Rise and Fall of Blockbuster

Blockbuster was once the only way you could rent a movie and watch it at home – and dominated the
industry in the 90s and early 2000s.
• A brick and mortar store with a familiar logo and layout, Blockbuster was a hub of many neighborhoods
and provided a new means of family fun – including perfect movie watching snacks.
• David Cook, the founder of Blockbuster, developed a computerized system that made it easy and
efficient for the company to manage stock and identify its customers’ needs. [Core Capability] This
helped Blockbuster focus on movies that people would rent more frequently
• In 2000 Blockbuster failed to acquire Netflix for only $ 50 million.[Internal weakness] This was a miscalculated
decision; Netflix became their main challenger years later. This decision, plus several other missed opportunities to
change with market, led to Blockbuster’s demise. Then, Blockbuster had over 9,000 stores across the globe and over
45 million registered customers. [Internal Strength] It offered a vast selection of movies and had an unparalleled
snack section making it the most convenient store for all in-house entertainment and snacking. But this did not last
forever; Blockbuster
failed.
 So what happened? How could a company that was so established only
have one store left worldwide, in Bend, Orengo? How did it get here?
 Quick Facts
The History of Blockbuster: What to Know Blockbuster opened its first video
rental store in October 1985 in Dallas, Texas. It held a large inventory (8,000 VHS
and 2,000 Beta) which gave it a competitive edge over other reputable small-scale
stores operating at the time. This video rental chain expanded rapidly, becoming the
world’s largest movie and video game provider. It had more than 4500 stores across
the US and other branches overseas in its peak years. But twenty-five years after its
entrance into the video rental business, Blockbuster filed for bankruptcy. This led to
the closure of all its stores apart from the Bend, Orengo franchise store, which
remains open today. Inefficient management and the great recession significantly
contributed to Blockbuster’s decline. Unbelievably, it could not leverage its strong
networks and resources to shoulder above its challengers .
 Blockbuster Through The Decades: Megahit to Flop
Timeline
David Cook relinquished control of Blockbuster to Huizenga, a successful businessman who built the
entertainment company into a thriving business.
From 1988 to 1996
Huizenga embarked on expanding Blockbuster. Using Ray Kroc’s expansion strategies and the same
techniques that led to the growth of his Waste Management Company, Huizenga bought and built new
stores in the most convenient locations.[Internal Strength] Thanks to him, Blockbuster was a
multibillion-dollar company by the early 1990s.
 But it lost over 10% of its shares in 1991 after Time Warner, an American cable TV company, publicized
its intent to upgrade its cable system.[External treat, Bargaining power of new interant] Huizenga saw
this as a huge threat and branched out to the broadcasting and publication industry in 1993.
 He invested in Viacom, a company that would one year later buy Blockbuster for $ 8.4 billion. However,
the merger did not save Blockbuster’s market value. Its shares dropped further, decreasing its net worth
to approximately $4.6 billion towards the end of the decade.[Internal weakness, Wrong Unstudied
Investment]
 In 1996 Blockbuster moved its headquarters to the Renaissance Tower in Dallas.
From 1997 to 2005
In 1997 John Antioco joined Blockbuster as the new CEO. He was expected to save the company from
sinking further since it recorded a massive decline in sales.
 Using entrepreneurship skills, Antioco managed to improve Blockbuster’s revenue. He increased the
number of stores to over 9,000 globally.
 To expand its market reach, Blockbuster acquired 221 films under its film studio DEJ Productions in
1998 and sold them to First Look studio in 2005.
 It also bought over 200 video rental stores in the UK. But its bottom line was still at stake regardless of
these new investments.
 Hence was forced to sell its Irish video stores. Probably, Blockbuster would have made more income if
they didn’t decline the Warner Bros DVD rental deal in 1998. [Internal Weakness. ,
management] It lost some of its customers to rental retailers who seized this opportunity.
 In 2000 Blockbuster failed to acquire Netflix for only $ 50 million. This was a miscalculated decision;
[Internal Weakness , management] Netflix became their main challenger years later.
