologies. Blockbuster mistakenly stood by its “brick-and-mortar” model of the standing store physically renting out videos and games, and this was outdated by the time the competitors began to flourish.
Furthermore the government policies did not counter the emergence of competitors, and new competitors found out that they could take advantage of economies of scale. Netflix was even able to bring down costs further despite being able to reach a wider market via the use of technology.
The innovative technologies employed by the new competitors enabled them to offer services that were more attractive to the customers. Why stick with paying late fees to Blockbuster when one can do a “watch-all-you-can” permitted by a subscription elsewhere? What if the store does not have only movies and games, but has other products that the shopper may also need at the moment? These were the new products and services that Blockbuster failed to anticipate. Customers tired of late fees actually save on these late fees when they switch to competitors such as Netflix.
What can be said about the customers in this industry is that they do have a substantial amount of bargaining power. As soon as they are able to smell a bargain, they will take advantage of it. If this means switching to a new provider, then they will have no problems doing so, and thus they can place a lot of pressure on firms who do not act on these trends or events in the market.
Finally, the suppliers of the company, which in this case are the movie distributors, do have plenty of bargaining power. If these distributors believe that the firm cannot deliver or market their products to the widest audience possible, then the distributors can easily pull out from their agreements and bring their business somewhere else where they feel that their interests will be served (Porter, 2008).
Lessons Learned from Blockbuster LLC
Blockbuster could have been able to gain competitive advantages and stay strong in the industry so that it could have outlasted its competitors. It should have taken note of the advantages in product delivery offered by innovations in technology. The company should have invested in creating its own software such that it could link to a number of delivery channels such as regular broadcasting stations, or with cable networks, or with movie delivery outfits as well. With the new technologies, it could have avoided the ability of customers to switch to competitors by offering programs such as rewards or loyalty programs. It could have done away with the pesky late fees that turned off so many of its clients, who began switching to other firms as soon as they learned that the competitor did not offer any late fees.
In the end, there was no viable sustainable strategy that gave the company a competitive advantage. Without any competitive advantage, the company was perceived as a dinosaur that remained in the Jurassic Age – and that died with it as well.
References
Gandel, S. 2010. How Blockbuster Failed at Failing. Retrieved 21 February 2016 from: http://content.time.com/time/magazine/article/0,9171,2022624,00.html
Hyatt, J. 2003. He Began Blockbuster. So What? David Cook Created a Household Name, but He Refuses to Become One. Retrieved 21 February 2016 from: http://trace.lib.utk.edu/assets/Kuney/BlockbusterBankruptcy/HyattHeBeganBlockbusterSoWhat.pdf
Ireland, D., Hoskisson, R. and Hitt, M. 2009. Understanding Business Strategy: Concepts and Cases. Mason, OH: Cengage Learning.
Porter, M. 2008. The Five Competitive Forces that Shape Strategy. Harvard Business Review,
Satell, G. 2014. A Look at Why Blockbuster Really Failed and Why it Didn’t Have To. Retrieved 21 February 2016 from: http://www.forbes.com/sites/gregsatell/2014/09/05/a-look-back-at-why-blockbuster-really-failed-and-why-it-didnt-have-to/#18f0e76b261a
Sheridan, M. 1994. Viacom-Blockbuster Merges Colorful Moguls. Retrieved from:
https://news.google.com/newspapers?id=vDkfAAAAIBAJ&sjid=Ms8EAAAAIBAJ&pg=4947,3465320
