case study on blockbuster company

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Blockbuster: It’s Failure and Lessons to Digital Transformers

Blockbuster, a wildly successful national movie-rental chain, filed for bankruptcy 6 years after achieving $6 billion dollars in revenue. Why did this happen and what lessons can we learn from it?

As a teenager growing up in America in the late 1990s/early 2000s, I was a frequent customer of Blockbuster – the largest movie rental retail chain with a strong brand and stores across the country. Its revenues impressively climbed to around $6 billion dollars in 2004 only to suffer a crashing descent into bankruptcy in 2010. [1] The reasons behind this failure reveal valuable lessons to future digital transformers and business leaders. I will first summarize the original business model in terms of value creation and value capture and then will offer an analysis of its failure with accompanying lessons.

Business Model

Value Creation

Blockbuster movie rental retail stores offered a wide selection of movies, but focused mainly on new releases. It’s 9,000 stores allowed customers to easily walk through aisles of movies advertised with their DVD cases in order to make a selection. [2] It built a strong brand with 100% recognition and attempted to offer a customer-friendly experience with movie popcorn, candy, and snacks also available for purchase. [3]

Pathways to a Just Digital Future

Value Capture

Blockbuster captured value by owning physical copies of movies that could be rented enough times to exceed the cost of purchasing. It cost from $2-$5 typically to rent a film, new releases commanding higher prices than old films. Each time a customer rented a movie, they agreed to a time and day for return. Late fees, which comprised an estimated 70% of profits, were added to a customer’s account if they did not meet the return deadline. [3]

Why it failed?

After synthesizing analyses on its unraveling, I think these things most contributed to the failure:

• They were making a lot of money : While Netflix was just beginning its DVD-by-mail service and later its streaming/online service, Blockbuster was still earning billions of dollars in revenue using its current model. Additionally, the margins and markets for these new offerings did not appear as attractive as its established model. [3] Why even pay attention to these new ideas if the markets are small and the margins slim?
• Changing competitive landscape: Blockbuster was challenged not only by the startup Netflix, but also eventually by powerful technology companies (Apple and Amazon) and cable companies with streaming and video-on-demand services. It struggled to compete against both, especially when it was late to the game (see number 4 below).
• Operating model implications: Pursuing a new business model with either a DVD-by-mail or streaming/online service required the current operating model to change significantly as Blockbuster would need to shift from its brick-and-mortar approach with retail stores to an entirely new way of functioning that was unknown. This only further encouraged Blockbuster to continue focusing on where it was still earning profit.
• Failure to recognize timing: Blockbuster actually responded to all of its perceived competitive threats with similar models, but it was too late. It eventually tried a DVD-by-mail service, rental kiosks similar to Redbox, and put up its own website for online streaming after acquiring a smaller player in the field. [4] While Blockbuster’s CEO from 2007-2011, Jim Keyes, recognized that his organization was behind the curve in DVD-by-mail and kiosk services, he thought that they were not late to the streaming/online service world, and confidently stated that Blockbuster could leverage its strong brand to win:

http://www.nbcnews.com/video/cnbc/35710480#35710480

In this industry, changes occur rapidly, and Blockbuster was left in the dust.

Lessons learned

Blockbuster’s demise offers many lessons. Here are some of the salient ones to me:

• Currently unattractive opportunities can become very attractive opportunities in our changing world.
• Current success is easily distracting and can blur vision when considering new opportunities or threats.
• Transformation can happen very quickly, and if you miss it, it can be very unforgiving.
• Brand strength and/or past successes are not enough to compete against new digital transformers.
• It didn’t have to end this way – Blockbuster had a chance to purchase Netflix for $50 million  [5] and could have identified the streaming/online trend much earlier.

[1]  https://dealbook.nytimes.com/2010/09/23/blockbuster-files-for-bankruptcy/?_r=0

[2]  http://www.ibtimes.com/sad-end-blockbuster-video-onetime-5-billion-company-being-liquidated-competition-1496962

[3]  http://hbswk.hbs.edu/item/clayton-christensens-how-will-you-measure-your-life

[4]  http://www.nytimes.com/2007/08/09/business/09movie.html

[5]  http://www.businessinsider.com/blockbuster-ceo-passed-up-chance-to-buy-netflix-for-50-million-2015-7

Image sources:

https://www.linkedin.com/pulse/4-lessons-from-blockbuster-failure-david-reiss

http://go-digital.net/blog/wp-content/uploads/2011/02/netflix-vs-blockbuster-revenues.gif

http://mentalfloss.com/article/77285/11-secrets-former-blockbuster-employees

https://qz.com/144372/a-brief-illustrated-history-of-blockbuster-which-is-closing-the-last-of-its-us-stores/

Student comments on Blockbuster: It’s Failure and Lessons to Digital Transformers

Nicely summarized the battle between Blockbuster and Netflix Tyler! I agree to your assessment that in today’s dynamic digital age past success is no guarantee for future successes for established companies. Based on the Blockbuster-Netflix saga and other similar happenings in different industries what do you think can the big players do or adopt as a strategy to keep themselves from becoming irrelevant (since the new digital business model seems unlucrative to them in its infancy)?

• May 2, 2019 User deleted this comment on May 8, 2019

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Netflix vs Blockbuster – 3 Key Takeaways

It’s the ultimate example of technology disrupting a marketplace…

Or is it really the story of a leadership shakeup that toppled an empire?

Or is it a story about the extreme hatred people have for late fees?

The Netflix vs. Blockbuster saga has been told a dozen different ways, with a dozen different lenses applied.

And what I’ve come to realize (and this likely won’t come as a huge surprise)is that there’s no single explanation for why Netflix succeeded where Blockbuster failed.

As is the case with most things in life, it was a nuanced situation. There was a perfect storm of poor decisions and technological advances and other contributing factors that led to Netflix’s staggering growth…and Blockbuster’s equally staggering decline (when Blockbuster filed for bankruptcy in 2010, Netflix’s annual net income was $161 million .)

My goal with this post is to distill everything I’ve learned about these two companies down into a few actionable takeaways for marketers – sort of like this post on Zoom’s success story .

But first, for those who aren’t familiar with how the Blockbuster vs. Netflix story unfolded, here’s a short summary:

The Rise of Netflix (and the Fall of Blockbuster)

When Netflix launched in 1997, Blockbuster was the undisputed champion of the video rental industry.

Between 1985 and 1992, the brick-and-mortar rental chain grew from its first location (in Dallas, Texas) to more than 2,800 locations around the world.

Two years later, Viacom paid $8.4 billion to acquire Blockbuster .

So by the time Netflix showed up on the scene with its video rental-by-mail service, it appeared to be a classic case of David vs. Goliath.

In fact, in the year 2000 –perhaps realizing that it’d be easier to fight alongside Blockbuster than against them – Netflix co-founder and CEO Reed Hastings approached Blockbuster’s then CEO, John Antioco, with a merger proposal:

Hastings wanted $50 million for Netflix. And as part of the deal, the Netflix team would run Blockbuster’s online brand.

Of course, that deal never materialized. Partly because Blockbuster laughed in Netflix’s face when they met to discuss the deal.

“It was tiny, involuntary, and vanished almost immediately. But as soon as I saw it, I knew what was happening: John Antioco was struggling not to laugh,” Netflix’s Marc Randolph remembers of the encounter.

At the time, Antioco considered Netflix to be small potatoes, and would come to realize only too late that having an online platform would be the way of the future.

In 1999, Netflix received backing from Groupe Arnault, giving them a $30 million cash injection that helped launch its subscription-based service.

In 2004, Blockbuster did launch a Netflix-like online DVD rental platform , and even abandoned their unpopular (but lucrative) late fees for overdue rentals.

By 2006, subscribers for Blockbuster’s online services had grown to more than 2 million. (Meanwhile, in that same year, the number of Netflix subscribers reached 6.3 million.)

Then in 2007, Antioco left Blockbuster, late fees were reinstated, and Blockbuster’s online efforts were put on the back burner.

In 2008, Netflix signed a deal with Starz to stream around 1,000 blockbuster movies and shows on its service.

Blockbuster’s fate was all but sealed.

In 2010, Netflix was signing deals with names like Sony, Paramount, Lionsgate, and Disney to help them grab a 20% market share of North American viewing traffic. On July 1st of the same year, Blockbuster was de-listed from the New York Stock Exchange and filed for bankruptcy having incurred nearly $1 billion in losses.

Image Source

Netflix’s valuation at the time?

$24 million.

For comparison, today, Netflix is valued at around $203 billion – a 4,060% increase from its valuation back in 2000.

3 Takeaways from the Netflix vs. Blockbuster Battle

1. never forget what you’re really selling..

For years, Blockbuster dominated the video rental space. But at some point, they lost sight of what business they were really in.

Instead of focusing on delivering incredible (and affordable) entertainment to their customers – something Netflix definitely has down – Blockbuster put more stock in the model they were comfortable using.

And hey, who can blame them? Back before the internet became integrated into nearly every facet of our lives, it was hard to imagine brick-and-mortar Blockbuster stores disappearing.

Blockbuster initially succeeded because they did one core job better than anyone else: delivering entertainment to people’s homes.

But as we all know, technologies change. And instead of investing all of their efforts into finding a new way to deliver on their true purpose (more on that in the next section), Blockbuster’s innovation stagnated. That reality hit Netflix founder Marc Randolph when the business was pivoting from a Mail-order DVD service to online streaming.

