1. Blockbuster: Going for Broke
HEC Montreal
CSC Consulting
Olivier Cohen, Brandon Jacobs, Jessica Drolet, Richard Wallace

2. Blockbuster Company Background
Video renting company with largest North American market share until early 2000’s
Operated brick and mortar locations throughout North America
Market leader
“One at every corner”

3. Blockbuster Company Background
Purchased licenses to distribute
Carried large selection of films including all new releases
Operational costs of carrying and maintaining media
Replacement costs during technological changes (VHS to DVD)
Diversified into game console rentals and video game rentals
Large customer base and retention

4. Blockbuster and the Video Rental Industry
Excellent example of global disruption due to:
Disruption
Technological change
(DVD, Internet age)
Consumer habit change
Driving
An industry forever changed by Netflix and streaming services
Small tech startup
(Netflix)
Blockbuster
Disrupt

5. Blockbuster and the Video Rental Industry
Excellent example of global disruption due to:
Disruption
Technological Change
(DVD, Internet age)
Consumer habit change
Driving
An industry forever changed by Netflix and streaming services X
Small Tech Startups
(Netflix)
Blockbuster

6. Three stages of disruption
Impact
From VHS to DVD
Disturb
Vending machines, subscription, catalogue (Netflix)
Disrupt
Streaming services: HULU, CraveTV, Netflix, HBO, BBC, etc.
A cost-intensive model that could not evolve fast enough

7. Root causes of this disruption
Rise in home computer ownership (Apple/PC)
Internet access
Tech-savvy generation
Changing consumer habits

8. Key Issues for Blockbuster
1. What could have Blockbuster done with its assets?
2. How could they have competed in the digital age?
3. How could they have locked out competition?

9. Acquisition of disruptors
Alternatives
Acquisition of disruptors
Buy subscription model competitors
Maintain Bricks & Mortars
Try to purchase Netflix
Organic Adaptation
Develop internal subscription model
Foster a comparable “BLOCKFLIX”
Leverage size to kill competition
Industry Exit
Divest less profitable locations over time
Divest assets

10. Decision Criteria 1. Stays on-trend with new technological trends
2. Leverages changing consumer habits
3. Leverages existing know-how and competitive advantage

11. Decision Criteria Alternative On-trend with new Tech.
Leverages changing consumer habits
Leverages existing know-how and competitive adv.
1. Acquisition of disruptors 2 1
2. Organic Adaptation 4
3. Industry Exit
1: Low 4: High

12. Decision Criteria Alternative On-trend with new Tech.
Leverages changing consumer habits
Leverages existing know-how and competitive adv.
1. Acquisition of disruptors 2 1
2. Organic Adaptation 4
3. Industry Exit
1: Low 4: High

13. Organic Growth Strategy
Late 90’s
Develop vending machine / catalogue / subscription distribution model
Reduce reliance on capital-intensive brick and mortar
Expands reach and adapts to changing consumer habits
Diversify product mix at brick-and-mortar locations

14. Organic Growth Strategy
Early to mid 2000’s
Develop and launch streaming service on-trend with digital distribution
Leverage size, client relationships, brand strength to lockout competition
Exclusivity agreements
Buyback of valuable brick and mortar locations to build real-estate portfolio
Rent to retailers
Buyback from franchisees
Divest low-value assets

15. The failure of status quo
Rise of subscription + catalogue rental options in the 90’s
No response from Blockbuster = missed opportunity to adapt to new distribution model
Management failure to monitor industry context, consumer trends
Introduction of digital streaming from early 2000’s
Brick and mortar becoming less popular
Continued reliance on obsolete technology (DVD)
Minor sales strategies far too little, too late

16. The failure of status quo
Judgement: An established player refusing to react
False belief in safety through their size and reach
Failure to appreciate the potential lethality of the threat
A complete strategic failure:
Capital intensive company
Couldn’t affordably keep pace with innovation
Hesitation killed the company

17. Retrospective
Blockbuster was a market leader entering the digital age but did not keep up with emerging trends
Business model disrupted due to technological shifts and changing consumer habits
Numerous paths to survival were possible but none effectively implemented
Potential successful avenue: migrate business online and sell off assets. Similar industry: news corporations (newspapers).