Is the end near for Blockbuster?

While the hot topic these days is the recession and its impact on retail stores, I have decided to take a slightly different approach in this blog post. Instead, I am going to discuss the potential effects on a company that does not constantly innovate. With operations in 30 countries worldwide, Blockbuster has become the largest chain of movie rentals in the world. The obvious question then becomes how can the most dominant player in this market be in trouble? This first came as a huge surprise to me. Everywhere I look, whether it is in Toronto or London, I feel as though I see countless Blockbuster locations with no real competition in sight. But upon further review, it makes complete sense.

As discussed in class, once a product reaches a mature stage then it is imperative that innovation takes place in order to maintain and even increase market share. Movies cannot really be differentiated by traditional means but the way in which people get the movies is where value can be added. I do not think that Blockbuster has done anything to deserve increased sales other than by having a very aggressive expansion policy. The retail value proposition of the company is to have a wide selection of movies while employing knowledgeable staff to be able to give suggestions to customers in need. Blockbuster does this well but it will not be enough to keep up with the changes currently taking place in the market. I will admit that they have tried to make some changes inside the store in recent years. For example, the fact that there are no more late fees is a feature that I know pleases many customers. However, this has actually caused more hardships for the company. They no longer get the revenue from these late movies and they now have difficulties forecasting inventory because they no longer know when they can reasonably expect a movie to return.

In my opinion, Blockbuster is missing the point. It is good to innovate in the stores but a company needs to be aware of technological advances in the marketplace. Customers are increasingly finding alternatives to going to the video store by purchasing movies on demand and renting movies online. Netflix, for instance, is a major competitor to Blockbuster since starting operations in 1997. They now ship 1.9 million DVD’s to customers daily and they have a very high degree of customer satisfaction. Blockbuster is now trying to do this too but they are facing numerous problems. Firstly, they lost out on the first mover advantage on which Netflix capitalized. Secondly, it is my belief that they have mistakenly not made this segment of their business a priority. Within the United States, Blockbuster has failed to market these services. Through speaking to friends who live south of the border, I have learned that Netflix dominates the market and that Blockbuster hardly promotes this service at all.

Blockbuster is already feeling the effects of not only the recession but of being complacent in a market that they once dominated. They are closing stores at an alarming rate and they have recently hired lawyers to help them restructure the company before they go bankrupt. One of the key lessons is that Blockbuster has to adapt to the changing preferences of their customers before it is too late. Unless something changes soon, Blockbuster will go the way of the Dodo bird and cease to exist. Online movies, videos on demand, and movie deliveries are becoming more accepted and I would not be surprised if they were the only ways to get movies in the not so distant future.

Sources:
http://www.filmjunk.com/2007/11/07/is-blockbuster-in-serious-trouble/
http://en.wikipedia.org/wiki/Blockbuster_Inc.
http://en.wikipedia.org/wiki/Netflix
http://online.wsj.com/article/SB123749579567188341.html?mod=googlenews_wsj