He wrote in his book, That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea :

“We’d finally figured out a way to make our original idea of DVDs by mail work, and here we were, looking ahead to a future without either DVDs or mail.”

The way Netflix overcame its challenges? Keep reading 👇

2. You need to be willing to adapt. (And half measures won’t cut it.)

1997 era Netflix–before the company embraced streaming

When you dig into the Netflix vs. Blockbuster story, it becomes clear that Blockbuster did (eventually) realize that the Netflix model was the future. And they did make changes to address it.

But in the end, it was too little, too late.

Blockbuster could never fully evolve into the modern business it needed to be in order to compete with Netflix. Once owning 9,000 stores in the US, Blockbuster now has a single brick-and-mortar presence – a lone store in Bend, Oregon .

Sandi Harding, the owner of the single remaining Blockbuster store in the world. Source .

As Forbes reported:

“The irony is that Blockbuster failed because its leadership had built a well-oiled operational machine. It was a very tight network that could execute with extreme efficiency, but poorly suited to let in new information.”

Technologies improve. Industries change. In order to grow, you need to keep a pulse on the ever-evolving needs and preferences of your customers so you can make changes to your model accordingly.

London-based Video Producer Andy Ash says this was Blockbuster’s downfall. The company was too busy making money in their video stores to imagine a time when people would no longer want or need them.

“In a bid to rescue their business, their answer at the time was to fight fire with fire. At one point they even opened up rental kiosks, a little bit like a vending machine, but all of these attempts were based on either outdated technology or outdated business models, whereas Netflix at the time, they did the opposite; they streamlined, they were able to see the future of video rentals and then innovate for that future.”

This applies to products and services as well as to marketing strategies. Believe it or not, marketing channels have a shelf life.

So even if you learn how to dominate a specific channel , you need to remember that all channels, no matter how popular they are today, could someday fade into oblivion…just like brick-and-mortar Blockbuster locations did.

The key to surviving, and thriving?

Embrace change.

Blockbuster didn’t. Even in 2008, the company’s CEO, Jim Keyes , was perplexed by (or refused to accept) Netflix’s appeal to customers:

“I’ve been frankly confused by this fascination that everybody has with Netflix…Netflix doesn’t really have or do anything that we can’t or don’t already do ourselves.”

As Square2Marketing’s Mike Lieberman explains :

“Blockbuster didn’t believe a month-to-month subscription service would ever actually work. And it certainly wasn’t planning on going digital. Even when the company was offered a buyout deal early on, it declined, believing that its previous business revenue model would work just as well in the new wave of movie watching as it had in the past.”

3. The customer-driven approach always wins.

Customer-driven sales & marketing from drift.

As we’ve already established, there were several factors that contributed to the company’s downfall, including not understanding what business they were really in – entertainment, not retail – and not being flexible enough to adapt.

But another key piece of the puzzle was Blockbuster’s unwillingness to put their customers first. The company’s revenue relied (massively) on charging late fees. As David Reiss explains:

“Blockbuster’s profit had to be sufficient to sustain their worldwide stores and staffing levels. As well as their pricing structure reflecting this, their profit also relied on something their customers hated – late fees. A significant portion of the revenue that Blockbuster needed to stay in business was a revenue stream that Netflix didn’t even charge for, as you could keep their movies as long as you wanted. Whereas Netflix developed a business model that simplified the video-renting process, making it more enjoyable for customers, Blockbuster only thought about maximizing their own returns.”

Forbes described Blockbuster’s reliance on penalizing its patrons in the form of a late fee as the company’s “Achilles heel.” When Blockbuster did finally address the issue, the cost of dropping late fees from their model amounted to a loss of $200 million.

“Any time you can get rid of the No. 1 customer dissatisfaction factor and in the process generate higher customer traffic, for me, as a retailer, that spells a good answer,” CEO John Antioco said of the move at the time.

Narrator: it didn’t work.

At the same time, the company cut its late-fee revenue stream, it was building out its online platform cost another $200 million. If you add up these two costs, Blockbuster paid $400 million in an effort to modernize and remain competitive with Netflix.

We’ll never know if this plan would have succeeded. Shortly after this modernization effort, Antioco was ousted by the board after the changes were made.

Blockbuster then returned to their company-driven ways…and went bankrupt a few years later.

Final Thought: Change Is Inevitable

When I was a kid, getting to pick my own movie at Blockbuster was a rite of passage.

Every weekend, my siblings and I would pile into my dad’s car and make two stops. First, we marched into Blockbuster. Then it was over to the supermarket next door for snacks, soda, and frozen pizza. It was our little ritual.

But these days, the idea of going to a brick-and-mortar store to rent a video seems kind of crazy.

With the rise of Netflix, home entertainment became just a few clicks away. It’s become its own kind of ritual – for over 182 million paying members .

So the next time you think to yourself, “The way we do things now will never change,” remember the Netflix vs. Blockbuster saga and how an entire industry can become upended in just a few years.

Editor’s Note: This article was published in July 2017 and has been updated to reflect new information.

Want to drive Netflix-level growth for your business? Start here .

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Case study Blockbuster: Why is it necessary to innovate?

Blockbuster was an American video store franchise, specializing in movie and video game rentals through physical stores , mail-order, and on-demand services, during the 1990s and early 2000s. It was very thriving and popular in the audiovisual industry and had very high profits. But one day, it made a bad decision when it had the chance to grow which resulted in bankruptcy.

<<< Case study Sega: When a competitor sweeps >>>

Once again we return to the case studies of very popular and profitable companies that, due to making bad decisions or being induced by very serious economic crises, ended up in bankruptcy. This time, we will talk about the Blockbuster case , its success story, a missed opportunity, and the disastrous consequences of letting it pass.

What was Blockbuster?

Blockbuster was founded in 1985 by David Cook , who ran a software company for oil companies in Texas. After a couple of years, and when that industry had run out of steam in the 1980s, his wife advised him to create a home theater rental franchise , which at the time, movie rentals were a highly profitable business.

To distinguish itself from the competition, its establishment adapted to the demand for a broader catalog of up to 6,500 references , longer rentals so that people could take more films, and greater inventory control through its automated system, with which detected consumer preferences. Quite a novelty for the time, which is why it was positioned as an avant-garde company in terms of video rentals.

From that moment on, its growth in two years was quite rapid , since it managed to open 20 stores and 20 franchises . By then, Blockbuster had become the benchmark for video stores, and as of 1990, it was already expanding into the international markets of Europe and Latin America.

In 1997 , the board of directors appointed John Antioco as CEO, who successfully ran the movie rental business, first on VHS and, later on, DVD for several years. A year later, Blockbuster still controlled 25% of the world market , due to important strategic alliances with renowned production companies.

Strategic alliances to annul the competition.

Starting in 1987 , Blockbuster dedicated itself to absorbing video store chains and ended up ousting the competition , overtaken by a larger catalog. The explanation for this enormous catalog was because, unlike the small video stores, which paid a high amount of money per film and recovered their investment thanks to rentals, Blockbuster reached direct agreements with the production companies , for which they obtained movies at a lower cost.

While it is true that most of the business was with major production companies, class B production companies also provided very good profits, since they represented 70% of rentals during the 1980s.

The offer of movies was similar to that of other video stores, so premieres had higher priority. Over time, the remaining copies and those withdrawn from circulation were put up for sale.

<<< Pan American World Airways: process analytics >>>

The Netflix proposal that Blockbuster rejected.

The popular Netflix , before becoming the most viewed platform worldwide, also operated as a movie rental store , only this one did it online , so, thinking about the future, Netflix was destined to succeed, unlike its rival Blockbuster. But it is time to tell you how the link between the two companies was born and the beginning of the end of Blockbuster.

In the early 2000s , Netflix was a small video rental company , but what set it apart from Blockbuster was that its business model accepted subscription payment and allowed users an unlimited number of movies and TV series . They could order online and there were no penalties for returning films late.

Instead, Blockbuster charged for DVD rentals and made their profits from the fines they collected for late DVD returns.

However, the beginnings of the relationship were not exactly cordial. It all started when the owner of Netflix, Reed Hastings, before creating the company, went to rent a movie from Blockbuster and took longer than indicated to return it , for which the rental store charged him a high surcharge that Hasting did not want to pay. So he decided to create a business , also a movie rental business, that didn't charge customers late fees for returning movies.

By the time Reed Hasting had already established his business, he thought that Blockbuster, being as important as it was, and Netflix should stop being rivals and create a strategic alliance to strengthen the market . But Antioco did not think it was a good deal and turned it down.

Netflix's strategy to establish that alliance was for Blockbuster to acquire it for 50 million . Then, the visionary project that Netflix aimed at was to offer its DVD rental service through email and via streaming. Although Blockbuster had the resources to do this business, it seemed more profitable to continue as it was. This is how Blockbuster lost the chance of a lifetime by resisting change .

A year after this offer, video rentals became obsolete in the United States and, later, in the rest of the world. In the following years, the company lost users due to the success of Netflix , and the streaming service it offered was much more interesting for Blockbuster customers, who preferred to switch to Netflix.

The bankruptcy and definitive closure of Blockbuster.

Since the mid-2000s, Blockbuster has not been able to face the obsolescence of the physical format in the face of new forms of consumption as disparate as cable television, self-service stores, video on demand, and even piracy, before which there was no planned strategy.

