Executive Summary: Movie Streaming and Movie Rental Industry
A myriad of technological advances accomplished over the last three decades have become incredibly integrated within the daily lives of people. The advances have made technology become part of lifestyles of people. This situation has also resulted in the changing of the whole idea of movie renting.
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The way people could access movies in the past has significantly changed based on the availability of technology-driven strategies that enable them to access them (the movies) at the comfort of their houses. In a free way, people can choose from a myriad of sources and services to view TV shows and movies today.
With the current internet technology, people can watch movies on mobile tablets, gaming consoles, mobile phones, and even personal computers. These devices require facilitating linkages. For this purpose, 3G and now 4G, and WiFi are availed. This development has taken a process besides calling for a shift of technological knowhow.
In 1990’s, there was a worldwide concern on the next technological advancement that would revolutionise the entertainment sector. In response to this dilemma, VHS libraries at homes of people were rapidly filled with DVDs, which were invented by Toshiba, Philips, Panasonic, and Sony. This case meant shrinking the entertainment libraries coupled with updating them with investments in DVDs.
Chucky and heavy wooden furniture that would often be accompanied by boxy televisions was becoming outdated. As technology continues to advance, movie streaming also continues to advance.
Indeed, the computer age is contributing towards an immense jump in the deployment of technology in film renting and streaming through facilitating investments in the development of affordable digital devices by many households. In fact, according to Broadcast Engineering, “DVDs are vastly being replaced by video files, which are condensed and then streamed instantly over the internet” (Para.1).
However, this case does not mean that DVDs are no longer pertinent because “digital movie copies, Blue-ray, and ultraviolet are also available coupled with the physical media” (Broadcast Engineering Para.1). In the modern market, various video streaming services are availed for rental purposes.
The services are accompanied by a wide variety of choices. Whether one wants a physical copy of a movie from Netflix, Redbox, Blockbuster via unlimited 24-hour video stream through Amazon’s intact movie, TV free streaming of various show episodes via Hulu, and films on crackle and renting filmed games from Gamefly, a number options are available for all people to choose.
Renting movies online implies that one can stream a movie from where the renting company is situated and view it on computers and or iPods and other devices that are connected through internet.
While this strategy was difficult in the early 2000 due to low internet connectivity speeds, with the advancement in technology over the last few years, the internet speed has incredibly increased thus making many companies venture into the online movie renting business.
Unfortunately, as argued in the paper, not all people are able to rent movies online due to the limitation associated with screen sizes of the internet-enabled devices such as iPods and Ipads and or limited availability of TVs, which can be connected to computers.
In the development of a strategy for enabling Blockbuster to be successful in the movie streaming business, system compatibility is yet another issue. Consideration of system requirements that would make it possible for a movie to play in the right way is necessary.
For the currently operational movie streaming companies, fees are levied based on every movie watched or through subscription to a monthly membership. However, in all these options, movies renting is time-limited.
How and what Blockbuster should do to improve and advance in the movies renting industry
Formally referred to as Blockbuster inc., Blockbuster LLC is a home-movie company that is based in America. It provides video and movie renting services formally via movie rental shops, which are owned by the company and or through franchises. As technology developed, the company later embarked on offering movie rental services via streaming, DVD-by-mail and through cinema theatres.
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The company reached its operation summit in 2004 upon securing almost 60,000 staff members. In the early 2011, about 500 Blockbuster stores were in operation in the US (Molly Para.2) being located within 17 nation’s word wide. This case was an immense reduction from above 9000 stores that the company had in 2004.
This fall is attributed to poor strategic management and planning coupled with competition from companies such as Netflix, Apple Inc. and others. Indeed, competition has resulted in immense reduction of the company’s revenue levels. Due to this challenge, the company made an application for bankruptcy in 2010. On 6 April 2011, the company was sold to dish network through auction at a price of $233 million (Jordan 12).
The assumption value for liabilities coupled with other obligations of the company was valued at $87 million. The acquisition process for the stores of the company that are located in the US was finalised on 26 April 2011.
As Fritz reports, “Blockbuster announced on 16 Jan. 2013 that it had placed her subsidiaries located in the UK in the hands of administrators with possibilities of risking about 4000 jobs” (12). However, the placing of the company on administrators does not influence stores that are situated outside the UK.
They are still operational. For continued operation of these stores, an immediate strategy is required to re-engineer the growth and performance curve of the currently decaying Blockbuster. However, before taking this path, an understanding of the trend of movie renting industry is vital.
The movie rental industry is made up of companies, which engage in the business of renting movies that have been recorded in the physical media (typically discs that have video games and movies). It entails “subscription for various in-store media coupled with mail-distributed rentals” (Fritz 12).
