Blockbuster acquires Movielink
In order to examine the general environment, where Blockbuster operates, it is possible to create a STEEP analysis, which evaluates the market according to social, technological, economic, environmental and political factors (Bensoussan, & Fleisher, 2008). Social environment presents a lot of opportunities for Blockbuster. As movie renting is becoming more and more popular all over the world and across all age groups and income levels, there is a high possibility of business expansion and growth. Internet and television technology development creates a large field for improvement and differentiation, however it also creates a constant pressure to innovate, driven by the tight competition in the market. Environmental impact on the business is minimal, especially with online distribution channels, therefore Blockbuster is not much affected by environmental factors. Political pressure is not very strong in the business, thus it does not much impact on Blockbuster. Economic situation, however, has a strong influence on the business. As the service is becoming cheaper, people with lower incomes may use it. This fact should definitely be considered by the company in further strategic planning. Moreover, economic development of the emerging markets presents opportunities for expansion and for an increase in customer base.
Porter’s five forces model describes the microenvironment of the industry and helps to analyse the attractiveness of the market in order to make further strategic decisions. The five forces described by Porter are can be categorised into the threat of substitutes, new competition, the bargaining power of buyers and suppliers as well as the competition intensity. Both in the mail rental business and in video-on-demand (VoD) the threat of substitution is very high. Customers are looking for cheaper offers, rather than show significant loyalty. It is especially obvious for the online services, which are hard to differentiate. The threat of new competitors in both business areas is quite strong as well. Since online business is easy to set up, it does not require large amount of capital and does not have customers, who are highly loyal to the brand, the current market players are under a constant risk of new competition. Moreover, the increasing profitability of the industry is likely to attract new players with cheaper offers and better technology. Blockbuster has a relative advantage in possessing physical stores, a service which is hard to establish for the new entrants. However, as internet technology is developing further, this barrier to entry is losing its relevance. On the other hand, consumers in VoD and movie rental business possess a significant bargaining power. As there are many service providers in the market and all the information about pricing and quality is available to the consumers, users can switch from one company to another at relatively no cost. Supplier power is also strong in this business. While VoD is only dependent on the online technology, movie rental is based on mailing services. Therefore, it is crucial to establish effective relationships with the service providers in order to guarantee prompt delivery of the product to the customer. Moreover, the industry is highly competitive. It requires continuous cost reduction as well as constant innovation and large advertising expenditures in order to differentiate products and services.
For Blockbuster entering VoD market was an important step in maintaining competitiveness. Their strategy of store ownership was becoming costly and obsolete in the time of the Internet and online movie rental. That is why Blockbuster had to concentrate on the mailing and online video services, closing some of their stores. This leveraged their position in the brick-and-mortar market as well increased their customer base in the online business. The merger with Movielink aimed to integrate online movie business into the existing portfolio of the company. However, the success of the undertaking will strongly depend on the ability to fully utilise the synergies between the two companies and to offer the product, which appeals to the customers today. Blockbuster is currently facing a strong competition from various areas. The main rivals are not only the movie rental companies, such as Netflix, its closest competitor, but also cable providers, as well as retailers such as Amazon, Apple and Wal-Mart. The competitive advantage of Blockbuster lies in its diversified product portfolio and in the presence of physical stores, the core competence of the company, which are convenient touch-points with the customer. On the other hand the competition from Netflix is strengthening as their innovations, such as download-and burn service, are more favourably perceived by the customers, giving Netflix a competitive advantage. Moreover, it is hard for Blockbuster to compete in cost reduction with big retailers or cable companies due to smaller scale of business and a complex business organization.
SWOT analysis helps to analyse internal and external environment of the company, identifying its strengths and weakness as well as examining market opportunities and threats. An increasing demand for watching movies at home as well as the fast development of internet technologies offers multiple opportunities for the companies in the movie rental business. However, the technological advances also pose a threat for the companies, since they require constant innovation and new product offerings. The current strength of Blockbuster is the presence of physical stores, which simplify customer communication and provides the possibility for introducing their Total Access program, giving the company a competitive advantage. The acquisition of Movielink also offers an opportunity to access online market and to expand the current customer base, leveraging already existing products and services. This gives a competitive advantage in mail rental business and potentially in the VoD segment. However, the position of Blockbuster in VoD is less strong and the current technical issues with Movielink threaten to shatter the company’s position in the market. Inability to offer better services than the competitors in the online business is the main weakness of the company. If Blockbuster does not improve in this segment, which is growing more and more important in the movie rental business, it is likely to lose its competitiveness in the long run.
Despite the fact that Blockbuster can be called a late player in the industry, the company always tried to leverage their new services with existing resources. Their business-level strategy of cost-cutting and DVD sales has been successful and helped to increase revenues and strengthen their position. The acquisition of Movielinks could become an important step in establishing Blockbuster’s presence in the online segment and help to offset the problems of the late entry. Although the merger has not yet been as successful as expected, further development of the synergies between Blockbuster and Movielinks may become the core of their competitive advantage in the future and would strengthen Blockbuster’s position in the market.
Bensoussan, B. E. , & Fleisher, C. S. . (2008). Analysis without paralysis: 10 tools to make
better strategic decisions. Upper Saddle River, USA: Pearson Education.