SWOT Analysis: Blockbuster Inc.
Blockbuster Inc. is considered as the largest video rental chain in the world with its headquarters located in 201 Elm St Dallas, TX, 75270. The company grew quickly that it has transformed into a global chain, offering videos, DVDs and other subscription programs (Nightingale, 2008). David Cook founded the company in the mid-1980s as an alternative to small, local operations with limited video rental selection. It provides in-home, retail movie, and game entertainment, in over 9,100 stores throughout the Americas, Europe, Australia and Asia. It serves approximately served three million customers in the United States and still growing (Datamonitor.com, 2007).
In 2005 Blockbuster Inc. appeared to be in a state of flux due to the legal issues entailed from its “no late fees” policy and resulted the lost of income from extended viewing penalties. During the1990s, Blockbuster Inc. initiated a partnership with its strongest competitor Hollywood Entertainment Corporation. However, the planned merge failed and Carl Icahn's plan to oust current CEO John Antioco also failed (Referenceforbusiness.com, N.D.). Despite Viacom’s victory over Paramount, the merger plans with Blockbuster failed and Blockbuster suffered the cost of the failure. This is because the company’s shareholders had lost their confidence and by April 1994 Blockbuster Inc. stocks plunged to an all-time low.
Blockbuster Inc. belongs in the Video industry under the rental service segment. The growing industry came into presence and its demand originated from cheaper price of VCR'S in the 80s where 1984-1987 was the blast period (Local Media Marketing Solutions, 2012). Most stores, implicating grocery stores kept a separate section for video lending. The advertisement of movies 24/7 by cable channels as well as pay per view selection, a change in the technology occurs like VHS to DVD and Underutilized stock of rental stores are some of unexpected declines in the1990's. In 2001, Blockbuster Inc. consolidates as the market pioneer in the business. Netflix, the main competitor opened its website and it has consolidated as the market leader in online video rental by 2007. The growth of the video rental industry was owed from the constant evolution of media formats from the pre-historic VHS to the modern Blue Ray. However, the growth of the industry was slowed down by the advent of alternative video entertainment sources such as Pay-Per-View, Video on Demand and Digital Cable Boxes (Wang et al., 2005).
As technology advances, the rental platform also changes as digital media replaced physical discs. The convenience of digital platforms diminished the popularity of the disc formats, which resulted to plunging sales in disc rentals. However, companies such as Blockbuster Inc. understands the changing behavior of its industry, which explains their initiative to find distribution substitutes through other media service providers like Satellite TV (Kaczanowska, 2011). Blockbuster’s main competitors Netflix, Amazon and Red Box Automated retail also leveraged on the changing dynamics of the industry, which enabled them to redirect their distribution channels through online rental services. Economy is another major affecting factor to the home entertainment business as slow economy opted consumers to rent DVD’s instead of purchasing their own copies. As a result, the industry experienced a 14% decline in DVD sales by 2009. However, the actual DVD sales were replaced by rental services provided by Blockbuster Inc. and other companies. The consumers’ felt that it would be more economical to just rent the movie as opposed to purchasing an expensive DVD or Blue-Ray disc. This development had a positive impact to the video rental industry, which delivered a steady 4% increase in industry revenue since 2009 corresponding to annual revenue of $4.8 billion (Fritz, 2010).
Given the history of Blockbuster Inc. and the current condition of its industry, it can be assumed that the company still has room for growth. However, the company can only achieve profitability and business development if they have a clear picture of their current position in the industry. Therefore, the evaluation of their strength, weaknesses, opportunities and threats is necessary in order to determine the company’s future in the video rental business. Below is the matrix of Blockbuster Inc. SWOT analysis, which provides a summary of the company’s current condition.
Starting of let’s have a quick background about the current strategy about blockbuster, Blockbuster’s current strategies to extent their aimed market are focused on commercials, their website, social networking websites such as Facebook and Twitter so on and so forth and also through application for smart phones and tablets. These strategies are hitting customers based on specific demographics and factors such as age, race, gender, and interest and very effective in building top-of-mind awareness (Levy & Weitz, 2009).
Complement - There are several products that may have a synergistic effect if sold in conjunction with a movie rental service such as delivered food. Blockbuster could sign an agreement with fast-food chains or other national chains to tender the customer’s movie rentals along with their complemented food. Blockbuster would have to pay some of its movie fee to the chain distributors, but this method seems that it would extensively increase impulse buys. If proper advertising were carry out, customers could benefit greatly freely delivered movie + food and could benefit from increased sales.
Merchandise Assortment Planning - Blockbuster’s merchandise management planning process is a blur between staple and fashion merchandise categories. The reasoning behind this assumption is that while the movies and games being offered are ‘staple’ in the sense that they are “in continuous demand over an extended period of time,” individuals persistently seek out new movie and game rentals (Levy & Weitz, 2009).
Datamonitor.com (2007). Blockbuster Inc: Company profile. Datamonitor business information center, 7(7).
Fritz, B. (2010, April 15). DVD rental revenue falls, delivering another blow to home entertainment business - latimes.com. Blogs - latimes.com. Retrieved January 23, 2013, from http://latimesblogs.latimes.com/entertainmentnewsbuzz/2010/04/dvd-rental-revenue-falls-delivering-another-blow-to-home-entertainment-business.html
Kaczanowska, A. (2011). DVD, Game & Video Rental in the US. IBISWorld Industry Report 53223.
Levy, L., & Weitz, M. (2012, May 1). Blockbuster Analysis. laurenmckelvey. Retrieved January 23, 2013, from http://laurenmckelvey.wordpress.com/2012/05/01/page/2/
Local Media Marketing Solutions (2010). A report on scope and growth of television. Television Bureau of Advertising, Inc. publication.
Nightingale, F. (2008). Blockbuster acquires Movielink: A strategy for growth. ICFAI Business case studies.
Referenceforbusiness.com (n.d.). Blockbuster Inc. - Company Profile, Information, Business Description, History, Background Information on Blockbuster Inc. Reference For Business. Retrieved January 22, 2013, from http://www.referenceforbusiness.com/history2/93/Blockbuster-Inc.html
Wang, Z., Stein, H., Siu , C. Y., & Wang , R. (2005). (Block)Busting the Movie Rental Industry. BEM Research.