Question: Has the Blockbuster concept lost its novelty in the U.S. market? Can a subscription strategy help revive it? Closing CaseAfter years of successful growth, Blockbuster,the world's largest video rental chain, sepa-rated from its parent company, Viacom.Video and DVD rental sales have decreasedmarkedly, and new technology, includingdigital movies on demand, threatens Blockbuster's origi-nal core business. To survive, Blockbuster needs a newstrategy.David P. Cook, a young entrepreneur, created the firstBlockbuster video rental store. To capitalize on customerdissatisfaction with mom-and-pop video rental stores,which offered a limited selection of titles, short hours, andminimal customer service, Cook created the now-familiarvideo superstore: the large, brightly lit Blockbuster stores.He provided an environment where customers couldbrowse through thousands of titles including classics, for-eign films, musicals, westerns, dramas, and animatedfilms. Blockbuster expanded rapidly and broadly throughacquisitions and by opening new stores. Eventually, almost50 percent of its stores were franchised.Blockbuster had tremendous success, for severalyears but changes in the entertainment industry andnew technology led to increased competition (such assatellite TV and digital-on-demand technology). Pro-ducts such as TiVo and Replay TV made recording andwatching your own choice of movies at home an attrac-tive option for consumers. Firms like Netflix also createdstrong competition. Netflix doesn't charge late fees butrather has a monthly subscriber fee and customers cancheck out as many movies as they want. To counterNetflix, Blockbuster started its own online service and aflat-fee subscription service. Unlike Netflix, though, thecompany had the overhead costs associated with 8,700brick-and-mortar stores.Blockbuster Is Fighting for SurvivalBlockbuster is currently in significant trouble.Netflix's stock price hovers around $70 per share andBlockbuster's is 30 cents per share. Blockbuster lost a to-tal of $932 million in 2008 and 2009 and continued tolose money subsequently. Many analysts predict it willhave to file for bankruptcy in the near future.Although its recent actions may be too late, thecompany has made several moves to respond to compe-tition in an attempt to recapture lost market share. Forexample, it signed an agreement with TiVo to bring itsonline OnDemand service to customers through the Tivoset-top boxes. Blockbuster has signed an agreementwith major movie studios for access to popular moviesfor in-store and online rentals. Finally, Blockbuster is of-fering to rent movies on SD cards. The desire here is tocompete with the popular RedBox movie kiosks.Will Blockbuster be successful in avoiding bankruptcyand turning around its performance? It is unclear atthis point. To some, it is the classic case of Schumpeter'screative destruction. Several competitors designed bettersystems, some using unique and new technology tobetter satisfy customer needs. Netflix was the original"disruptor" but a number of other competitors, suchas Redbox, followed with additional new ideas andBlockbuster was very slow to respond.Questions1. How successful do you predict that Blockbuster's re-cent moves (agreements with TiVo and major moviestudios) will be? Please explain.2. Can Blockbuster avoid bankruptcy and survive?Justify your response.3. Should Blockbuster increase its entry into interna-tional markets where digital-on-demand technologyis not yet available?4. In what other ways can Blockbuster try to redefineits core business and pursue other options in enter-tainment or home electronics? What strategy wouldyou recommend to save the business?Sources: R. Grover, "The Last Picture Show at Blockbuster?"Business Week, April 26, 2010, http://www.businessweek.com;"Blockbuster Makes Payment Deals with Movie Studios," Forbes,April 7, 2010, http://www.forbes.com; K. Eaton, "Blockbuster GoesOnline with TiVo, Apple to Save Its Business," Fast Company,March 26, 2010, http://www.fastcompany.com; J. Tamny, "WhatBlockbuster Video Can Teach Us About Economics," Forbes, March22, 2010, http://www.forbes.com; C. Dannen, "Blockbuster to RentMovies on SD Cards, But Why?" Fast Company, November 9, 2009,http://www.fastcompany.com; S. G. Beatty, "Viacom's BlockbusterRethinks Strategy," Wall Street Journal, November 20, 1995, Al;C. Taylor, "The Movie Is in the Mail," Time Canada, March 18,2002, 40; S. Diaz, “Digital Video Recorders Challenge Television-Advertisement Makers," San Jose Mercury News, June 13, 2002;R. A. Munarriz, “Date Netflix, Marry Amazon, Kill Blockbuster,"The Motley Fool, February 14, 2007, http://www.fool.com;