In some countries such as Spain and Ecuador, it was immediately withdrawn from the market, while in others such as Mexico and Argentina it had to be readapted.

As a last resort, in 2010 the group reinstated the late penalties it had eliminated five years earlier. However, o n September 23, 2010, Blockbuster declared bankruptcy. At that time, more than 3,000 stores were still open in the United States.

Despite several attempts to restructure its debt, in March 2011 the United States Department of Justice ruled that the company should be liquidated.

Blockbuster was taken over in April 2011 by Dish Network, the largest pay-TV provider in the United States, for $320 million. Its initial goal was to accomplish the gradual closure of the remaining 1,700 stores and retain the brand to launch a video-on-demand service to compete with Netflix.

However, the plans did not prosper and two years later the complete closure of all video stores was announced as of January 2014.

<<< Crisis in the environment: case study Daewoo>>>

The face of defeat.

Other very large companies, despite the bad decisions they made, were able to recover and re-enter the market, such as Nokia and Blackberry , but others weren't so lucky and ended up in bankruptcy, such as Pan American, Daewoo, and Blockbuster, among others.

With the Blockbuster case , we have learned how resistance to change can render a profitable business obsolete and bankrupt. Blockbuster had everything to stay: sufficient financial capital, a recognized brand that customers chose, but it did not see the end of an era, the era of movies on DVDs and Blu Ray and the advent of the digital age.

And it was at that moment when Netflix, its main competitor, the same one that could be an ally to conquer the movie market of digital platforms, took an unattainable advantage that meant its ruin, at least for now. If it comes back in the future to reinvent the brand with something newer than Netflix, only time will tell.

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Lessons From a Blockbuster Failure

A few months ago, Blockbuster announced that it will close all of its remaining U.S. stores, about 300 of them. This has been a long time in the making, and there is still a lot you can learn from it.

Prior to Netflix, Blockbuster thrived on its use of “bad profits.” Bad profits, a term from Fred Reichheld’s book, The Ultimate Question , which introduced the concept of the Net Promoter Score (NPS) , are a highly disruptive source of negative word of mouth. Blockbuster’s bad profits were, of course, late fees. Everyone I know who was a Blockbuster customer, including me and my wife, hated late fees. You knew Blockbuster “got you,” and you felt that you only had yourself to blame because you were the one who was late returning the rental video. Sometimes, you would plead for mercy with the store associate. Late fees eventually became the primary source of Blockbuster’s profits.

“Thank goodness for Net Promoter.” —Brad Smith, CEO of Intuit

Anytime bad profits are your primary source of profits, you are due for a hard knock. That knock came from Netflix. Their original ad campaign, “The end of late fees,” was pretty much all they needed to say. Their business model was designed very differently, leveraging the Internet and network economic effects—a nod to another favorite book, Net Gain by John Hagel III . When Netflix proclaimed the end of late fees, word of mouth took care of the rest.

This is why NPS has become so important to companies as a way to measure their most important external stakeholders—their customers. NPS is used by thousands of companies, including many Fortune 500 companies. Brad Smith, CEO of Intuit, said, “Thank goodness for Net Promoter. It provided a framework for thinking about—and managing—in this social media world … our teams call it the love metric.” Tony Hsieh, CEO of Zappos, said, “We use NPS every day to make sure we are wowing customers and employees.”

I wrote a four-part series on the Bazaarvoice blog about what could be learned from the Netflix versus Blockbuster battle. My goal for writing this was to move our industry, still a very nascent one today, to think hard about the power of word of mouth. This eventually led to our mission statement: “changing the world, one authentic conversation at a time.” We saw companies change the way they operate based on the customer data and insights that they were accumulating as a result of deploying Bazaarvoice.

There is a lot to be learned here, and there is no doubt that books like Clayton Christensen’s The Innovator’s Dilemma help all of us think about steering clear of bad profits, lest we be vulnerable to someone like Netflix coming along and disrupting our business model, in this case to Blockbuster’s ultimate extinction. Blockbuster used to have 8,500 stores located in 29 countries, and was worth $5 billion at one point. But the company was addicted to bad profits, and it was caught in the downward spiral that only The Innovator’s Dilemma can best explain. What could Blockbuster have done differently? A lot—and it is best explained in Christensen’s follow-up book, The Innovator’s Solution .

Have you or the company you worked for used bad profits before? What happened as a result? Did you or your employer have the courage to change in the gut-wrenching way that books like The Innovator’s Solution detail?

Tell me below in the comments section.

Editor’s note: For further background on Brett’s views on the Blockbuster decline, read his blog series:

Feb. 2006: Bad Profits and the Incredible Power of Word of Mouth

Dec. 2006: Netflix vs. Blockbuster: Round Two

Jan. 2007: Netflix vs. Blockbuster: Round Three

Mar. 2009: Netflix vs. Blockbuster: Round Four (Lights Out?)

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Netflix & Blockbuster – Case Study Of Disruptive Innovation

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Post Date – Update:

It’s rare for a week without me tuning into Netflix to watch something or at least browse its offerings to find my next binge-worthy series. I know I’m not alone in this habit; countless others probably engage in the same routine.

That’s why examining the Netflix and Blockbuster case study is so enlightening. It offers a riveting look at how disruptive innovation can permanently alter the digital landscape. One company survived and flourished, while the other faded into business irrelevance. As we delve into key learnings from this case study, we also discuss what contemporary companies can do to avoid meeting the same fate as Blockbuster.

Table of Contents

Understanding disruptive innovation, netflix’s early challenges, low-end footholds, new market footholds, blockbuster’s missed opportunities, the importance of transformation in business, 1. adapt or perish, 2. recognize low-end footholds, 3. embrace technology early, 4. customer-centric approach, 5. stay ahead through innovation, 6. use data intelligently, 7. anticipate future trends, 8. understand market signals, 9. transformation is continuous, listen to our podcast about streaming wars chronicles: the netflix & blockbuster case study of disruptive innovation below or by clicking here., 5 questions to ask when considering a solid wood furniture manufacturer, what is solid wood vs. engineered wood, hardwood solids furniture, what does the term mean, netflix & blockbuster: a case study in disruptive innovation.

One of the most compelling case studies in disruptive innovation is the saga of Netflix and Blockbuster. This story provides valuable insights into how Netflix managed to upend the industry, positioning itself as a dominant force in today’s digital landscape.

Continue reading as we delve deeper into the disruptive journey of Netflix and Blockbuster.

Digital disruption has been a game-changer in entrepreneurial strategies since the late 20th Century. Contrary to popular belief, disruptive innovation is not the same as mere creativity.

While creating a fuel-efficient engine might draw a new consumer base, the minor variations from standard engines do not categorize it as disruptive. True disruption focuses on targeting sectors that established companies overlook or revolutionizing an existing system.

This case study delves into how Netflix applied disruptive innovation to dethrone Blockbuster in the home entertainment industry.

Brief History Of Netflix

Understanding its history is crucial to grasp the scale of Netflix’s disruption fully. Netflix was founded in 1998 by Reed Hastings and Marc Randolph in Scott’s Valley, California, with an initial investment of $2.5 million from Hastings.

Opting to distribute DVDs rather than bulky and fragile VHS tapes, Netflix started with 30 employees and 925 available titles. Over time, the company introduced a monthly subscription model, eliminating the single rental system. It positioned itself as a consumer-friendly alternative to Blockbuster’s model, often including late fees and hidden charges.

Netflix wasn’t always the giant we know today. In 2000, the company even offered to sell itself to Blockbuster for $50 million—an offer that Blockbuster refused.

Following the dot-com bubble burst and the 9/11 attacks, Netflix was forced to lay off two-thirds of its staff. However, the proliferation of affordable DVD players and an IPO in 2002 helped the company regain its footing.

Disruptive Strategies Used By Netflix

Netflix employed various disruptive approaches to outmaneuver Blockbuster in the market. Continue reading to uncover two of these critical, innovative strategies.

Netflix initially targeted lower-end markets that Blockbuster ignored. It presented itself as a hassle-free alternative to Blockbuster by eliminating late fees. This allowed Netflix to grow its customer base steadily.

The company focused on improving service speed and video quality, gradually becoming a preferred choice over Blockbuster for many consumers.

Netflix further disrupted the industry by introducing DVDs and streaming services. Their easy-to-use online interface and innovative recommendation algorithm provided an experience Blockbuster couldn’t match.

They also invested in creating original content, widening their market appeal, and keeping audiences engaged.

Blockbuster’s business model worked well for a time, but their complacency in innovation left them vulnerable to disruption. They continued to rely on an aging model that included late fees and did not adapt quickly enough to new technologies.

When they finally attempted to catch up, it was too late, and they were already in decline.

While disruptive innovation is crucial for capturing market share, continual transformation is essential. Netflix’s willingness to adapt allowed it to evolve from a DVD rental service to a streaming giant.

Conversely, Blockbuster’s resistance to change led to its downfall. The case of Netflix vs. Blockbuster is a compelling example of how disruptive innovation can reshape industries and why companies must adapt to survive.

Lessons From The Netflix & Blockbuster Case Study On Disruptive Innovation

The evolution of Netflix and the decline of Blockbuster serve as an epic tale of disruptive innovation in the business landscape. This case study provides insights into strategic decision-making and offers lessons on how to deal with market transformation.

Here are ten key lessons companies can learn from this saga.

The inability of Blockbuster to adapt to emerging technologies and new consumer preferences, especially around the convenience of movie rentals, was a critical downfall. Companies must be agile and willing to adapt their business models to remain relevant.

