Blockbuster Inc.: Corporate Information Systems: Strategy and
By Patrick Appiah-Kubi, Alex Czisny, and Keith Konecke
Part A: Strategy
Blockbuster Inc. is the world’s largest video rental chain. Serving approximately three
million customers each day in 25 countries, Blockbuster provides in-home rental, retail movie,
and game entertainment.i With approximately 8,000 stores worldwide, the company is one of the
strongest entertainment brands in the world, with worldwide revenues totaling over $5.5 billion
Blockbuster Inc., headquartered in Dallas, TX, was founded in 1985 by David Cook.
Cook, who had sold his computer services company, used his expertise to create a computerized
video store. One year later, he branded his company “Blockbuster Entertainment.” The
company was taken over by entrepreneur Wayne Huizenga in 1987. Huizenga injected $18
million into Blockbuster and, by the end of the year, had outright bought the company. Through
acquisitions, Huizenga was able to increase the number of stores to 1,500 by 1990.iii
In 1993, Blockbuster acquired a majority stake in Spelling Entertaiment, which itself was
acquired by Viacom in 1994. Huizenga left the company following this deal. iii After several
years of poor business decisions and executive departures, Viacom sold a minority stake in the
company in 1999, selling their remaining interest in 2004.i As of July, 2006, Blockbuster is an
entirely independent company.iv
In 2001, Blockbuster began to reduce floor space for VHS cassettes and video games to
make more room for the expanding DVD market. The same year, Blockbuster and Radio Shack
formed a deal that would allow Radio Shack to sell their products in Blockbuster’s stores. The
deal, however, fell through within a year.iii
In 2004 and 2005, Blockbuster made several attempts to acquire competitor Hollywood
Video. All of Blockbuster’s offers, which were raised as high as $1.3 billion, were rejected by
Hollywood, and Blockbuster eventually abandoned the plan. Later that year, Blockbuster began
a promotion eliminating late fees on DVDs and video games in an attempt to attract more
customers. The promotion cost Blockbuster an estimated $60 million, as well as over $500
million in late-fee revenues. Many franchises dropped the promotion due to lost revenues and
bad press generated by Blockbuster not articulating the details of the promotion, most notably
the fact that the customer would be charged full retail price of the movie once it was over seven
Blockbuster introduced Blockbuster Total Access in 2006. The Total Access program
allows online customers to return titles they receive in the mail to a local store in exchange for a
free store rental. They also offer a number of in-store programs. Blockbuster Movie Pass and
Blockbuster Game Pass are subscription-based in-store programs that allow customers to keep a
certain number of titles at any given time for a monthly fee. Blockbuster Rewards is a loyalty
program that rewards frequent in-store customers with free rentals.ii
Blockbuster has a traditional hierarchical governance structure, with a board of directors,
CEO, and two executive vice presidents, one of whom is also the company’s CFO.v Members of
the board of directors are split among three committees: Audit, Compensation, and
Nominating/Corporate Governance.vi The company has explicitly defined governance
documentation, including a code of ethics, board committee charters, a business conduct
statement, and corporate governance guidelines.vii
Despite their traditional structure, Blockbuster has shown they can be innovative. In
March of 2008 it was announced that the company would begin allowing shareholders to voice
approval or disapproval of executive salaries in 2009. According to CEO James Keyes, this
move “reinforces our commitment to implementing strong corporate governance practices and
improving transparency with our shareholders.”viii
Blockbuster realizes that the home entertainment industry has undergone massive
changes over the past ten years, and will continue to change in the future. The company has
adapted to these changes by introducing new programs such as Blockbuster Total Access.ii
Blockbuster’s main goal should be to anticipate future trends and become a fast mover in the
industry in order to increase market share, erect barriers to entry for their competition, and
provide value to their customers and shareholders.
The company currently has the advantage of having the largest in-store presence in the
movie rental business, and is the only large chain that currently combines online rentals with
brick-and-mortar rentals.ii Maintaining these advantages while continuing to expand their online
presence should be a top priority.
Blockbuster Inc.’s strategic position is based on market/channel positioning, product
positioning, value chain/value networking positioning, and boundary positioning. Each position
that the company has can be further divided into sub categories that examine each position in
detail. The market/channel positioning can be divided into three subsections: customers,
needs/expectations, and channels to reach customers.
The customers targeted by Blockbuster are anyone who is eligible for a Blockbuster card.
The requirements for a care are: you need to be 18, have a driver’s license, state id, or military
id, and a credit card. The cost of membership is free, but Blockbuster will put your credit card
number on file in case you decide to rent ten movies and never bring them back.ix
Customers’ needs and expectations of a movie rental company are fairly straightforward.
They expect the rental company to provide a wide selection of new and old movies at a
reasonable price. Expectations can vary from person to person though. Some people may want
to rent movies from home and not have to be bothered to ever go to a store. Others may expect a
wide range of foreign movie titles, and others may want new movies to always be available.
Exceptions can go on and on because not all customers are the same. Blockbuster’s goal is to
accommodate the majority of customers needs in order to have a wide customer base.
Blockbuster can reach customers through several channels. They are able to reach
customers through physical stores. They had approximately 6,984 stores at the end of 2005.x
Blockbuster can also reach customers through their online portal (http://www.blockbuster.com).
They also started offering online movie rentals in response to Netflix in 2005.xi
Blockbuster’s product positioning can also be divided into three subsections:
products/services, features, and price.
