Case Study: Blockbuster Entertainment

Essay by robdado2University, Bachelor'sA, February 2006

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Blockbuster is the world's largest video rental chain, with about 9,100 company-owned or franchised stores in 25 countries (about 65% are in the US). The company rents more than 1 billion videos, DVDs, and video games at its Blockbuster Video outlets each year. It also operates Blockbuster Online and has marketing partnerships with companies such as Time Warner and DIRECTV. At one point entertainment giant Viacom (now CBS Corp.) owned about 80% of Blockbuster (96% of the voting power) after selling some 20% of the company to the public in 1999. Viacom had wanted to sell Blockbuster for some time and finally spun off the company in late 2004. The strategic plan for Blockbuster is to no longer look at the business as a video rental company, but a "marketplace for home entertainment products" (Kidney)

Strategic plan

With new releases, movie fans flocked to their local Blockbuster video stores eager to rent, only to find that all ten or so copies of each new release had already been checked out.

Blockbuster shared their frustration. It knew it was annoying customers and losing sales. It wasn't that the company didn't know how many copies it could have rented; demand could easily be predicted by looking at theater receipts. And it wasn't that the company was inefficient at getting tapes into stores and returning rented tapes to shelves; it's buying and replenishment processes were fine-tuned. By sharing rental revenues with movie studios, Blockbuster increased the availability of hit videos, making customers happy and boosting its own profits as well as those of supplies. The problem was that at $60 a copy, Blockbuster couldn't afford to stock the number of tapes it needed to serve every customer, only to replace them all a few weeks later with copies of the next...