Netflix capitalized on the aspects of the market that Blockbuster ignored, primarily around consumer annoyance with late fees. Companies should be cautious not to ignore market segments that might seem less profitable or secondary, as they may become entry points for disruptive competitors.

Netflix took a risk by betting on DVDs and online streaming. Companies should look towards emerging technologies as opportunities for future growth and be willing to invest early, even if the technology hasn’t yet reached mass adoption.

Netflix’s recommendation algorithm, easy-to-use interface, and concern for customer experience made them a consumer favorite. Companies should place the customer at the center of their business model and continually strive to improve the user experience.

Netflix invested in original content to differentiate itself further from Blockbuster and new competitors. Companies must continuously innovate and expand their offerings to keep customers engaged and deter potential entrants.

Netflix has been a pioneer in utilizing big data to understand customer behavior and preferences. Companies should leverage data analytics to make more informed decisions and to tailor their services/products to individual customer needs.

While Blockbuster remained committed to physical stores, Netflix anticipated the shift toward digital consumption. Forecasting and acting upon trends can differentiate between leading the market or becoming obsolete.

Blockbuster missed the signals when Netflix offered to sell itself for $50 million, and consumers began to show dissatisfaction with late fees. Recognizing and acting upon market signals, even subtle ones, can impact a company’s trajectory.

Even after establishing itself as a leader in streaming, Netflix continues to evolve and adapt. Understanding that transformation is an ongoing process rather than a one-time event is crucial for long-term success.

10. Learn From Failures

Both Netflix and Blockbuster had their share of mistakes. However, Netflix has shown an ability to learn from its failures, pivot, and recover. Companies should not only celebrate successes but also see failures as learning opportunities.

The tale of Netflix and Blockbuster is a masterclass in understanding disruptive innovation and market transformation mechanics. By recognizing early signs of disruption, staying adaptable, and being committed to continuous improvement and innovation, companies can remain competitive and relevant in their respective markets.

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Related Questions

One of the things we look at when we go into a new solid wood furniture manufacturer is in-house kiln wood drying. We also want to know if they understand how to join the wood properly and have the equipment. Also, if the manufacturer is in a hot and tropical climate if they have a dry room to help control the wood moisture levels. We like to work with factories that cut and shape all the wood and have in-house finishing facilities.

You can discover more by reading our blog  5 Questions To Ask When Considering A Solid Wood Furniture Manufacturer ; read more by  clicking here.

Solid  wood is cut down from the tree , cut into wood boards, and then used for manufacturing. On the other hand, engineered wood is considered manmade as it is usually manufactured with wood chips, wood shavings, and an adhesive. Today the manufacturing of engineered wood is extremely technical.

You can discover more by reading our blog  All About Teak Wood And Outdod?  by  clicking here.

Hardwood solids can include non-solid woods such as engineered woods. Hardwood solids are used in furniture and other industries to classify what wood is used in a product. The terms usually do not classify what type of wood is used.

You can discover more by reading our blog  Hardwood Solids Furniture, What Does The Term Mean?  by  clicking here .

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Anita Hummel

How Blockbuster went from dominating the video business to bankruptcy

Following is a transcript of the video.

Irene Kim: At its peak in the late '90s, Blockbuster owned over 9,000 video-rental stores in the United States, employed 84,000 people worldwide, and had 65 million registered customers. Once valued as a $3 billion company, in just one year, Blockbuster earned $800 million in late fees alone.

But fast-forward a decade, and Blockbuster ceased to exist, having filed for bankruptcy with over $900 million in debt. So, what happened?

Blockbuster was founded by David Cook, a software supplier in the oil and gas industry. After studying the potential of a video-store business for a friend, he realized that a well-franchised chain could grow to 1,500 units. And so the first Blockbuster store opened in Dallas on October 19, 1985.

Andy Ash: According to David Cook, the opening night of that first Blockbuster store was a huge success. The story goes that they actually had to lock the doors because of overcrowding. The thing that really set Blockbuster apart at that time was their huge range of titles. Other independent video stores could only keep track of 100 or so movies. Blockbuster had an innovative new barcode system, which meant that they could track up to 10,000 VHSs per store to each registered customer, which also meant that they could keep an eye on those lucrative late fees.

Kim: Off the back of this success, Cook built a $6 million distribution center, not only so that new stores could pop up quickly, but also to house a huge range of titles, so that each store's inventory could be tailored to local demographics.

Commercial: Wow! Wow! Wow!

Kim: In 1987, Blockbuster received $18.5 million from a trio of investors, including Waste Management founder Wayne Huizenga, in return for voting control, but after two months of intense disagreements, Cook left Blockbuster and Huizenga assumed control. Under Huizenga, Blockbuster embarked on an aggressive expansion plan, buying out existing video-rental chains while opening new stores at a rate of one per day.

By 1988, just three years after the first store opened, Blockbuster was America's No. 1 video chain, with over 400 stores nationwide.

But as Blockbuster became a multibillion-dollar company in the early '90s, adding music and video-game rental to its stores, Huizenga was worried about how emerging technology like cable television could hurt Blockbuster's video-store model. After briefly considering buying a cable company and even receiving approval from the Florida Legislature to build a Blockbuster amusement park in Miami, Huizenga offloaded Blockbuster to media giant Viacom for $8 billion in 1994. In only two years under Viacom, Blockbuster lost half of its value.

While Blockbuster and its new boss, John Antioco, focused on brick-and-mortar video stores, technological innovations meant that competition was on the rise. In 1997, Reed Hastings founded Netflix, a DVD-by-mail rental service at the time, in part after being frustrated with a $40 late fee from Blockbuster. Two years later, having passed on an opportunity to buy Netflix for $50 million, Blockbuster teamed up with Enron to create a video-on-demand service. In a deal that saw Enron do most of the work, a robust video-on-demand platform was successfully built and tested with customers. But it soon became clear to Enron that Blockbuster was so focused on its lucrative video stores that it had little time or commitment for the video-on-demand business. As a result, in 2001, Blockbuster walked away from the first major development of wide-scale movie streaming.

Within a few years, Netflix and other competitors began to eat into Blockbuster's profits, not by undercutting it, but by reimagining video rental in the digital age.

Commercial: There's a better way to rent movies. Go to Netflix.com, make a list of the movies you wanna see, and in about one business day you'll get three DVDs. Keep them as long as you want, without late fees. Then, when you're done, look: prepaid envelopes. Return one and they'll send you another movie from your list. Netflix. All the movies you want, 20 bucks a month, and no late fees.

Kim: It took Blockbuster almost five years to introduce its own DVD-by-mail service and even longer to scrap late fees.

Commercial: No more late fees! No more late fees! No more late fees?

Kim: By that time, Netflix had amassed almost 3 million customers, had no store overheads, and was preparing to launch its revolutionary streaming service. Blockbuster's troubles continued through the mid-2000s. After parting from Viacom and experimenting with in-store concepts such as DVD and game trading, Blockbuster was in the midst of an identity crisis.

In 2009, Netflix posted earnings of $116 million. Meanwhile, Blockbuster, with its continuing business problems and legal battles, lost $518 million. On July 1, 2010, Blockbuster was delisted from the New York Stock Exchange. Its foray into video-on-demand streaming came too late, and over the next three years, Blockbuster died a slow and painful death. DVD-by-mail services stopped, its various partnerships folded, and stores worldwide were rapidly plunged into administration.

Its 9,000-strong chain had been reduced to one single franchise in Bend, Oregon. As a result of Blockbuster's complete shutdown, one can only speculate about what could have been for the once home-movie giant.

Ash: They were too busy making money in their video stores to imagine a time when people would no longer want or need them. And in a bid to rescue their business, their answer at the time was to fight fire with fire. At one point they even opened up rental kiosks, a little bit like a vending machine, but all of these attempts were based on either outdated technology or outdated business models, whereas Netflix at the time, they did the opposite; they streamlined, they were able to see the future of video rentals and then innovate for that future. Blockbuster, they didn't seem to understand how the next generation, particularly millennials, who grew up in a world without hard-copy media like DVDs and CDs, how they would react to video-on-demand as technology improved. And that's why Netflix, Amazon Prime, YouTube, and Hulu, they're still all in business, whilst Blockbuster got left behind.

Kim : According to Netflix's former Chief Financial Officer Barry McCarthy, as part of the failed 2000 Blockbuster-Netflix buyout, Reed Hastings proposed that Netflix would run the Blockbuster brand online. If that deal had been successful and Hastings had replicated Netflix's innovation for Blockbuster, the face of home video would likely still be blue and yellow. The last-ever Blockbuster movie was rented on November 9, 2013. Fittingly, the film in question was "This Is the End."

EDITOR'S NOTE: This video was originally published in January 2020.

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Case Study: How Netflix Took Down Blockbuster

Blockbuster and Netflix are two big business within the domestic videocassette rent payment market place that skilled very much distinctive products. Netflix extremely multiplied its firm estimate even as Blockbuster dropped its leading market position and fallen into bankruptcy. Back to the late 20th century, whilst Netflix was just a small newly established business, Blockbuster ruled the video cassette rental business with over 9,000 shops all around the world. With the emergence of DVDs as the brand new video medium, Blockbuster be able to get special deals with massive Hollywood studios to rent new DVD releases after cinema showings ended. At that point in time, nearly every family had a videocassette recorder (VCR) for the reason of video watching, and Blockbuster rental shops were people’s familiar starting point for film selections. Technology and innovation performed a significant task inside the improvement of the apprehensive business. Today’s dynamic domain is completely centered on progression of technology and every area requires to carry out new intervention of technology to obtain success . The on-line video package providers companies are those who design a new to look at preferred programs. The business idea of Blockbuster change into related to serving the DVDs on a rental basis. Netflix become also using the equal idea however after a period of time, it changed to the online streaming video. This advertising approach of Netflix offers with the phases that Netflix used to promote its commercial enterprise businesses.