Nevertheless, Blockbuster continued to acquire several movie and game trading chains. Determined to
reclaim its lost market share, Blockbuster introduced its first online DVD in 2003 but was
unsuccessful. The same year Viacom split off from Blockbuster. And this followed a lawsuit against the
video rental giant for false advertisement. In 2005 it launched a campaign to promote no more late
fines but had inflicted hidden fees and that raised disputes.
 From 2006 to 2010
 Blockbuster’s adversities led to a gradual decline in its profits. Executives needed a new approach that
would help grow and protect the company’s bottom line. Entering too much debt and not making any
substantial profits was a considerable threat.[Internal weakness, wrong financing decision]
 And hoping to save the sinking video rental chain, executives replaced John Antioco with James Keyes in
2007. Keyes’ strategy to save Blockbuster failed.
 He thought increasing the cost of online DVD rental services and withdrawing free movie offers was a great
idea but it led to a drastic fall in sales.
 The new management’s attempt to salvage Blockbuster from plummeting didn’t come to fruition. In 2010
the once video rental leader filed for bankruptcy.

How Did Blockbuster Make Money?

 Blockbuster was very strategic in its revenue generation.
 It entered into agreements with most movie distribution companies on sharing costs and profits related to
movie rentals. [Internal Strength]
 It would pay the movie distribution company 40% of the rental fees and retain 60%. [Internal weakness,
unfair sharing of revenue] It also would leverage its computerized inventory management system to
identify the movies to stock, based on customers’ needs and preferences, which translated to more sales.
But is that why Blockbuster failed?
 The Founding of Blockbuster: How it happened David Cook, the founder of Blockbuster, was a
database developer and a solutionist who could easily spot a viable business opportunity and
capitalize on it.[Internal Strength]
 He looked for a market that lacked a key player that he could dominate and saw that
opportunity in video rentals. As an imitator entrepreneur, Cook decided to go large scale and
revolutionize the growing movie industry. [Sustain Innovation]
 He opened his first store in 1985, expanding to three more stores in 1986. Using his innovative
mind, Cook set Blockbuster apart from the competition. He developed a computerized system
that made it easy and efficient for the company to manage stock and identify its customers’
needs. This helped Blockbuster focus on movies that people would rent more frequently.
 In 1987, Cook divested part of his video rental business to Wayne Huizenga, the founder of
Waste Management, Inc, the largest garbage collection company worldwide. [Internal Strength,
Management] Huizenga took over the leadership of Blockbuster. He relocated the company’s
Headquarters from Dallas, Texas, to Fort Lauderdale, Florida.
 Unlike its industry rivals, Blockbuster would be given first access to movie releases at a lower
rental fee.[opportunity]
 But other than extending lower charges to its customers, it would maximize these deals to bring
in more money. [Internal weakness. Wrong Pricing]
 Over and above, Blockbuster charged a hefty late fee ($1 per day) for any movie rental that is not
returned by its due date. [Internal weakness. Wrong after sales service]
 It also charged monthly subscriptions to customers at a minimum rate of $19.99 for three movie
rentals per month. And to deliver more convenient services, this movie rental retailer would
provide its customers with snacks at demand-based pricing.
 All these money-making strategies contributed significantly to Blockbuster’s fat profits.
However, it is out of the late fees charges that its primary competitor (Netflix) was born in 1997.
 Like many Blockbuster’s customers, Reed Hastings, Netflix co-founder, was angered for being
charged a $40 late fee. Though he paid the fine, he was determined to offer a solution that
delivered convenience in the most efficient way possible at ‘No late Fees.’ Thus, he created Netflix
and introduced a model that allowed people to order movies online and would deliver them right
at their doorstep. This eliminated the hustle of walking into a Blockbuster store to rent a movie
and the fines that came with late returns. [External treat, Technology ]
 The Reasons Blockbuster Failed
1) The Netflix Affect
It can be argued that Netflix partly contributed to Blockbuster’s downfall.[bargaining power of new interant,
Technogy, ] However, Blockbuster failed to make decisions that would allow them to stay competitive in the
changing retail environment.[wrong financing decision, poor aftersales service and unfair revenue sharing]
2) Failed To Pivot Quickly and Competently
Blockbuster was too slow to adapt to the shifting customer needs and preferences. They got comfortable
with their business model and ignored new technologies changing the entertainment industry. And by the
time they realized they needed to evolve their business model to stay on top of the competition, Netflix had
already rolled out its subscription video-on-demand model. Netflix’s model proved to be of greater
convenience and value, which attracted more customers, causing a dent in Blockbuster’s market share . [It’s
not the strongest species that survive, nor the most intelligent, but the one responsive with changes]
3) Failed To Create Customer Value
Blockbuster was too company-focused rather than customer-focused. Rather than thinking of how to
improve customer experience, the company concentrated more on strategies that would help maximize its
returns.
