Case study: Blockbuster

Block Buster's challenges in the Video Rental Industry

Introduction and company background

Blockbuster is an entertainment company that was founded in 1978 by David Cook who founded it as David P. Cook ; Associates Inc. Initially David P. ; Cook Inc was involved in real estate industries and petroleum business before venturing into entertainment business. It is worth noting that the company had a strong effect in the entertainment industry since its inception.  However, this great impact has not been smooth for the company and demanded careful analysis to counter threats and reduce weaknesses while maximizing on opportunities and its strengths.

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How did Blockbuster manage to grow rapidly in 1990s?

One of the most remarkable establishment that made it to greatly succeed in 1990s was its ability effectively manage and reorganize its operations to offer fast check in and effective inventory systems.  In most of the stores, the company fixed new equipments such as computer software, hardware, and shelving ensured enough space for display to the consumers.  To add to that, the training of its management staff and employees coupled with external investment in regions like UK, Australia, and Asia added to its sales and profitability. In 1992, Blockbuster purchased Cityvision PLC which ran 875 stores in Britain and Australia. Besides, it created an international home video division to oversee its international operations.

In addition, licensing and franchising made the company to assimilate its fast growth in major regions of operations.  Franchising aided the company grow with speed as it did not have to use vast resources to own the premises. This raised the company's ability to focus more on customer demands and satisfaction.  However, as Huizinga noted, the system was not sustainable on a long term basis and therefore embarked on a major mission of owning stores in different towns.

Due to the fast rising demand in use of digital technology like broadband internet, the company had to shift with the demand for change.  The company sold some of its stores to Viacom and used the proceeds to expand its video rentals and venturing more into the music business.  Particularly, the development of the new state-of-art system to market its videos gave it a great support in the fast growing competition in the market.

To wards the end of 1990s, the company got into major revenue sharing engagements which sharply raised the returns as the video rentals improved by 13% in the year 1998.  Particularly, this arrangement became a great success by offering cheap and constant supply of tapes that reduced the overall cost and delivery to the regions where they were in greatest demands. The final booster that perhaps, could have been explored earlier was the initial public offering in 1999.  Through the revenue from the public offering, the block buster management managed to venture into new technology like introduction of DVDs to all of its 3000 stores as they proved to be the next entertainment media of choice.

How did the Internet serve as a disruptive technology for physical distribution model?

It was notable that with time, technology dynamism was inevitable.  However, the onset of the internet spelt doom for the highly competitive business. Taking into consideration that the success of Blockbuster business model was mainly based on a bricks-and-mortar consideration, the new technology was rendering the system less significantly.  Particularly through use of the broadband system, it was possible for consumers to download videos and music at the comfort of their homes.

Besides, the system was also very green and therefore, future returns highly unpredictable.  Following this notion, Blockbuster management had to carefully articulate it into the system.  However, through the understanding that it posed one of the most promising future for the business, the company linked with DIRECTV to offer online sales for music, games and videos.  Though it maintained many of its global outlets, majority of their sales greatly scaled down.  Besides, the company continued to emphasis on online sales as evidenced by its later agreement with MGM to sell the latest theatrical releases, TV programming, films, and music.  In the year 2000s, it also signed a deal with TIVo's in trial to become a major player in PPV delivery market. The internet therefore slowly but surely revolutionized the distribution chain, a notion that points a major shift to the modern systems.

References

1. Gareth, R.J. (2007). Block Buster's challenges in the Video Rental Industry. Houston, Texas: Texas A& M University.

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