History of Blockbuster

Blockbuster turned into one in every of the biggest video companies all over in the globe. Blockbuster became the primary organization, which commenced to offer DVDs on condominium basis. David Cook set up the company in the year 1985. David in Dallas based the primary store of Blockbuster. The primary video market of Blockbuster turned into an extensive success on global horizontal. The retailer became opened with 8000 tapes which consist of 6500 titles. Afterward they had been opened three more but, the company face challenges 3.2 million dollars in 1986. Therefore Cook sold 1/3rd share beginning of 1987. The business was managing 133 stores in 1987. Within 1919, the full number of shops reached as much as 1000. During 2000, the Blockbuster is the pinnacle DVD carrier company. But, within the year 2006, Blockbuster disconnected from Viacom.

History of Netflix

In 1997 Netflix turned into established in California, founded by Reed Hasting. At the preliminary level of this blockbuster advertising method the videos were offered on a hire charge base by the organization. But, in 1999, the business changed into commencing the delivery of obtained videos via postal facility of the United State. After a few year of its setting up order, in 2009, the business had a large and improved database system. In 2009, business was began delivering DVD such as distinctive titles. It can be referred that the business nearly contained a focus of 4.5 million customers. Within the same year, company had completed an affiliation with a digital company named as consumer electronics. This partnership made easy to get entry to the internet on specific appliances. In 2010, Blockbuster business turned into bankrupt. As in line with the facts collected, after this affiliation, people can easily get entry to internet over iPad, computer, mobile phone, laptop, and exclusive net devices. But, currently the company has 23 million contributors from different international location those make use of Netflix subscription.

How Netflix beat Blockbuster

A year after establish in 1998 Netflix gain control the marketplace of video industry through advertising and marketing strategy as well as their special offers attract more consumer than any other video industry. As a result it impact other entertainment business without doubt. In case that there is to some extent obstruct during the delivery sort out of DVD throughout mail or via post than the company do not charge for late fee and it became well turned-out change. On the other hand, before the setting up of this establishment, Blockbuster existed the growing enterprise in this business. Blockbuster company apply same “No late Fee” strategy as Netflix but unfortunately it did not work for this company and blockbuster challenged a massive forfeiture as well as the marketplace cost of its shares decline. Now Blockbuster Company is currently identified for instance bankrupt industry in the video business. Afterwards Netflix give emphasis to more on marketing strategy to go to next level and extended DVD business. There are several brands of competitors from another province who contested with Netflix. Aside from, Netflix has its distinctive line of attack to attain achievement and advance in the industry. The simple technique used by the organization for the fulfilment of organization objectives. The maximum critical part is associated with the market place expansion idea of DVD products. Aside from that customer relationship is the major strength and strategy for this organization to achieve their mission and vision. Every organization has two aspects of success, one is present commercial enterprise and another is organization consumer. The essential aspects is that company always selects current business. Aside from that, in the time of Antioco’s stage, Blockbuster made double revenue by implementing of low cost strategy “reducing late charges”. But this footstep draws attention lots of consumers to finance further in the Blockbuster Business. After the Examination, it turn into clear-cut that the forfeiture from reducing changed into 200 million dollars while; on-line campaign motion total yet again 200 million dollars. After this action, 5 years later Blockbuster Business was announced bankrupt. Netflix uses following strategy where Blockbuster never think of changes. These are;

Technological Advances

Ever since 2000, the initiating of latest technology and computer electronics commodities has unexpectedly elevated customer possibilities to view cinemas. Now days it is fairly well-known to watch movies on airplanes, in cars, hotel rooms, in homes or almost every places through a laptop PC or smartphone appliance like an apple iPhone, iPad, or iPad touch. Most important in year 2012 it was clear-cut that the 134 million US families with excessive speed internet facility and internet related Blu-ray , video games, TVs, computers, tablets, or smartphones had been swiftly transferring from manual hiring DVDs to watching cinemas and TV programs streamed over the net. Customer can watch these films and Television programs via an extensive type of distribution networks and sources. The trend of the upcoming marketplace for hiring movies and TV contents is undisputable in streaming movie industry and Television programs to internet- associated televisions, PCs and smart phone devices. Streaming has the gain of accepting household adherents to reserve and instantaneously watch the movies and Television shows they desired to watch, hiring a streamed show possibly will be performed both by way using the service of Netflix, Blockbuster online, Amazon instant video, Apple’s iTunes and different streaming video vendors or through the usage if a television distant to assign arrangements with a cable satellite TV for pc, or fiber optics issuer to instantaneously look at a movie from a listing of numerous hundred choices. The numeral of families which have a DVD player or video recorder has become more intense, so they may simply make a recording TV shows and movies after which pay off them at their suitability. Netflix changed into expected that the DVD systems, at the side of excessive- clarity replacement designs one of these Blu-ray, will be the car for watching content material in the home-based for the expected future. Modern innovations in video-streaming technology have been swiftly enhancing the possibilities that video application would become the leading movie rental network in the next few years.

Low cost strategic is one of the most powerful strategic position for the movie rental industry. Blockbuster organization was making money by implement overdue price to its clients. The value of operational cost of this business movement is a smaller amount of cost that the price of market stores. Aside that the value of adjustments is likewise not as much of than the market things. For the fulfilment of achievement and advance Netflix advertising and marketing method, organization uses specific modern strategies and technologies. The business has start-off the idea of delivery the DVDs at the consumer’s location and subscription fee is comparatively subsequent the low-cost idea which was not carefully thought by Blockbuster. In USA everyday uses, on regular, almost 5 hours each day seeing video contents. And that may become pricey, rent out a movie can prevent a big expanse of cash while competed to actually go to a movie which can charge as extremely as $16 a ticket. When think about Netflix’s business standard, rate supports mail transport over in-store rental. Some plan via the mail cost $7.99/month limitless vs. the in-store $4/rental. Kiosk Rental acquisition market proportion with $1 nightly rental price. Video on call for is anticipated to maintain to lower in price as competition rises. When Netflix released its subscription version, it flashed significant attention between clients trying to find reasonably-priced movie rentals. A delivered bonus is that disc are brought directly to their doors ways, eliminating trips to a store and late fees. Netflix is the biggest on-line streaming video provider with over 23 million subscribers. Consumer pay a flat monthly fees of $7.99 for unrestricted log on to movies and Television indicate, presently ad- unrestricted. The provider is accessible on Nintendo Wii, Microsoft’s Xbox 360, Sony PS3 consoles, Blu-ray disc players, Internet-connected TVs, and many other Internet-supported video players.

Customer Relationship

Netflix advertising and marketing approach is associated to the subscription of the channel. This strategy of the organization is performed a crucial part within the improvement of the company. Concurrently, this strategy also consist of the delivery procedure of distribution DVDs via mail and streaming of videos. The subsequent crucial stage is connected to the method of consumer closeness . The phrase consumer intimacy allocates with the participation of consumers for business growth drive. This advertising idea primarily appreciated by the Netflix organization because it turned into aimed to get honest source consumer and right, way to applied most excellent sources for the success of organization objective and achieve the need of its clients. Aside, from this, the significance of these method is associated with offer the top facilities to the clients. The purpose in arrears the recognition of the Netflix organization is the advertising and marketing method of this business enterprise, the strategies put together the Netflix business finest on-line video issuer within the world. Further than, the importance is absolute to its clients. The principle goal of the Netflix business is to supply the high-quality customer service and respects in comparison to Blockbuster. The intention behind the leading quality of the Netflix business enterprise is an effective execution of these business strategies . But, these techniques might capable the Netflix business to stand marketplace opposition.

Netflix Innovation

The phrase innovation co-operated an essential function in the productive implementation of industry action. It is able be distinguished that innovation may be considered as a heart for the organization . The character of innovation utilized by the Netflix organization is disruptive . The Netflix business enterprise is operating this characteristics from its first environment. On the other hand, this organization brought the idea of undertaking the demand of DVD turning in thru the mail without a late fee. Other than this the handy of watching movies and TV programs at home-based at a low rate. The Netflix organization usually attempts to offer cost friendly deals to its clients. It be possibly will be identified to all that the Netflix Corporation is an entertaining network site. But, the dream of the Netflix organization is aimed to be the top supplier of entertaining movies all over the world. Aside that, the vision of the corporation is associated with the verdict of the global target market with the assist to the content inventors all over the globe. However, the Netflix business aimed to deliver the quality and high-priced DVDs to its clients by treating free of charge and rapid distribution method. There are distinctive models associated with the innovation of Netflix. The current monthly subscription of Netflix is 12.99 dollar per month. As peer the sources it have turn into clear-cut that Netflix is famous in their live programs simply accessible to the subscribers or clients of the Netflix organization. One of the exceptional and maximum famous programs of Netflix is Black Mirror show. Form this examines of these sources; it turn into clear-cut that the Netflix company is one of the top organization that manage its business movement after thinking the needs of its clients.