Blockbuster offers several different products and services. They offer movie and game
rentals via on-line and in-store. Movies can be rented on DVD, HD-DVD, and Blu-Ray discs.
They also offer complimentary products in-store such as candy, popcorn, VCRs, DVD players,
and other such goods. Blockbuster also has a program called rent-to-own, where if you rent a
movie and decide you really like it, you can pay an additional fee to purchase that movie.
Blockbuster offers different features that make them one of the leaders in the movie
rental market. They have over 6,000 different stores you can rent movies from and you able to
return your movies to any store. You can also sign up and have movies mailed to your home.
Movies mailed to you can be returned in store or back through the mail.
Blockbuster also offers competitive pricing. As of March 31, 2008, Blockbuster offers an
online subscription of three DVDs at a time for $15.99 a month while Blockbuster’s closest
competitor, Netflix, offers three DVDs at a time for $16.99. Blockbuster also offers in-store
rentals for $3.00 to $4.00. Hollywood Video rents movies for $4.50.
Blockbuster has a good position in the value chain/value networking positioning.
Because Blockbuster is such a large company, they have specially agreed contracts with major
suppliers, producers, and distributors of movies, games, and food. Because of their size and
volume in which Blockbuster purchases movies they are able to negotiate prices lower than their
Blockbuster’s boundary positioning is far but not superb. They have explored different
markets, online and in-store, and have explored different products but are left behind when
compared to some of the leading companies in the movie rental market, and even some of the
smaller companies. Netflix offers online streaming of many movie titles via the Internet. Other
companies like FlexPlay offer limited play DVDs that can be rented and never have to be
The movie and gaming industry is a highly competitive industry with players coming
from: retailers that rent, sell, or trade movies and games; providers of direct delivery home
viewing entertainment or other alternative delivery methods of entertainment content; piracy;
and other forms of leisure entertainment. Retailers in the industry include: mass merchant
retailers, such as Wal-Mart, Best Buy, and Target; local, regional, and national video and game
stores, such as Movie Gallery and GameStop; Internet sites and companies that rent or sell
movies and other entertainment content, such as Netflix; toy and entertainment retailers; and
supermarkets, pharmacies, convenience stores, and fast food restaurants. These players provide
competition based on price, customer preference between renting and purchasing a movie,
customer service, convenience of store location, and value added services. Cable providers also
pose a big competition to Blockbuster in terms of providing direct home viewing services to
customers at unbeatable prices. Also, making illegal copies of movies and games is a big
competition to them. The company also competes against movie theaters and other
entertainment service providers.
With the advent of the Internet as a form of entertainment, the company stands to face
tough competition for customers’ time and dollars. Customers will be more willing to surf the
Internet than to spend money to rent a movie, coupled with the time of traveling to the movie
rental store, gas, and mileage usage to the store. Blockbuster will have to embark on a massive
advertising campaign to convince customers. Other future competitive threats are the vacation
providers and other entertainment service providers.
Opportunities and Risk
Basis of Competition
Blockbuster faces competition based on diverse reasons. Convenience of location, choice
of entertainment, cost of renting movies, customer service, and a host of other factors.
Relationship Among Buyers and Suppliers
Blockbuster provides a channel between buyers and the studios. They purchase their
movies directly from the studios title-by-title through purchase orders and also through various
Barriers to Entry
Blockbuster faces a great challenge meeting customers’ demands due to the larger
number of players in the movie industry. Customers tend to visit rental stores that are closer to
them and also offer good deals. Others will prefer to make illegal copies on order to save some
money and Blockbuster will have to compete with all these players for the market shares.
Revenue generation in the movie rental industry keeps decreasing yearly due to increased
players in the entertainment industry and customer preference to entertainment. These factors
have forced Blockbuster to change its strategic response. This strategy includes the introduction
of the no late fee program and Blockbuster Total Access. These switches in operational cost
helped put Blockbuster on the competitive edge.
Value Addition to Existing Products/Services
In response to customer demand, and in line with their strategic goals, Blockbuster
introduced the no late fee program, where customers could keep rented movies over the allowed
time without being charged late fees.
Blockbuster introduced their Total Access program so that customers could go online to
order DVDs, get them in the mail, and also return them in the mail, or to a local store. This IT-
enabled strategy added value to their business model.
Emerging technologies such as the Internet have changed the way businesses operate. IT
is a part of business strategies and it’s the driving force for revenue generation.
Timing played a key role in Blockbuster’s strategic response. They surveyed market
trend and also changed their process based on market demands and changing technologies.
Barriers to Entry
Changes in studio pricing have resulted in increased competition from mass merchant
retailers. These have great impact on consumer renting and purchasing behavior. These price
increases cannot be controlled at the retail level and that poses a great risk to Blockbuster’s profit
Government Laws and Policies
Companies are subject to governmental regulation, particularly the retail home video
industry, and changes in U.S. or international laws may adversely affect businesses. Most of the
laws and policies result in cost such as governmental penalties or private litigant damages, which
could have a material adverse effect on the business. Blockbuster is subject to various
international and U.S. federal and state laws that govern the offer and sale of its franchises
because it acts as a franchisor. In addition, their stores must be compliant with the Disability
Act. Finally, they must comply to federal, state, and local advertising, consumer protection,
credit protection, franchising, licensing, zoning, land use, construction, trading activities, second-
hand dealer, minimum wage and labor, and other employment regulations, as well as laws and
regulations relating to the protection and cleanup of the environment and health and safety
matters, unauthorized copying, intellectual property rights, and movie ratings.
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