http://digitaldaily.allthingsd.com/20100923/chapter-11-in-which-blockbuster-does-the-inevitable/
The article I selected this week is pretty short, but has a great connection to class. It is about Blockbuster officially filing for Chapter 11 bankruptcy today in order to cut down some of its $1 billion in debt. This presumably means further retail store closures so they can try and get their debt around $100 million.
The main reason why Blockbuster is filing for bankruptcy is because of the business share they have lost due to the competition from Redbox and Netflix. Hardly anyone goes into a brick and mortar video store anymore to rent a DVD for the night, when they can go to a Redbox vending machine and pay a dollar or stream a show or DVD to their TV/computer or receive it in the mail directly to their house. The business model changed and Blockbuster did not respond to it at all. Relating this to our course is that Blockbuster was not able to create value with their business any longer. Using Porter's Five Forces we can see that Blockbuster had a huge threat of new entrants, as well as a threat of substitute products, and that was satisfied by the the already mentioned companies. The barriers to entry were not high because their core competency was selling DVDs, not a very hard concept. Lastly, with the intense rivalry of the DVD rental business, Blockbuster did not gain a competitive edge by using innovation or technology. They are paying the price now by filing Chapter 11 and I'm sure in the near future other MBA classes will have to present a case study on Blockbuster and what went wrong.
I do find it interesting that even as bad a Blockbuster is doing they still haven't changed their pricing to be more competitive. I rented a DVD from Blockbuster about a week ago and ti cost $5 plus tax. I was very surprised when they rang me up because that is not price competitive with Redbox or Netflix at all. I was very disappointed and now I completely understand why Blockbuster is dying. They have made no effort to be competitive.
ReplyDeleteDo you think it's now too late for blockbuster to try to move into the online market?? Netflix has such a good base of customers online that now Blockbuster's barrier to entry online would be hard. Netflix already has the profit margins and all of the prices figured out perfectly to be making a great profit. You can see from its stock price NFLX http://ir.netflix.com/stockquote.cfm that Netflix is doing great. Maybe Blockbuster should try to do a merger with Netflix.
ReplyDeleteI do wonder if it is too late. Mark, I feel that if Blockbuster wants to be competitive again they will most likely need to get rid of stores, or make the brick and mortar operation a secondary option to generate revenue. I don’t know of anyone that will go to the store to rent a movie unless they’re bored and wont one NOW. Sooner or later everything will be streamed online and right to the TV, so I think they should minimize them. As to merging, Netflix should just buy them out.
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