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Blockbuster Inc. Corporate Information Systems Strategy and

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Blockbuster Inc. Corporate Information Systems Strategy and Powered By Docstoc
					   Blockbuster Inc.: Corporate Information Systems: Strategy and
                          Implementation
                  By Patrick Appiah-Kubi, Alex Czisny, and Keith Konecke



Part A: Strategy

Introduction


        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

in 2006.ii


Company History


        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

days late.iii


        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
Governance


       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


Strategic Goals


       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.


Strategic Position


       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

competitors.
       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

returned.


Competition


       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

revenue-sharing arrangements.


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.
Switching Costs


        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.


New Products/Services


        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.


Risks


Emerging Technologies


        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


         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

generation.


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.
Works Cited


i
 Rourke, E., Rothburd, C., & Stansell, C. (2005). Blockbuster Inc. In International Directory
         of Company Histories, Vol. 76. Retrieved April 4, 2008 from
http://findarticles.com/p/articles/mi_gx5202/is_2005/ai_n19123486.
ii
      Blockbuster Online - Company Overview. Retrieved April 4, 2008 from
           http://blockbuster.com/corporate/companyOverview.
iii
      History In Blockbuster Inc. Information and Related Industry Information from Hoover’s.
           Retrieved April 5, 2008 from
           http://premium.hoovers.com/subscribe/com/history.xhtml?ID=ffffrftrxxfcksxkct.
iv
      (2006). Q & A Forum. Retrieved April 5, 2008 from
           http://www.b2i.us/profiles/investor/QAForumView.asp?QAID=11199&GoTopage=1&B
           zID=553&sm_quote_field=BBI&Category=1398.
v
      Management. Retrieved April 5, 2008 from
          http://www.b2i.us/profiles/investor/Management.asp?sm_quote_field=&CName=&BzID
          =553.
vi
      Governance. Retrieved April 5, 2008 from
          http://www.b2i.us/profiles/investor/Committees.asp?sm_quote_field=&BzID=553
vii
       Governance Documentation. Retrieved April 5, 2008 from
           http://www.b2i.us/profiles/investor/Governance.asp?sm_quote_field=&BzID=553
viii
       Szalai, G. (2008). Blockbuster Adopts “Say on Pay” Policy. Retrieved April 5, 2008 from
           http://www.hollywoodreporter.com/hr/content_display/business/news/e3i9aebf50aa8e107
           4e6c21e523c5c45e27
ix
      Interview with Star Hacker. March 30, 2008.
x
      Gabrielski, W. (2006). Screening Blockbuster’s Prospects for Success. Retrieved April 5,
           2008 from http://www.thestreet.com/print/story/10278718.html.
xi
      Horsley, S. (2006). Netflix Challenges Blockbuster over Online Rentals. Retrieved April 5,
           2008 from http://www.npr.org/templates/story/story.php?storyId=5331394.

Additional Sources

(2000-2007). Blockbuster Annual Reports. Retrieved March 15, 2008 from
       http://www.blockbuster.com.

				
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