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Blockbuster: Lessons from Its Downfall

In the ever-evolving landscape of business, few stories offer as many lessons as the rise and fall of Blockbuster. Once a household name dominating the home entertainment industry, Blockbuster’s downfall is a cautionary tale for future entrepreneurs and business leaders. This article delves into the intricate details of Blockbuster’s journey, aiming to uncover the strategic missteps and market changes that led to its demise. For students of business faculties, understanding this story is crucial, not just as a historical account but as a rich source of lessons in adaptability, market awareness, and strategic decision-making in the face of rapid technological change.

Table of content

The Rise of Blockbuster

• Founding and Early Growth

Blockbuster’s story began in 1985, with its first store in Dallas, Texas. Founded by David Cook, a software supplier, the company quickly differentiated itself from its competitors. It offered a larger variety of movies, a computerized check-out process, and a family-friendly environment devoid of adult films. This innovative approach to video rental was a breath of fresh air and resonated with the American public.

• Business Model and Market Dominance

Blockbuster’s business model was a mix of high-volume, wide variety, and strategic store locations. Their blue and yellow sign became a beacon for movie enthusiasts. They capitalized on the VHS boom and later the transition to DVDs. By the 1990s, Blockbuster was a market leader and synonymous with home movie and video game rental.

• Key Strategies and Innovations During its Peak

Blockbuster’s key strategies included rapid expansion through franchising and acquisitions, creating an extensive network of stores nationwide. They also fostered strong relationships with movie studios, which allowed them early access to new releases, a significant draw for customers. Additionally, Blockbuster explored various revenue models, like late fees, which, while controversial, contributed significantly to its revenues.

During its initial years, Blockbuster appeared unstoppable, boasting a solid business model and dominating the home entertainment sector. Yet, as we’ll explore further, the attributes that made Blockbuster so strong were ironically the same ones that laid the groundwork for its later decline.

The Changing Market Landscape

• Evolution of Consumer Preferences

The late 1990s and early 2000s marked a significant shift in consumer behavior and preferences. The advent of the internet began to reshape how people accessed entertainment. Consumers started favoring convenience and instant access, traits not typically associated with the traditional video rental model. This change was gradual but unmistakable, setting the stage for a revolution in the home entertainment industry.

• Emergence of New Technologies

The rise of digital streaming technology was a game-changer. Companies like Netflix, founded in 1997, began offering DVD rental by mail and, later, streaming services. This model eliminated the need for physical stores and offered much broader content accessible from the comfort of one’s home. The convenience and innovation of streaming services directly challenged Blockbuster’s brick-and-mortar business model.

• Rise of Competitors

Netflix was one of many competitors to emerge. Video-on-demand services provided by cable companies and other online platforms began to gain traction. These services catered to the growing desire for instant and hassle-free entertainment. Blockbuster’s market dominance was being threatened from multiple fronts, requiring a swift and strategic response to stay relevant.

Blockbuster’s Strategic Missteps

• Failure to Adapt to Digital Transformation

One of Blockbuster’s most significant errors was its slow response to the digital transformation in the entertainment industry. While competitors like Netflix quickly embraced the internet and streaming technologies, Blockbuster remained focused on its physical rental model. This delay in adapting to digital trends put Blockbuster at a severe disadvantage.

• Misjudged Acquisitions and Investments

To diversify, Blockbuster made several acquisitions and investments, some of which did not align with its core business strengths or the changing market dynamics. For instance, its foray into the music retail business with the acquisition of Music Plus and Sound Warehouse did not yield the expected benefits. These diversifications drained resources that could have been better utilized to strengthen and evolve its primary video rental business.

• Over-Reliance on Traditional Brick-and-Mortar Model

Blockbuster’s heavy investment in its physical stores became a liability as the market evolved. The company was slow to reduce its reliance on this model, which increasingly became an operational and financial burden. In contrast, competitors with no physical stores to maintain could adapt more quickly and efficiently to market changes.

• Leadership and Management Decisions

Leadership plays a pivotal role in navigating a company through market shifts. Unfortunately, Blockbuster’s leadership was often criticized for a lack of vision and adaptability. Key decisions, such as passing up the opportunity to purchase Netflix early on and the reluctance to phase out late fees (a major source of revenue but a point of customer dissatisfaction), reflected a disconnect with the evolving market realities.

The Downfall of Blockbuster

• Financial Decline: Analysis of Key Financial Setbacks

Blockbuster’s financial troubles became increasingly apparent in the early 2000s. The company’s revenue started to decline steadily, burdened by the costs of maintaining its extensive network of physical stores. The introduction of the no-late-fee policy in 2005, while customer-friendly, further eroded its revenue base. These financial setbacks indicate a business model struggling to remain viable in a rapidly changing industry.

• Decline in Customer Base and Market Share

As streaming services gained popularity, Blockbuster’s customer base began to dwindle. The inconvenience of physically renting a movie and the rise of more flexible and varied online options led many customers to abandon Blockbuster. This loss of customers was a critical blow, leading to a steady decline in market share and influence.

• Bankruptcy and Final Closures

Blockbuster declared bankruptcy in 2010. Their efforts to reinvent themselves, including the introduction of Blockbuster Online, were insufficiently timely to rescue the business. The decisive blow came with Dish Network’s acquisition in 2011, resulting in the shutdown of most Blockbuster stores. By 2013, the once-iconic Blockbuster brand had nearly disappeared, signaling the close of a significant chapter in home entertainment history.

Lessons Learned

• Importance of Innovation and Adaptability in Business

Blockbuster’s story is a testament to the importance of innovation and adaptability. Businesses must be willing to evolve with changing market trends and technological advancements. Staying anchored to outdated models or being slow to embrace new opportunities can lead to obsolescence.

• Recognizing and Responding to Market Changes

Recognizing and responding to market changes is crucial for business survival. Blockbuster failed to acknowledge the threat posed by digital streaming and the shifting preferences of its customer base in time. Businesses must be vigilant and responsive to stay ahead or remain relevant in a dynamic market.

• Strategic Foresight and Risk Management

Blockbuster’s missteps highlight the need for strategic foresight and effective risk management. Diversifying into unrelated business ventures without a clear strategic focus can divert resources from core areas needing attention and innovation. Companies must make calculated decisions, balancing current success with future sustainability.

• Role of Leadership in Navigating Challenges

Effective leadership is critical in steering a company through challenges. Blockbuster’s leadership was often criticized for its lack of foresight and reluctance to adapt, contributing significantly to its downfall. Strong leadership involves managing current successes and anticipating and preparing for future challenges.

Blockbuster’s downfall serves as a powerful lesson in the world of business. It underscores the need for continual adaptation, market awareness, and strategic planning. For business faculty students, this case study is a rich source of learning, offering insights into the complexities of managing a business in a rapidly evolving technological landscape. By understanding and analyzing these failures, future business leaders can equip themselves with the knowledge to navigate their ventures successfully through the ever-changing business environment.

Blockbuster Company Bankruptcy: Case Study

Introduction, company overview, competition, altman’s z-score analysis, comparison of altman’s z-score and the auditor’s report, conclusions and recommendations.

Managerial accounting is concerned with supporting managers’ decision-making using financial data. It can help managers to understand current performance, anticipate and plan for financial risks, and achieve organizational goals. Bankruptcy is a particularly important concept in this area of accounting since predicting bankruptcy in advance can aid companies in avoiding it or planning for losses. Generally, auditor reports are used to forecast and understand the risk of bankruptcy. However, Altman’s Z-Score analysis can also be helpful in fulfilling this goal. The present paper will focus on the bankruptcy of Blockbuster, a video rental giant that went bankrupt in 2010. The report will provide an overview of the company and perform Altman’s Z-Score analysis to explore whether this technique would have been more reliable than auditor reports in predicting the bankruptcy of Blockbuster.

Blockbuster was an American company operating in the entertainment industry. The company provided film and video game rental services to customers through a variety of channels. For example, customers could rent DVDs from Blockbuster rental shops, as well as via mail and streaming services. The company was founded in Texas in 1985 and expanded to other regions before the early 2000s. However, in 2010, the company filed for bankruptcy as its success declined due to rigorous competition and the emergence of alternative providers. The present section will contain information on the company’s background, competition, and bankruptcy, as well as present the results of Altman’s Z-Score Analysis.

The history of Blockbuster can be traced back to a software services company in Texas. David Cook was the owner of Cook Data Services, a company offering software solutions to oil companies all around Texas (Poggi, 2010). The collapsing oil market prompted him to enter a different industry, and the first Blockbuster store opened in Dallas, Texas, in 1985 (Poggi, 2010). At the time, the demand for films on VHS tapes was high, which enabled the company to occupy a strong position in the entertainment industry quickly. Besides film rental, Blockbuster also offered video game rental services, which partly accounted for the company’s increasing popularity.

One of the most significant turns of events for Blockbuster occurred in 1986-1987. At first, Cook planned for Blockbuster to go public, but his attempt was unsuccessful due to a news article reporting his lack of experience in the entertainment industry (Poggi, 2010). Consequently, the public offering was canceled, which threatened the company’s future. In search of investments to support future growth, Cook sold one-third of Blockbuster’s shares to investors, including the founder of Waste Management Wayne Huizenga. Soon, Huizenga obtained control of the company and redefined its business model to switch from franchise-based growth to battling competitors (Poggi, 2010). The chain of poor decisions, as well as the increased pressure from emerging competitors, caused Blockbuster to file for bankruptcy in 2010.

