Blockbuster Inc.

Introduction

Blockbuster was founded in Dallas, Texas, in 1985. It is one of the world's leading providers of videos, DVD's, and video games. According to the research group Burke, Inc., Blockbuster has nearly 100 percent recognition among active movie renters in the United States. Combined with market leadership, this makes Blockbuster one of the strongest entertainment brands in the US.

The main purpose of this paper is to show how Blockbuster is using information technology to gain a competitive advantage, and if it has in fact achieved a competitive advantage. The first section of the paper is an industry analysis detailing the ins and outs of the movie rental business. The next section, Company Analysis, we will describe in detail the lagging three-year performance of Blockbuster, and the missions and strategies it hopes to implement to start recording better profits. In the Problems and Opportunities section we will discuss the problem associated with Blockbuster, and other video stores, becoming obsolete because of, among other things, very strong competition from online rental services. The next section talks about Ethical Issues facing Blockbuster such as the controversial removal of "late fees." In the final section, we will talk about how Blockbuster has tried to use information technology to gain a competitive advantage in the renting business.

Blockbuster is a part of the commodity industry of video disc and game rental. It is called a commodity industry because the products don't change. One movie is not going to differ from one store to the next. What matters in this industry is how the product is delivered. In the industry of video tape and DVD rental there are approximately 18,689 establishments open in the United States, with sales, shipments, receipts, and revenue totally about $9,363,597. There are 24,300 video rental specialty stores in the U.S. These stores included the major public chains such as Blockbuster, Hollywood Video, Movie Gallery, and a significant number of independent retailers. It is estimated that just under 50% of video specialty stores currently are single-store operations. Another 4,100 non-specialists, primarily supermarkets and drugstores, also rent video as a regular part of their business. ("Facts about Video Industry", 2005) The major competitors of Blockbuster are not video rental specialty stores. The main competition comes from online video renters such as Netflix. Netflix offers its users unlimited video rentals for $9.99 per month. Blockbuster has also broken into the online rental market. Blockbuster is now at around 500,000 subscribers and Netflix at 2.6 million. Netflix, which held a 97% market share of online rentals in 2003, saw that share decline to 85%, due to new competition from Blockbuster.com, according to the NPD Group, which tracks DVD rentals and sales at retail through its VideoWatch service. "The competition will no doubt become fiercer as the business model matures, as broadband becomes even more ubiquitous and as these companies expand their customer base beyond the current demographic set," said Russ Crupnick, president of the NPD Group's Music & Movies division. (Netherby, 2005)

In this semi turbulent, declining industry, the order winning criteria is a large assortment of recent, and old videos, DVDs and video games ,with multiple quantities of disks being available to be viewed for as long as possible. Availability of new releases and convenience of getting these products are the most important criteria for consumers.

Video rental store market shares are dropping in the industry. And their competitors include more than online rental services. "On demand" movies are provided by local digital cable companies. This form of renting videos is the quickest and most convenient. With the click of a button, viewers at home can watch the latest movie releases at good prices.

The outlook for movie rental industry does not look promising, especially for movie rental stores. Since 2001, the movie-rental industry has shrunk 19 percent, according to Carmel, Calif.-based Adams Media Research. That has left companies such as Blockbuster, Hollywood Video, Movie Gallery, and independent operations fighting over ever-smaller pieces of the entertainment pie. In the Early 1990's, there were about 70,000 stores around the country that rented videos. Today, there are about 18,000. ("Movie rental business in steep decline", 2005)

Blockbuster is a large company with 40% market share (Dow Jones and Company). In 2002, the revenue for Blockbuster was $5,565,900,000. In 2003 it was $5,911,700,000 and in 2004 their revenue was $6,053,200,000. Over the past three years, Blockbuster has shown a net income loss. In 2002 their income loss was $1,627,600,000 and in 2003 it was $983,900,000. In 2004, they had a larger income loss than in 2003, it was $1,248,800,000. Blockbuster currently has 84,300 staff members (Mergent Online).

Blockbuster's performance in the stock market is dropping. In 2002, the high of the year was $30.25 and the low was $11.80 (S&P Stock Guide 2003) The next year, in 2003, the high dropped to $23.07 and the low was a little higher at $12.21 (S&P Stock Guide 2004). In 2004 the high of the year was $19.37 and the low of the year was $6.50(S&P Stock Guide 2005). It is clear to see how drastically the stock dropped from year to year.

(Business and Company Research Center).

Because Blockbuster has eliminated late fees from its stores, people have seen a dramatic decrease in the number of movies that Blockbuster has in their possession at any given time. Because they are losing such a large profit from the late fees, between $310 and $375 million, Blockbuster has much less money to spend on supplying its stores with inventory of new movies. Suppliers have figured out that they are able to push Blockbuster around because Blockbuster is not giving them priority any longer. A lot of customers are beginning to get upset because people have figured out that they can rent a movie and keep it for up to 37 days and only pay an additional $1.75 for re-stocking. This issue is causing a lot of what used to be loyal customers grief and they are finding new places to rent their movies (Lexis-Nexis). Because customers are going to different video stores, Blockbuster is being pushed by both new and traditional competition. Blockbuster is also losing to its new competition, Netflix, because Netflix not only has just as big a selection as Blockbuster, but also offers the much valued door to door service. Although Blockbuster has created an online video rental, they are investing too much money with little return. (Dow Jones and Company).

Blockbuster