Traditionally, Blockbuster used to be a brick and mortar business model UT it has changed to become out-of-home DVD rental kiosks and also has an online rental and sale platform that delivers movies digitally and by mail. The competition in the movie rental industry has grown significantly over the past 5 years. Back when Blockbuster was being started, Hollywood was the only competitor at the national and regional level but today, United States alone has over 500 registered movie rental companies.
Today, due to advancement in technology, movie rental companies are running away from the old methods of video renting and have now embraced internet as a business tool. With internet, movie Rental company are able to rent the videos where a customer pays using online merchants like Papal and the movie is delivered by mail or in one’s digital television. It is also worth to note that there is increasing number of video machines in major stores across US. Blockbuster Video in the past enjoyed monopolistic business model as they had a store at every town in US.
Despite the fact that the company enjoyed the market alone, the number of stores made the company’s operation costs to rise which went so high to the extent of the company being declared bankrupt on September 23, 2010 (Blockbuster Entertainment Corporation. & Philip Life Group. , 2005). The rise in operation costs was due to the decrease in sales that can be associated with the increase in Internet use by the people where people preferred to stream online videos rather than visiting video rental shops.
Today’s market has come a long way and looks a lot different than it did when Blockbuster Video was at its best. There are now many competitors that fight for the consumer’s every dollar, but there are still a few dominant companies that stand out; Nettling and Amazon. Characteristics of monopoly structure are: profit minimization as there is only en firm that determines the price in the market, there only exist a single seller- this implies that the market is controlled by one firm and ideally, the firm is the same as the industry(Blockbuster Entertainment Corporation. Amp; Philip Life Group. , 2005). Initially, the retail stores located at various parts of the US were the major contributors of Blockbuster’s success. This was due to the fact that many people were able to access the movie rental services in their neighborhood. This attracted many customers as they could for the very first time rent a movie and return it to the store at a cost lower than that of archiving the very same movie. Like any other business, the main goal of Blockbuster is to generate more sales and hence making great profits.
With this in mind, the store has embraced the use of internet as a marketing tool and also a selling platform (Blockbuster Entertainment Corporation. ; Philip Life Group. , 2003). Today, many people prefer internet transactions as one-minute- shopping compared to driving many kilometers into “one-step” video shops. Another key factor that can’t be ignored is the “Guaranteed In-Stock” new movies and videos. Blockbuster’s online movie database is updated daily where new ivies are added into the system and made available for purchase.
It must be noted that the movie industry is time sensitive and unavailability of a new movie release on time can highly affect the number of sales. Also, in the short run, the company must be able to advance its technology-databases and their websites, as they are the pillars of company’s SUccess. The company must be prepared for various problems that might come with technology advancement. In the long run, creativity is paramount for sustainability of this company.
Blockbuster should come up with differentiated products as it has many competitors. Also, tit the availability of internet in every part of the world, the video and movie rental industry is expected to suffer a big blow, given the fact that the very same products they are providing at a given fee can be downloaded at a click of a button. Another factor is piracy issue. Today, many people own a personal computer with the ability to create DVD and CD copies.
This is a major threat to this industry in the long run and the company must come up with a way of restricting the same. As stated outlined above, the major factors affecting the operations of Blockbuster is the operation costs (licensing fees and labor costs). As indicated in the company’s annual report, one can tell that were it not for these costs, the video rental business would be making a big profit margin. It is therefore important if the company’s management can be able to come up with cost minimization strategies (Minter & Reid, 2006).
The manager must compare the performances of related companies like Apple and Nettling and be able to identify the weak points of Blockbuster Video. The managers must consider the prevailing prices in the market. Some of the major factors that affect the competitiveness in the movie rental industry are, bargaining rower of buyers, prevailing market prices and availability of other channels that provide the same products. As indicated above, internet is of major impact to the success of any movie rental company.
This is because it is the tools that can be used to target a wide range of customers, but also like in this case, it is used to provide free content (movies and videos) , a factor that is affecting the profitability of movie rental businesses. Blockbusters have embraced the use of internet not only in marketing, but also in providing their clients with access to movies after paying subscription fees through their on demand service. This has en advantage to them as they are able to target many clients as compared to other competitors.
Prevailing market prices, there is a difference in price ranges of firms within this industry but most competition cannot match because of adverting, popularity, and first mover advantage and clients loyalty. Product delivery duration is another factor that affects the client base of any movie rental industry, if a company’s delivery takes a long time, the clients might be attracted to other companies that deliver their products within a short duration. This is the factor that has contributed to many movie companies providing free shipping which takes at most 1 day.
Nettling and Apple are the two closest competitors of Blockbusters. These two companies have a different pricing method from blockbusters as they only major in subscription, though Apple has an added advantage as it has a marketing platform that is incorporated in all Apple devices such as Pads, Notebooks, and Phones and given the fact that Apple has many users and targets a specific class of people in the society, it has an added advantage over other companies (Unambiguous, 2009). I would recommend both subscription (monthly, lifetime, and yearly) and pay-per-download/ delivery models.
