Blockbuster Going for Broke HEC Montreal CSC Consulting

Blockbuster: Going for Broke HEC Montreal CSC Consulting Olivier Cohen, Brandon Jacobs, Jessica Drolet, Richard Wallace

Introduction Analysis Strategy Conclusion Blockbuster Company Background • Video renting company with largest North American market share until early 2000’s • Operated brick and mortar locations throughout North America • Market leader • “One at every corner”

Introduction Analysis Strategy Conclusion Blockbuster Company Background • Purchased licenses to distribute • Carried large selection of films including all new releases • Operational costs of carrying and maintaining media • Replacement costs during technological changes (VHS to DVD) • Diversified into game console rentals and video game rentals • Large customer base and retention

Introduction Analysis Strategy Conclusion Blockbuster and the Video Rental Industry • Excellent example of global disruption due to: Disruption Technological change (DVD, Internet age) Driving Consumer habit change • An industry forever changed by Netflix and streaming services Small tech startup (Netflix) Disrupt Blockbuster

Introduction Analysis Strategy Conclusion Blockbuster and the Video Rental Industry • Excellent example of global disruption due to: Disruption Technological Change (DVD, Internet age) Driving Consumer habit change Small Tech Startups (Netflix) X • An industry forever changed by Netflix and streaming services Blockbuster

Introduction Analysis Strategy Conclusion Three stages of disruption Impact Disturb • From VHS to DVD • Vending machines, subscription, catalogue (Netflix) • Streaming services: HULU, Crave. TV, Netflix, HBO, Disrupt BBC, etc. ØA cost-intensive model that could not evolve fast enough

Introduction Analysis Strategy Conclusion Root causes of this disruption Rise in home computer ownership (Apple/PC) Internet access Tech-savvy generation Changing consumer habits

Introduction Analysis Strategy Conclusion Key Issues for Blockbuster 1. What could have Blockbuster done with its assets? 2. How could they have competed in the digital age? 3. How could they have locked out competition?

Introduction Analysis Strategy Conclusion Alternatives Acquisition of disruptors • Buy subscription model competitors • Maintain Bricks & Mortars • Try to purchase Netflix Organic Adaptation Industry Exit • Develop internal subscription model • Foster a comparable “BLOCKFLIX” • Leverage size to kill competition • Divest less profitable locations over time • Divest assets

Introduction Analysis Strategy Conclusion Decision Criteria 1. Stays on-trend with new technological trends 2. Leverages changing consumer habits 3. Leverages existing know-how and competitive advantage

Introduction Analysis Strategy Conclusion Decision Criteria Alternative 1. Acquisition of disruptors On-trend with new Leverages changing Leverages existing Tech. consumer habits know-how and competitive adv. 2 1 1 2. Organic Adaptation 4 4 4 3. Industry Exit 1 1: Low 4: High

Introduction Analysis Strategy Conclusion Decision Criteria Alternative On-trend with new Leverages changing Leverages existing Tech. consumer habits know-how and competitive adv. 1. Acquisition of disruptors 2 1 1 2. Organic Adaptation 4 4 4 3. Industry Exit 1 1: Low 4: High

Introduction Analysis Strategy Conclusion Organic Growth Strategy Late 90’s • Develop vending machine / catalogue / subscription distribution model • Reduce reliance on capital-intensive brick and mortar • Expands reach and adapts to changing consumer habits • Diversify product mix at brick-and-mortar locations

Introduction Analysis Strategy Conclusion Organic Growth Strategy Early to mid 2000’s • Develop and launch streaming service on-trend with digital distribution • Leverage size, client relationships, brand strength to lockout competition • Exclusivity agreements • Buyback of valuable brick and mortar locations to build real-estate portfolio • Rent to retailers • Buyback from franchisees • Divest low-value assets

Introduction Analysis Strategy Conclusion The failure of status quo • Rise of subscription + catalogue rental options in the 90’s • No response from Blockbuster = missed opportunity to adapt to new distribution model • Management failure to monitor industry context, consumer trends • Introduction of digital streaming from early 2000’s • Brick and mortar becoming less popular • Continued reliance on obsolete technology (DVD) • Minor sales strategies far too little, too late

Introduction Analysis Strategy Conclusion The failure of status quo • Judgement: An established player refusing to react • False belief in safety through their size and reach • Failure to appreciate the potential lethality of the threat • A complete strategic failure: o Capital intensive company o Couldn’t affordably keep pace with innovation o Hesitation killed the company

Introduction Analysis Strategy Conclusion Retrospective ØBlockbuster was a market leader entering the digital age but did not keep up with emerging trends ØBusiness model disrupted due to technological shifts and changing consumer habits ØNumerous paths to survival were possible but none effectively implemented ØPotential successful avenue: migrate business online and sell off assets. Similar industry: news corporations (newspapers).