Currently, web movie streaming and on-demand rentals are also services that are offered in the movie rental industry. Apart from the fee charged on renting movies, the industry also generates revenue from the built-up fees that are levied on late returns. The industry can also earn income following a voyage of excess media materials when the preliminary order for a given videos dies.
In the US, the movie rental industry has been facing a number of challenges, particularly ones, which are associated with technological shifts. The industry is also composed of firms that incredibly compete with substitutes such as TV and or the internet rental.
These competitions influence adversely operators in the industry while every firm attempts to develop various operational strategies that would make it remain relevant and a key player in the industry market.
Seeking competitive strategies has resulted in pushing players in the movie renting market to offer different services, as opposed to traditional physical disc renting services. Over the last five years, this strategy has created avenues for growth of some firms in the industry such as Redbox and Netflix while others like Blockbuster are on the declining end.
According to Broadcast Engineering, research on the movie rental industry shows that there have been immense changes in market share of the industry (Para.2). For instance, in 2011, consumer rental for Blue-ray discs and DVDs fell at 11% in comparison to 2010. In 2010, consumers who tapped VOD accounted for about 33% of the movie rental (Broadcast Engineering Para.1).
In 2011, Redbox led physical movie renting in which its unit volume sales increased by 29 %. This increase resulted in the growth of Redbox’s Blue-ray and DVDs from 25% in the year 2010 to 37% in 2011 (Broadcast Engineering Para.2).
A report by NPD showed that these gains by Redbox were associated with deteriorating businesses of brick-and-mortar organisations including Blockbuster, which experienced a drop of 6% in market share in 2010 (Broadcast Engineering Para.3). In 2011, Blockbuster experienced even worse drop since its market share fell by 17 % (Broadcast Engineering Para.2).
On the other hand, Netflix’s market share reached its lowest point (25%) in 2011 before it started to peak through late 2011 to 2012. Therefore, Redbox has been dominating the movie rental industry through its deployment of good strategic planning and management of the industry’s dynamics.
Using the success of Redbox and Netflix as benchmarks, the following section discuses the strategies that can be deployed by Blockbuster to regain its market share.
Strategies for Success of Blockbuster
In the US, Blockbuster has sold most of its stores. As argued before, her stores in the UK are already placed under administrations. The only option left for the company is to seek success in terms of performance in her stores located outside the US and the UK.
Analysis of the success factors of both Redbox and Netflix may give rise to a number of strategies that Blockbuster can deploy to enhance her performance. However, working on increasing the value of the company stands out as a significant strategy, which while deployed by Blockbuster, may enhance the company’s success in the stores outside the US, the UK, and possibly re-emerge in the US movie renting industry.
Analysis of a firm’s strategies is critical in providing insights that may help it to succeed both in the short and long run. Netflix and Blockbuster deployed different strategies that were meant to enhance the competitiveness of the companies in terms of gaining both market shares and increasing revenues.
Some of these strategies included price lowering for services offered in comparison with the rival companies (Jordan 13). This strategy was perhaps beneficial to customers since they would have to pay a less amount of money for services offered by the different companies. Arguably, this strategy was an attempt to increase the market share for the respective companies.
For instance, “Reed Hastings, the CEO of Netflix, endeavoured to target about 20 million customers by 2012” ((Fritz 12) through price reduction strategies. This figure implied roughly 20% of the entire US homes. This pressure made Blockbuster consider deriving a strategic move to counter the effect of Netflix.
Blockbuster removed late fee charges on DVDs thus making the company lose about $1 billion in revenues (Jordan 15). While this would have encouraged customers to rent movies from the Blockbuster stores, Netflix resorted to buying rights from various movie producing companies including Hollywood.
This step helped to increase the range of product choice available for its customers. The strategy also made Netflix surpass Blockbuster in terms of performance.
The discussion above provides a hole that Blockbuster can seal to enhance its success by strategically focusing on product line expansions. One of the ways of accomplishing this move is to strategically focus on acquiring content licensing while still integrating web technology to enhance renting movies through video streaming.
However, it is essential to note that content deal is expensive. Nevertheless, since exclusive deals are vital for sustained success of an organisation in the movie renting industry, Blockbuster cannot certainly forfeit this opportunity.
However, in the implementation of this strategy, care should be taken to ensure that Blockbuster does not ascend to terms that are unfavourable for the long-term success of the firm. Therefore, Blockbuster needs to take into consideration the effects of content deals such as winner’s curse effect before entering contractual agreement with movie producing organisations.
The winner’s curse effect is the effect that occurs when acquiring firms fail to benefit roughly on average based on benefits that are associated with acquisitions (Jin 34).
The argument here is that, despite the fact that it is crucial for an organisation to consent to short-term losses for the sake of long-term profits since content deals are expansive, a comparative analysis needs to be done to leverage benefits and the anticipated expenses associated with the content deal agreements.
