In January 2007, John Antioco, Blockbuster Inc.’s CEO, was reflecting on the challenges facing the...

Blockbuster’s Challenges in the Video Rental Industry

In January 2007, John Antioco, Blockbuster Inc.’s CEO, was reflecting on the challenges facing the company in the year ahead. The pace of change was quickening as Netflix’s online video rental business model was proving very robust. And there was a growing movement to directly download or stream videos using the Internet, which would bypass Blockbuster’s store. With its nearly 9,000 global stores, 6,000 in the United States alone, Blockbuster had an enviable brand name and enormous marketing clout, but how could it best use its resources to keep its number 1 place in the movie-rental market and keep its revenues and profits growing? What strategies needed to be developed to strengthen Blockbuster’s business model? Blockbuster’s History David Cook, the founder of Blockbuster, formed David P. Cook & Associates, Inc., in 1978 to offer consulting and computer services to the petroleum and real estate industries. He created programs to analyze and evaluate oil and gas properties and to compute oil and gas reserves.When oil prices began to decline in 1983 due to the breakdown of the OPEC cartel, his business started to decline, and Cook began evaluating alternative businesses in which he could apply his skills. He decided to exit his current business by selling his company and to enter the video-rental business based on a concept for a “video superstore.” He opened his first superstore, called “Blockbuster Video,” in October 1985 in Dallas. Cook developed his idea for a video superstore by analyzing the trends in the video industry that were occurring at that time. During the 1980s, the number of households that owned VCRs was increasing rapidly and, consequently, so were the number of video rental stores set up to serve their needs. In 1983, 7,000 video-rental stores were in operation, by 1985 there were 19,000, and by 1986 there were over 25,000, of which 13,000 were individually owned. These “mom-and-pop” video stores generally operated for only a limited number of hours, offered customers only a limited selection of videos, and were often located in out-of-the-way strip shopping centers. These small stores often charged a membership fee in addition to the tape rental charge, and generally, customers brought an empty box to the video-store clerk who would exchange it for a tape if it was available—a procedure that was often time consuming, particularly at peak times such as evenings and weekends. Cook realized that as VCRs became more widespread and the number of film titles available steadily increased, customers would begin to demand a larger and more varied selection of titles from video stores. Moreover, they would demand more convenient store locations and quicker in-store service than mom-and-pop stores could offer. He realized that the time was right for the development of the next generation of video stores, and he used this opportunity to implement his video superstore concept, which is still the center of Blockbuster’s strategy.