Blockbuster
Just six years into their operation, the media rental company filed for bankruptcy after they had made and achieved about six billion dollars in revenue. The story is common with other companies that started in the same manner only to fail some few years later because of a few reasons which would have been rectified and ensured that the company ran to its full potential realization. This paper aims to analyze those missteps that the management of the company took or were advised to take that led to their failure. In looking at the mistakes, the insight received will be instrumental in making sure that no other company makes the same mistakes. Also, the paper will look at the possible ways that the company could have prevented their failure.
Business Model
Most of the company’s clientele was made up of teenagers who lived in America in the late 1990s and the early 200s. The company was vibrant and had a strong brand and stores almost all over the country. Their revenues went to the highest returns of six billion dollars in 2004 only for them to suffer a significant drop which led them to bankruptcy. The reasons behind the failure, as observed above, offer valuable lessons to any company with the same type of challenges, and hopefully, they can learn and rectify their mistakes. Firstly, there is a need that I evaluate the initial business model of the company and get how the management was running it. Their business model involved value creation for its customers’ needs and also ensured they captured the value of their customers.
- Value Creation
In value creation, as a company, the movie rental stores only focused on new releases of movies available. They, however, had a wide range of movies in line for their customers. From their 9000 stores, customers could easily walk through the isles of the movies advertised with their DVD cases and be able to make their choice. Customers had a free option that enables them to get new releases from the announced movies available in the rental stores. The company mainly focused on building a strong brand and ensured that customer relations were at its best with 100% recognition all over. Their customer relations were friendly in that they tried to offer customers movie popcorn, snacks and also candy were available for purchase while at any of their stores.
- Value Capture
The movie rental store also made sure it captured the value for its customers by ensuring they owned a couple of physical copies of movies that had the provision to be rented in multiple times such that the cost exceeded that of purchasing a new movie. The store made the cost of the movie at about two to three dollars to rent a film, with new releases fetching higher prices as compared to older films. Every time a customer rented one of the movies, they would be required to say the time they were going to take to watch it and when they were to return it. If a customer was late with their return date, they attracted extra charges for the same. Late fees were added to the customer’s account, and they formed most of the company’s profit at about 70%.
Major Mistakes that led to the Failure of Blockbuster
The vibrant movie retail shop made many mistakes that led to its bankruptcy and its eventual and complete failure (Almeida, 2011). Some of the primary reasons that the company succumbed were its failure to embrace the change in technology, the tough competition from other companies that were emerging at that time, their inability to make sure their customers were satisfied to the fullest and lastly, their failure to implement marketing strategies that could give them results. The following are the major causes of the collapse of the company.
- The Late Fees
A customer by the name Hastings Reed went to one of his local Blockbuster to return a copy of a movie he had rented only for him to find he had been charged the late fee charges. The fee was more than what he had rented the movie, and it got him thinking about the available market in the video industry and how many people were disappointed in the late fee charges like him. Many people working the regular nine to five schedule cannot manage to watch during the day, and thus they were most of the times found to be late and had to pay up those charges. Their late fees model was an essential part of their business model, and it ensured that they get as much revenue as possible. Reed decided to invent a way through which people will be getting their movies via mail and thereby creating Netflix where people did not need to experience the late charges fee.
- Failure to Innovate
Hastings Reed approached the management of the Blockbuster to share with them an idea he had in mind of a proposal of a partnership between Netflix and Blockbuster. Netflix was to run the Blockbuster on its online platform, and Blockbuster would, in turn, promote Netflix’s brand (Gershon, 2013). Hastings Reed, the owner of Netflix, had offered to name and sell about 49% of his company to Blockbuster who refused to do that as they did not see a future where online streaming was going to be better than video stores.
- Failure to distinguish between product and distribution
Blockbuster failed to identify the main thing that their customers were looking for in their stores. They thought that the customers were looking for the experience of walking into a store and buying the movie from their while in the real sense, the customers were buying movies to watch. With that disregard, they failed to look for better ways to remain relevant should any other means to get movies to be invented (Davis & Higgins, 2013).
- They were making a lot of money.
While Netflix was still on its inception stages, Blockbuster was still making millions in revenue with its old model, and thus they did not think they needed the new model of DVD-by-mail and online streaming services. They also envisioned the new model not to be as profitable as the old model.
- Changing Competitive Landscape
The company was challenged by not only Netflix but also other technology companies like Apple and Amazon and cable companies which were streaming and video-on-demand services.
Blockbuster, however, would have been saved and its bankruptcy is prevented. It had multiple chances to buy Netflix, its primary competitor for even less when the company was starting. The company could also have embraced the new technological changes and reduce the late charges fee to make the customer experience better. Blockbuster’s Form 10-K contains all its mode of operation and how they are supposed to be run. The company eventually adopted the new technology but was late in doing that as currently there is major competition from Netflix.
References
Almeida, J. F. C. R. D. (2011). Blockbuster: the fall of a giant (Doctoral dissertation).
Davis, T., & Higgins, J. (2013). A blockbuster failure: how an outdated business model destroyed a giant.
Gershon, R. A. (2013). Innovation Failure: A Case Study Analysis of Eastman Kodak and Blockbuster Inc. Media management and economics research in a transmedia environment (pp. 62-84). Routledge.