 For instance, Blockbuster failed to take a moment to analyze how its customers would benefit from Netflix
offer in the near future. Instead, it focused on how much it would spend on the deal. [Internal Weakness,
management]
 4) Failed To Restructure
Blockbuster had a chance to survive and thrive regardless of losing its credibility and customers. However,
it wasn’t ready to restructure its operations. Blockbuster had to build its online platform to compete with
Netflix, which meant dropping late fees. Unfortunately, Antioco was fired before he could fully make these
changes, and the company went back to its old ways. [Weakness, hasty decision]
5) Had a Huge Debt
Blockbuster didn’t have enough money to invest in innovative models that would help it remain
competitive. As a brick-and-mortar business with over 9,000 stores, its operating costs must have been
higher than that of its online rivals. [Cross-doking as Strategy ] Besides, the company had borrowed $950
million to pay for dividends which dwindled its bottom line.
 Netflix, Redbox, Amazon, Outerwall, and Cummins-Alison created better business models that eliminated
the need to walk into a physical store to rent a movie or a game, hurting Blockbuster’s revenue and profits.
 Summary
Why Blockbuster Succeeded at first time
internal and external Factors
• David Cook, the founder of Blockbuster, developed a computerized
system that made it easy and efficient for the company to manage stock
and identify its customers’ needs. [Core Capability] This helped
Blockbuster focus on movies that people would rent more frequently
 Itheld a large inventory (8,000 VHS and 2,000 Beta) which gave it a
competitive edge over other reputable small-scale stores operating at the
time.
 Blockbuster bought and built new stores in the most convenient locations.
 the founder of Blockbuster, was a database developer and a solutionist
who could easily spot a viable business opportunity and capitalize on it.
[Internal Strength]
 In 1987, Cook divested part of his video rental business to
Wayne Huizenga, the founder of Waste Management, Inc, the
largest garbage collection company worldwide. [Internal
Strength, Management] Huizenga took over the leadership of
Blockbuster.
 Itentered into agreements with most movie distribution
companies on sharing costs and profits related to movie rentals.
[Internal Strength]
 Unlike its industry rivals, Blockbuster would be given first
access to movie releases at a lower rental fee.[opportunity]
 Why Blockbuster failed
internal and external Factors
 it lost over 10% of its shares in 1991 after Time Warner, an American cable TV company, publicized its
intent to upgrade its cable system.[External treat, Bargaining power of new interant]
 It invested in Viacom, a company that would one year later buy Blockbuster for $ 8.4 billion. However,
the merger did not save Blockbuster’s market value. Its shares dropped further, decreasing its net worth
to approximately $4.6 billion towards the end of the decade.[Internal weakness, Wrong Unstudied
Investment]
 Probably, Blockbuster would have made more income if they didn’t decline the Warner Bros DVD rental
deal in 1998. [Internal Weakness. , management] It lost some of its customers to rental retailers
who seized this opportunity.
 In 2000 Blockbuster failed to acquire Netflix for only $ 50 million. This was a miscalculated decision;
[Internal Weakness , management]
 . Entering too much debt and not making any substantial profits was a considerable threat.[Internal
weakness, wrong financing]
 It would pay the movie distribution company 40% of the rental fees and retain 60%. [Internal
weakness, unfair sharing of revenue]
 other than extending lower charges to its customers, it would maximize these deals to bring in more
money. [Internal weakness. Wrong Pricing]
 Blockbuster charged a hefty late fee ($1 per day) for any movie rental that is not returned by its due
date. [Internal weakness. Wrong after sales service
 Blockbuster could not cope up with technology which Netflix applied. [External treat, Technology ]