Although strategically focusing on mechanisms of enhancing profitability of an organisation is critical for its success, profitability can only be enhanced through effective leadership. As argued before, poor strategic planning and management resulted to the bankruptcy of Blockbuster in the US.
The question that may ring in the minds of people who are well acquitted with the historic past performance of Blockbuster is how new entrants into movie renting industry such as Netflix and Redbox could manage to out power mega organisations such as Blockbuster. It took Redbox and Netflix to strategically focus on resolving mistakes experienced by Blockbuster to become movie renting industry leaders.
These mistakes were related to poor leadership. Indeed, executives of Netflix understood clearly the necessity of embracing emerging technologies in enhancing the delivery of movie renting services.
Before Blockbuster realised the potential of technology to reorient the execution of movies renting business, Hastings- the CEO of Netflix- had realised the significance of internet streaming as a strategy for enhancing consumer convenience and the introduction of a virtual organisation, which is capable of delivering services without flaws.
In line with the above argument, Reed Hastings was well ahead of the technology curve that could later reshape the movie renting industry. However, this strategy does not mean that Blockbuster was not aware of technological trends in the movie renting industry.
It was just inflexible by clinging on its past theoretical perspectives of enhancing performance. These strategies failed the company thus prompting it to lose its market share to its competitors such as Redbox and Netflix.
One of the reasons that perhaps made Blockbuster lose was its underestimations of the availability of broadband amongst Americans in the early 2000. On the other hand, Reed Hastings recognised that renting of video cassettes would result in movie streaming over the internet in the near future. Inspired by this focus, Netflix began to work on TV box that would make it possible to stream movies.
The only drawback was that the TV box spent almost 20 hours to finish a single video download. Although Blockbuster knew well this move was a likely future technology, it found Netflix endeavour not worth risking. Later, the management strategically focused on expansion of sales via beefing up sales in stores.
Arguably, in this context, Blockbuster neglected the importance of technology in enhancing the success of an organisation through re-engineering service delivery in the movie renting industry. This negligence was later to produce cumulative and serious impacts on the operation of the company that would also culminate into the acquisition of the organisation in 2011.
This exposition means that Blockbuster needs to take advantage of every innovation in the industry besides questioning how such an innovation would relate to the company’s line of business in relation to how it may better its competitiveness and hence out power its rivals. Rebox and neflrx followed this path with no future regrets.
In 2005, faster broadband emerged enabling YouTube and other 2.0 websites to compress videos. Reed recognised that time has arrived for him to strategically focus on cannibalising the video rental industry through exploitation of the video streaming opportunity. He was also able to identify successful strategies and those that would fail.
For example, Reed recognised the limiting nature on over concentration on TV boxes. Rather, he strategically focused on adopting open-source approaches to enable Netflix to distribute movies to computers, TVs, and mobile phones among other devices.
Arguing how effective this strategy would be in helping Netflix to become one of the key players in the movie renting industry, Halal reckons, “Netflix did the unthinkable- they give away streaming movies and made its easy” (Para. 5). This direction of thinking is worth adopting by Blockbuster.
The company also needs to consider capitalising on areas that may help in the attraction of consumers in a bid to retain them. Netflix provides a good example of how this strategy can be done. While Blockbuster pursued its business through charging $5 for every movie rented, Netflix was busy attempting to establish the probable loopholes in the pricing strategy.
It realised that consumers were unhappy with this strategy thus hating late return fee charges. Netflix sealed the gap by allowing its subscribers to have time-limited subscriptions in which customers would have unlimited rental on a monthly basis within that time. This case made the difference between the success of Blockbuster and Netflix.
In any industry with players whereby each player has an equal ability to take away the market share of the other, an organisation should strategically focus on looking for ways of enhancing the success of the organisation in relation to their competitors.
In the paper, malfunction of Blockbuster is argued as being instigated by the failure of the company to recognise the significance of this assertion in the development of business strategies of the company. This outcome requires embracing good and strategic leadership.
Strategic leadership implies visionary leadership, which enables executives to analyse various strategies that would enable their companies to succeed in the future. For Blockbuster, these strategies include recognition of the place of technology in organisational success and the need to deliver services to customers in a convenient way.
Broadcast Engineering. Research shows changes in movie-rental market share, 2012. Web.
Fritz, Ben. “Dish network wins bidding for assets for assets of bankrupt Blockbuster.” Los Angeles Times (2 may 2011): 12-13.
Halal, Bill. How NetFlix Beat Blockbuster: An Exemplar of emerging technologies, 2012. Web.
Jin, Yangsoo. The dynamics of the movie industry: Theatrical exhibitions and DVD rentals. Wisconsin: University of Wisconsin, 2007. Print.
Jordan, Andrew. The Effects of Netflix and Blockbuster Strategies on Firm Value. CMC senior thesis, 2011. Web.
Molly, Tim. 300 More Blockbuster Stores Closing, 2013. Web.