Blockbuster analysis paper2

Blockbuster - Heather Inman BUS 340-001 Can Blockbuster step up to the new challenges of the DVD rental industry Blockbuster was first created in

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Heather Inman BUS 340-001 Can Blockbuster step up to the new challenges of the DVD rental industry? Blockbuster was first created in 1985 as a way for individuals to rent videos rather than spending a significant amount of money. Their business model involved setting up stores all over and providing a wide variety of videos for people to rent. During the first 20 years of Blockbusters existence they opened 9,100 stores in 25 countries gaining a large market share for the company. Eventually Blockbuster provided all of their stores with software that used bar codes and made the transaction of renting movies much easier for both Blockbuster and the customer. By 2004 the movie rental market was worth between $7 and $8 billion and Blockbuster owned 40% of that market. Originally, when someone rented one of Blockbuster’s videos, they were given a date for when the video would be due back at the store. They would then charge a late fee for every day thereafter until the movie was returned. These late fees brought in a significant amount of revenue for Blockbuster. When the movie industry switched from VHS to DVDs, Blockbuster changed over to DVDs smoothly while also having some VHS movies for those who were not yet ready to change their movie players. The DVDs posed a problem to Blockbuster since they were much cheaper for the consumer to purchase, so many people would buy the movie rather than renting it. In 1998 Blockbuster gained a serious competitor in the movie rental market. Netflix focused on providing convenience by allowing people to rent DVDs from their computer and have them sent through the mail into their homes. Their business model removed the need for stores and late fees. Netflix operated by having customers list in order what movies they would like to see and would send three DVDs at a time to the subscriber’s household for a flat monthly
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fee and did not involve a contract of service agreement. Netflix even set up a system where each person had their own account and could rate movies that they liked or disliked. Netflix would then provide a list of movies that they think the subscriber would enjoy based on how they rated past movies. Netflix had a wide variety of movies to choose from and tried to make their interactions with customers as convenient as possible. They would even provide their customers with a pre-paid envelope so that the customer did not have to pay extra to mail the movie back or make a special trip for stamps and envelopes. In the past, Blockbuster had not been very concerned about their competitors such as Hollywood Entertainment or Movie Gallery since Blockbuster held such a large share in the movie rental market. However, they began to realize how large of a threat Netflix could pose to their business when between 2003 and 2004, Netflix’s market share rose from 2% to 7%. In order to better compete in the market with their new growing opponent, Blockbuster
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This note was uploaded on 03/20/2008 for the course BUS BUS340 taught by Professor Fowler during the Spring '08 term at N.C. State.

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Blockbuster - Heather Inman BUS 340-001 Can Blockbuster step up to the new challenges of the DVD rental industry Blockbuster was first created in

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