At first, Blockbuster’s primary goal was to distinguish itself from the competition. While video rental services were not new to Texas, Blockbuster capitalized on the range of titles available. As explained by Poggi (2010), “with more than 8,000 VHS tapes in more than 6,500 titles, Cook’s Blockbuster store was three times larger than its nearest competitor” (para. 6). The popularity of Blockbuster stores grew rapidly because customers could always find what they needed there. Additionally, Blockbuster stores were usually open late, had an easier checkout process, and displayed titles on shelves instead of over the counter (Poggi, 2010). This contributed to the customers’ in-store experience and enabled Blockbuster to earn more profits by differentiating its services from competitors’.

However, the approach to overcoming competition changed with the arrival of Wayne Huizenga. His primary goal was to rid Blockbuster of competition in the entertainment sector through acquisitions. A sequence of acquisitions was carried out in the late 80s (Poggi, 2010). Blockbuster was able to acquire some of its key rivals, including Major Video and Erol’s. The company also began its expansion into other areas of the entertainment industry by acquiring music retail companies, namely the Sound Warehouse and Music Plus (Poggi, 2010). While the acquisitions enabled Blockbuster to improve its competitive position and grow into a multibillion-dollar business, they also affected the company’s flexibility due to the large number of stores operated.

The emergence of new technologies threatened Blockbuster’s competitive position and sales. In the 1990s, pay-per-view and cable programming were growing in popularity, affecting the demand for video rental, which remained Blockbuster’s main line of operations (Poggi, 2010). Consequently, the company’s sales growth was hindered, and analysts reported concerns regarding its long-term performance. After Viacom purchased Blockbuster for $8.4 billion in 1993, the company’s internal operations suffered from changes in management. For example, as mentioned by Poggi (2010), Blockbuster stores were slow on acquiring new releases, and store operations became less efficient because of staff shortages. This affected the popularity of Blockbuster’s services and reduced its financial performance even further.

The development of web technologies also hit Blockbuster by enabling Amazon and Netflix to enter the entertainment industry. Blockbuster attempted to capitalize on the new technology by partnering with AOL to start streaming services, but its progress was too slow; online DVD rental matching Netflix’s features did not appear until 2004 (Poggi, 2010). The failure to respond to critical industry changes was mainly due to the fact that the management’s attention was diverted to acquisitions and store operations. As a result, the company’s sales plummeted, and debts grew, leading to bankruptcy.

Based on Blockbuster’s financial report for 2005, there were some signs that the company was experiencing financial difficulties that could result in bankruptcy. Namely, the company’s financials reflect operating losses instead of income, with the 2005 losses constituting $426.5 million (Blockbuster Inc., 2005). The net losses reached $588.1 million in 2005 (Blockbuster Inc., 2005). The company’s total assets also posed a concern, reducing from $7,771 million in 2001 to $3,179.6 million in 2005 (Blockbuster, Inc.). Stakeholder’s equity decreased drastically in the same period, from $5,676.1 million to $631.6 million. Although these signs suggested possible bankruptcy in the future, it was still possible for the management to remain hopeful about Blockbuster’s performance. For example, total losses and operating losses showed a significant improvement compared to the previous year. Additionally, the revenues and gross profits remained relatively stable between 2001 and 2005. These improvements could have misled the management into thinking that the situation was improving five years before Blockbuster was forced to file for bankruptcy.

The reasons for Blockbuster’s declining financial performance and eventual bankruptcy were the same. On the one hand, the company’s acquisition strategy created a burden in the form of thousands of stores that brought significant losses once video rental became less prevalent in the 2000s (Tyler, 2017). On the other hand, the focus on acquisitions and operations management that was required to implement the selected strategy rendered Blockbuster blind to developments in the industry. By the time the company realized what the preferred course of action was, it was already years behind its new competitors (Tyler, 2017). The increasing pressure from emerging competitors, including Netflix, as well as financial difficulties incurred as a result of operating losses, became the ultimate cause of Blockbuster’s bankruptcy in 2010.

Altman’s Z-Score is a measurement reflecting the company’s current status and financial stability. It is based on several prominent financial figures, including assets, liabilities, retained earnings, net income, market value, shares, and sales. The formula for Altman’s Z-Score is as follows: Z=1.2X1+1.4X2+3.3X3+0.6X4+1.0X5. The formulas and values for X1 to X5, as well as Altman’s Z-Score calculations, are presented in Table 1. Based on the figures from the company’s 2005 financial report, Blockbuster’s Z-Score was approximately -1 at the time. According to the classification of Z-Score values, results less than or equal to 1.81 reflect the company’s financial failure and can be used to predict bankruptcy. Since Blockbuster’s outcome is far less than this figure, applying Altman’s Z-Score analysis to its financial data for 2005 would have indicated the forthcoming bankruptcy.

Table 1. Altman’s Z-Score Values and Calculations

Blockbuster’s 2005 Values

(all in millions)

(Current Assets- Current Liabilities)/ Total Assets

(1,423.8-1,317.9)/ 3,179.6

0.03330607623

Retained Earnings/ Total Assets

-4,836.4/3,179.6

-1.52107183293

Net Income Before Interests and Tax/ Total Liabilities

-588.1/2,785.1

-0.21115938386

(Market Value per Share*Number of Shares)/ Total Liabilities

(-1.4*191.454598)/2,785.1

-0.09623943025

Sales/ Total Assets

5,864.4/3,179.6

1.84438294125

Altman’s Z-Score calculation

Z=1.2*0.03330607623+1.4*-1.52107183293

+ 3.3*-0.21115938386+0.6*-0.09623943025+ 1.0*1.84438294125

Z= 0.03996729147-2.1295005661-0.69682596673-0.05774365815+1.84438294125=-0.99971995826

Z=-1 (rounded)

In order to provide recommendations for future use, it is essential to explore the application of Altman’s Z-Score analysis and the auditor’s report in predicting performance and estimating the risk of bankruptcy. As evident from the analysis above, applying Altman’s Z-Score to a company’s financial data for a given year can help to evaluate whether it is at risk of going bankrupt. This technique takes into account the key indicators of financial performance, which makes the results reliable. In contrast with financial performance ratios, Altman’s Z-Score also includes calculations related to share value and market value, which are crucial for estimating financial reliability. Therefore, the score provides an adequate and focused interpretation of financial data.

However, it is also critical to note that Altman’s Z-Score analysis has some limitations. For example, it only takes into account the data for one fiscal year. If a company experiences a decrease in assets or share value because of temporary circumstances, the results provided by Altman’s Z-Score may not be entirely accurate. The score also does not reflect market opportunities that a company could seize to become more profitable. For instance, if a company is in the process of developing a new product portfolio or plans to enter a new market, it could still succeed regardless of the results of Altman’s Z-Score analysis.

The value of the auditor’s report is that the auditor can take into account the overall conditions in which a business operates and make predictions based on both financial and market data. The auditor’s report also provides information regarding the company’s accounting practices, which shows whether or not the figures presented for review reflect the situation accurately. The possible downfall of the auditor’s report in predicting bankruptcy is that the auditor might fail to include all relevant financial data in their analysis. Significant gaps, in turn, can affect the reliability of predictions. Hence, both techniques have strengths and weaknesses that affect their application in real-life situations.

On the whole, analyzing Blockbuster’s bankruptcy offers some critical insights for managerial accountants. First of all, it highlights the vital influence of strategy on the risk of bankruptcy. While the competitive strategy implemented by Huizenga improved Blockbuster’s financial performance in the short term, it paved the company’s path to bankruptcy. Therefore, understanding the long-term impact of strategic choices can help to highlight future financial risks. Secondly, it shows the need to consider all relevant financial data while analyzing and forecasting performance. While some economic indicators provided in Blockbuster’s 2005 financial report seemed to be improving, a more detailed analysis confirmed that the company’s situation was dangerous.

In order to fulfill the goals of managerial accounting, it is essential to apply reliable analytic tools to analyze financial performance. Both Altman’s Z-Score analysis and the auditor’s report provide information that can help to predict the potential bankruptcy. The first technique is particularly useful because it allows for an objective evaluation of the company’s current status. Still, the auditor’s report is valuable because it offers a broader perspective on performance and determines the reliability of the company’s reporting practices. Based on these considerations, Altman’s Z-Score analysis should be used as the primary tool for evaluating financial performance and the risk of bankruptcy. However, if a company is in the midst of making changes to products or operations, as well as in unstable market conditions, it should be supported by the auditor’s report. Applying these recommendations in practice would help to make reliable predictions that are relevant to the company’s current situation.

Blockbuster, Inc. (2005). Form 10-K.

Poggi, J. (2010). Blockbuster’s rise and fall: The long, rewinding road. The Street.  Web.

Tyler, A. (2017). Blockbuster: It’s failure and lessons to digital transformers .

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Making Your UX Life Easier with the MoSCoW

If you’re stuck trying to move a project forward because it seems like there are too many things to concentrate on then the MoSCoW method may help you get unstuck. It’s a prioritization technique which is easy to learn and simple to apply. It can also help you decide what’s really valuable for your UX projects before you get started on them.

There are many different prioritization techniques that can be employed on design projects but one of the simplest to use is the MoSCoW method. It’s used across all business disciplines to enable project teams to work with stakeholders to define requirements. It can also be used as a personal prioritization technique.