Question

Question: Has the Blockbuster concept lost its novelty in the U.S. market? Can a subscription strategy help revive it? Closing CaseAfter years of successful growth, Blockbuster,the world's largest video rental chain, sepa-rated from its parent company, Viacom.Video and DVD rental sales have decreasedmarkedly, and new technology, includingdigital movies on demand, threatens Blockbuster's origi-nal core business. To survive, Blockbuster needs a newstrategy.David P. Cook, a young entrepreneur, created the firstBlockbuster video rental store. To capitalize on customerdissatisfaction with mom-and-pop video rental stores,which offered a limited selection of titles, short hours, andminimal customer service, Cook created the now-familiarvideo superstore: the large, brightly lit Blockbuster stores.He provided an environment where customers couldbrowse through thousands of titles including classics, for-eign films, musicals, westerns, dramas, and animatedfilms. Blockbuster expanded rapidly and broadly throughacquisitions and by opening new stores. Eventually, almost50 percent of its stores were franchised.Blockbuster had tremendous success, for severalyears but changes in the entertainment industry andnew technology led to increased competition (such assatellite TV and digital-on-demand technology). Pro-ducts such as TiVo and Replay TV made recording andwatching your own choice of movies at home an attrac-tive option for consumers. Firms like Netflix also createdstrong competition. Netflix doesn't charge late fees butrather has a monthly subscriber fee and customers cancheck out as many movies as they want. To counterNetflix, Blockbuster started its own online service and aflat-fee subscription service. Unlike Netflix, though, thecompany had the overhead costs associated with 8,700brick-and-mortar stores.Blockbuster Is Fighting for SurvivalBlockbuster is currently in significant trouble.Netflix's stock price hovers around $70 per share andBlockbuster's is 30 cents per share. Blockbuster lost a to-tal of $932 million in 2008 and 2009 and continued tolose money subsequently. Many analysts predict it willhave to file for bankruptcy in the near future.Although its recent actions may be too late, thecompany has made several moves to respond to compe-tition in an attempt to recapture lost market share. Forexample, it signed an agreement with TiVo to bring itsonline OnDemand service to customers through the Tivoset-top boxes. Blockbuster has signed an agreementwith major movie studios for access to popular moviesfor in-store and online rentals. Finally, Blockbuster is of-fering to rent movies on SD cards. The desire here is tocompete with the popular RedBox movie kiosks.Will Blockbuster be successful in avoiding bankruptcyand turning around its performance? It is unclear atthis point. To some, it is the classic case of Schumpeter'screative destruction. Several competitors designed bettersystems, some using unique and new technology tobetter satisfy customer needs. Netflix was the original&#34;disruptor&#34; but a number of other competitors, suchas Redbox, followed with additional new ideas andBlockbuster was very slow to respond.Questions1. How successful do you predict that Blockbuster's re-cent moves (agreements with TiVo and major moviestudios) will be? Please explain.2. Can Blockbuster avoid bankruptcy and survive?Justify your response.3. Should Blockbuster increase its entry into interna-tional markets where digital-on-demand technologyis not yet available?4. In what other ways can Blockbuster try to redefineits core business and pursue other options in enter-tainment or home electronics? What strategy wouldyou recommend to save the business?Sources: R. Grover, &#34;The Last Picture Show at Blockbuster?&#34;Business Week, April 26, 2010, http://www.businessweek.com;&#34;Blockbuster Makes Payment Deals with Movie Studios,&#34; Forbes,April 7, 2010, http://www.forbes.com; K. Eaton, &#34;Blockbuster GoesOnline with TiVo, Apple to Save Its Business,&#34; Fast Company,March 26, 2010, http://www.fastcompany.com; J. Tamny, &#34;WhatBlockbuster Video Can Teach Us About Economics,&#34; Forbes, March22, 2010, http://www.forbes.com; C. Dannen, &#34;Blockbuster to RentMovies on SD Cards, But Why?&#34; Fast Company, November 9, 2009,http://www.fastcompany.com; S. G. Beatty, &#34;Viacom's BlockbusterRethinks Strategy,&#34; Wall Street Journal, November 20, 1995, Al;C. Taylor, &#34;The Movie Is in the Mail,&#34; Time Canada, March 18,2002, 40; S. Diaz, “Digital Video Recorders Challenge Television-Advertisement Makers,&#34; San Jose Mercury News, June 13, 2002;R. A. Munarriz, “Date Netflix, Marry Amazon, Kill Blockbuster,&#34;The Motley Fool, February 14, 2007, http://www.fool.com;

Accepted Answer

The Blockbuster concept refers to the business strategy and approach pioneered by the former video…