Blockbuster Video Entertainment was an American based company that was started in 1985. Its main business was providing home movie and video game rental services through video rentals in form of DVDs. In 1987, the company was bought by Wayne Huizenga who took it from 130 to 1500 stores. The company was the largest movie rental chain in the entertainment industry globally. According to Rouurke, Rothburd and Stansell (2006), the company had 9,100 video stores and offered services to more than three million customers in America and 24 other countries. However, the company filed for bankruptcy in 2010 because it failed in several ways to cope up with new technology. In 2011, it was sold to satellite TV service provider DISH Network.
When blockbuster was blockbuster (Lewis, 2001).
Until the entrance of Netflix and Redbox in this industry, Blockbuster used to have a lot of power because it was like a monopoly. The organizations had to fight one another to have earlier movie from the studios, but the studios would only release a movie to the company that paid the highest price. With its high deficit of $314.3 million in 2009, it could not get most of the movies and that’s how it started losing its power in the market. The company had a real hard time to control their huge amounts of debts. According to the Form 10-K(2010), the company stated that ‘the extent of our indebtness more prove more difficult for us to pay our debts as they become due and more necessary for us to focus our cash from operations to debt service settlements’ (p.22). By the end of 2009, the company’s long term debt hit $855.9 million (Form 10-K, p.40). According to Schuster (2010), the company’s income and cash flow problems was greatly attributed to payment due date. It made even more difficult for Blockbuster to pay off the debts when the company faced economic downturns. The decrease in revenue made Blockbuster’s obligation and interest higher. Due to this fact, the company had a limited fund to contribute their strategy and operation. While their revenue decreased and debt increased, Blockbuster gradually lost their ability to remain the war price as low as others. The company ended up going bankrupt.
Question #2; Missteps that led to bankruptcy of Blockbuster
1. Changes in technology
While Netflix’s chief executive, Reed Hastings, recognized the technology had been grown rapidly and would change the transmission of movie rental industry, Blockbuster’s CEO, James Keyes, believed that consumers would still prefer to the brick-and-mortar rental structure. Netflix seized this opportunity to develop internet streaming program and provide movies on many different types of devices such as TVs, computers, laptops, Xbox 360, Play Station and even smart phones. “Blockbuster stumbled so late to the video streaming game that Netflix had already commanded the service with dependability and name recognition - giving it a lead that Blockbuster could never reach” (Schuster, 2010)
Slow changes (Lewis, 2001).
2. Customer preference
The second failure of Blockbuster’s strategies, which lead it to bankruptcy, was the negative relationship with their consumers. Blockbuster failed to acknowledge that customers are friends, not duties. In the golden rule in business, consumers are attracted by price, quality and the convenient purchasing process of a product.
Netflix gradually got many customers from Blockbuster by offering the customers a smooth process of using their current technology service. While Blockbuster’s CEO planned to focus on expanding Blockbuster’s stores into various departments such as toys, books and other entertainment areas while, competitors like Netflix and Redbox focused on creating stream able movie…