What Does MoSCoW Stand For?

MoSCoW is an (almost) acronym designed to reflect the four categories used by the technique to determine priorities; Must have, Should have, Could have and Would like but won’t get. The lower case “o’s” are added simply to give the acronym a pronounceable form. Occasionally, you may also see the whole phrase in block capitals MOSCOW to distinguish it from the name of the city but MoSCoW is more common.

What is the MoSCoW Method?

Experts Dai Clegg and Richard Barker proposed the method in their paper “Case Method Fast-Track: A RAD Approach” and while it was initially intended to be used with the Dynamic Systems Development Method (DSDM) it has long since been adopted throughout many areas of business. In recent times it has become very popular in the Agile and RAD (rapid application development) communities.

The MoSCoW method is most effective when it comes to prioritizing requirements in projects with either fixed or tight deadlines. It works by understanding the idea that all project requirements can be considered important but that they should be prioritized to give the biggest benefits in the fastest possible time frame.

It breaks down the requirements into four categories:

These are the requirements without which a project will fail. They MUST be delivered within the timeframe in order for anyone involved with the project to move on. In essence they make up the MVP ( Minimum Viable Product ) though it can be argued that MUST could stand for Minimum Usable SubseT too.

Should have

Should have requirements aren’t 100% necessary for delivering the project successfully but they are the “most nice to have” out of the list. They may be less time critical than “must have” or might be better held for a future release.

Could have requirements are just “nice to have” they are desirable to provide a nice user experience or customer experience but they’re not that important to the delivery of the project. They will be delivered only if there’s enough time and resources to spare to devote to them. Otherwise, they’re likely to be tabled for future releases and re-reviewed to see if they have become higher or lower priority in the interim.

These are the requirements that everyone agrees aren’t going to happen. It might be because they cost too much to implement or provide too little ROI ( Return on Investment ) for the efforts required to implement them. These are simply left to one side until they are either removed from the requirements list or become a higher priority.

The MoSCoW method provides a simple way of clarifying the priorities involved on a project. It’s most useful in time bound situations and it can be used to prioritize your own workload (usually with the buy in from a supervisor or manager if you work for someone else) as easily as it can be used for project work.

Implementing MoSCoW – A Practical Process

The easiest way to use MoSCoW is to bring together all the relevant stakeholders to the project and then:

List the requirements (on a flip chart or on a screen)

Vote on which category each requirement falls into (bearing in mind any hierarchical issues within the company itself – the CEOs vote may count for more than the votes of everyone else in the room)

Then collate the information and ensure that each requirement is presented against the relevant category in written form so that it can be used for reference by the project team

You can repeat this exercise whenever you feel it is necessary. Priorities may change mid-project or between releases. It’s important for everyone to understand what the implications of changing priorities in the middle of a project may be in terms of costs, resources, and time.

Issues with MoSCoW

It’s important to know that the MoSCoW method isn’t without its detractors. The main flaw in the method, as identified by authors Kark Weigers and Joy Beatty in their book Software Requirements, is that the method offers no means for comparing one requirement to another. This can make it difficult for those tasked with prioritizing requirements to know which category to place them in.

The Take Away

The MoSCoW method offers a simple process for prioritizing within project delivery. It can also be used to prioritize your work load. It should be used with some caution in that it may be too simple – particularly for complex projects – but it makes for a good starting point. One of the big advantages to its simplicity is that it should be easy to get buy in from other stakeholders to put it into practice.

Check out this useful study into how the MoSCoW method is used by business analysts .

You can read about the MoSCoW method as it was originally designed in: Clegg, Dai; Barker, Richard (2004-11-09). Case Method Fast-Track: A RAD Approach. Addison-Wesley. ISBN 978-0-201-62432-8.

You can read Weigers and Beatty’s criticism and their suggestion for a more complex method in: Wiegers, Karl; Beatty, Joy (2013). Software Requirements. Washington, USA: Microsoft Press. pp. 320–321. ISBN 978-0-7356-7966-5.

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Corruption in Russia: IKEA's Expansion to the East (A)

By: Urs Mueller

This four-part case series can be used to discuss business ethics, compliance/governance, integrity management, reacting to and preparing against corruption in the context of internationalization and…

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This four-part case series can be used to discuss business ethics, compliance/governance, integrity management, reacting to and preparing against corruption in the context of internationalization and allows to also briefly touch upon the issue of Corporate Social Responsibility (CSR). Case (A) describes a challenge IKEA was facing, while trying to enter Russia in 2000. The company was preparing to open its first flagship store on the outskirts of Moscow, only the first of several planned projects. After substantial investments in infrastructure and logistics, IKEA focused on marketing, but quickly faced a sudden complication. Its major ad campaign in the Moscow Metro with the slogan "[e]very 10th European was made in one of our beds" was labeled "tasteless". IKEA had to stop the campaign because it "couldn't prove" the claim. Soon Lennart Dahlgren, the first general manager of IKEA in Russia must have realized that the unsuccessful ad campaign was going to be the least of his problems: A few weeks before the planned opening, the local utility company decided not to provide their services for the store if IKEA did not pay a bribe. What should IKEA and Lennart Dahlgren do? Was there any alternative to playing the game the Russian way and paying? The subsequent cases (B), (C), and (D) describe IKEA's creative response to the challenges described in case (A), and then report about new challenges with alleged corruption within IKEA and in the legal environment, and finally raise the question whether IKEA can be considered to have a social responsibility to fight corruption on a societal level in order to build the platform for its own operation in Russia.

Learning Objectives

This case series can be used to discuss business ethics and Corporate Social Responsibility (CSR) in general, but focusses mostly on ethical issues around corruption, governance and compliance, cross-cultural differences and some of the ethical challenges in the context of internationalization of companies.

May 10, 2016

Discipline:

Business Ethics

Geographies:

Industries:

Retail trade

ESMT - European School of Management & Technology

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Please note you do not have access to teaching notes, corruption in russia: ikea’s expansion to the east (a-d).

Publication date: 18 June 2016

Teaching notes

Subject area.

Business ethics corruption governance and compliance integrity management international management intercultural and cross-cultural management internationalization corporate social responsibility (CSR).

Study level/applicability

The case has successfully been used with a wide range of audiences from masters/MBAs to Executives. It will also work with undergraduates.

Case overview

This four-part case series can be used to discuss business ethics, compliance/governance, integrity management, reacting to and preparing against corruption in the context of internationalization and allows to also briefly touching upon the issue of CSR. Case (A) describes a challenge IKEA was facing, while trying to enter Russia in 2000. The company was preparing to open its first flagship store on the outskirts of Moscow, only the first of several planned projects. After substantial investments in infrastructure and logistics, IKEA focused on marketing, but quickly faced a sudden complication. Its major ad campaign in the Moscow Metro with the slogan “[e]very 10th European was made in one of our beds” was labeled “tasteless”. IKEA had to stop the campaign because it “couldn’t prove” the claim. Soon Lennart Dahlgren, the first general manager of IKEA in Russia must have realized that the unsuccessful ad campaign was going to be the least of his problems: A few weeks before the planned opening, the local utility company decided not to provide their services for the store if IKEA did not pay a bribe. What should IKEA and Lennart Dahlgren do? Was there any alternative to playing the game the Russian way, and paying? The subsequent cases (B), (C) and (D) describe IKEA’s creative response to the challenges described in case (A), and then report about new challenges with alleged corruption within IKEA and in the legal environment, and finally raise the question whether IKEA can be considered to have a (corporate social) responsibility to fight corruption on a societal level to build the platform for its own operation in Russia.

Expected learning outcomes

Responding to a threatening corruption demand (here: responding to an outside demand for a bribe), avoiding corruption from the outside, cross-cultural differences in drawing the line for corruption, preventing corruption within the organization, (corporate social) responsibility of firms to improve the political/legal/social/moral environment in which they operate are the expected learning outcomes.

Supplementary materials

Teaching Notes are available for educators only. Please contact your library to gain login details or email [email protected] to request teaching notes.

Subject code

CSS 5: International Business

• Business ethics
• Corporate social responsibility
• International business
• Corporate values/philosophy
• Governance guidelines

Acknowledgements

The author wishes to thank: Derek Abell for his support in the design of the case series and his attempt to collect additional information. Amanpret Singh, Daniel Rettich, Martha Ihlbrock and Tonisha Robinson for their support of researching, editing, translating and formatting of the case study, teaching note and supplementary material. A sanitized version of this case study series has previously been published in the Emerald Emerging Case Study Collection under the title “Corruption by design? L’Antimarché’s struggles in Russia (A-D)”.

Müller, U. (2016), "Corruption in Russia: IKEA’s expansion to the East (A-D)", , Vol. 6 No. 2. https://doi.org/10.1108/EEMCS-11-2015-0199

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Reporting by Maggie Fick Editing by Bill Berkrot and Louise Heavens

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Maggie is a Britain-based reporter covering the European pharmaceuticals industry with a global perspective. In 2023, Maggie's coverage of Danish drugmaker Novo Nordisk and its race to increase production of its new weight-loss drug helped the Health & Pharma team win a Reuters Journalists of the Year award in the Beat Coverage of the Year category. Since November 2023, she has also been participating in Reuters coverage related to the Israel-Hamas war. Previously based in Nairobi and Cairo for Reuters and in Lagos for the Financial Times, Maggie got her start in journalism in 2010 as a freelancer for The Associated Press in South Sudan.

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