Case Study analysis for Blockbuster






Case Study Analysis

Executive Summary

To ensure efficient flow of information from one department to another in any organization one has to apply the use of information system. In essence, information system ensures that services are delivered effectively. In line with this fact, this paper will analyze a video retailing company by looking at the problems it has with delivering its services. It will focus on the information system at Blockbuster. Blockbuster like other video stores faces a threat from the advancement of digital technology. Its efforts to keep the company necessary have failed. They have tried various things including merges, partnership and ties with a number of organizations in order to improve their financial performance. All of which have failed.

The goal of this study is to provide a solution for Blockbuster, which will involve the use of information system in an efficient manner o conduct their business.

Problem Statement

Blockbuster is in the business of renting out videos. To carry out this function, they applied the use of information systems especially for bar coding which made their work much easier. Neflix one of the main competition was the first to incorporate e-commerce in this line of business. Coupled with a variety of other changes that were going in the entertainment industry at the time, Netflix managed to attract more customers. This happened at the time around 2003. Blockbuster also revamped its traditional system and came up with a client server that was used in all its stores. This brought about a decrease in the training and support expenditure. Access to better technology was also a plus.

The major challenge for the company was doing video retailing online. The company successfully ventured into the video modem, video game and CD-ROM markets. The partnership with radio shack and Viacom ended sooner than expected. New technology has resulted in alternatives for the customer base. For example, pay-per view, cable television and satellite TV have phased out video renting. A possible solution for blockbuster would be to look for new ideas in the video industry.

Situation Analysis

External analysis

We could say that since the development and wide reach of technology including the production of DVDs and the internet, business has not been good for video retailers. The partnership and understanding that existed between the retailers and the theatres that produced the movie had seen the development of a lucrative business then. Film producing companies of course had to be sensitive to the needs of the consumers.

The media has highlighted how the importance of a centralized system for processing and collecting data arose. This was deemed the way forward about good business management. This system was expensive to install for most companies. Stringent lass were created to control video production and retailing and the agreements between the video retailers and producers.

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The video industry at the time was being monopolized by a few companies including: Viacom, Netflix, Warner Home Video and Blockbuster. In addition, other companies were trying to come up at the time. From a research that was done in all these companies revealed that they hard common partnerships and mergers. The research was about how each company plans to broaden their clientele base and how they will work to maximize on their existing market.

Companies that were smart enough to embrace technology early have done better for themselves that their counterparts. Some companies that adopted online video sales increased their profit margins and stayed on top of the rates. Some of these companies are Netflix and Blockbuster.

Internal analysis

In analyzing the Blockbuster Company, we realize several strengths it had over the external challenges. One of its greatest assets was its staff who were quick to act when they pin pointed any threats to the business of their company. The company’s CIO was behind the adoption of the new information system that replaced the traditional bar coding system. H. Scott Barret achieved this in the 1900s.

The online client-server also became a great point of strength for the company. The server made it possible for the company to come up with client profiles and the videos they rented.  Although this was not in line with the laws, they argued that they only kept track of the video categories and not of the titles. This gave them a loophole through which they overcame this challenge. Blockbuster made a computer system through which they could categorize over 30 million clients. The categories were created according to the rented movies. It made it possible to keep record of all the transactions they had made before.

The Blockbuster company then grew exponentially making significant profits. The status of the company can be termed to have been healthy at the time owing to the fact that the CIO was able to put in place the online client system successfully.

Before being acquired by Viacom, blockbuster was making a cash flow of $1.5 billion.  It generated $4.5 billion and $1.3 billion from rentals and sales of merchandise respectively. Its good customer relations and attractive pricing are some of the key reasons for the company’s success at the time. By monitoring the buying habits and profiles of their customers, they were able to discover media markets. Currently, it prides itself for having the best customer profile and this has been proven by a research done by multimedia publisher. This has ranked it the most popular company in the video retailing business. They sell their DVDs for affordable prices like $20-$30 each.

Its competitive nature also made the company able to stay afloat in the industry. When it competitor went into selling DVDs it followed suit in a cutthroat competition. This move together with the running of 35 channels for handling online rentals gave the company a major financial turnaround. Realizing the need for meeting the great demand for children’s video games, blockbuster and IBM formed the NewLeaf system. This system was developed in 1994 and it introduced the use of re-writable cartridge. Depending on the different programs, CD-ROM titles were created.

Then came the video modem technology, which the company embraced in order to maintain their niche in the market. Working with Catapult Entertainment to the Blockbuster Company tried to achieve this need. The company is carrying out continuous research to find ways of remaining in business even in this age of pay-per-view, cable TV and satellites.



Technological development is the greatest challenge that the Blockbuster company faces in its business. The only solution would be to use these new technologies to its advantage.  The red Box rental system allows customers to rent videos for as little as a dollar a day. However, another challenge of the stocking capacity arises since its limited. However, they can work round this by ensuring that they are only stocking the latest videos. Apart from being very easy to install, the Red Box only requires very little labor to run. They only require hiring people to restock the machine.  Coinstar the company that owns Red Box installs and also maintains coin operated systems. This means that a distribution mechanism and labor is already available. The downside to this technology is the pricing rates. Renting out movies for only a dollar can have serious negative financial repercussions in the future if not wisely done.

Another solution for blockbuster would be to follow Netflix’s example. Embracing online technology will mean that they increase their customer base, hence, profits. By using the internet to rent movies, they make it very convenient for their customers who will simply download and watch the movies in their own time. If they have a personal computer, they do not even need to save the videos in any hardware they can simply save it there.

There are several limitations to using this system. The payment plan can be tricky as to whether people should download first then pay or vice versa. Also poor internet connection or other factors can make the process of downloading very long causing customers to be frustrated. Downloaded videos also have a tendency of being of a lower quality than videos that come already recorded on DVDs.

New technology can also allow the company to do deliveries to customers through a digital platform. Through telephone lines or the internet, the videos can be transmitted directly to their television sets. The clientele will definitely grow since they will not have to go through the hassle of physically going to a video rental store. However, this assumption is not very accurate since people may prefer to watch the movies on their personal computers. Critics may also view this as an abuse of the intended functions of the internet.


The red Box machine is a good strategy to help Blockbuster maintain its niche in the video retailing industry. This is an affordable investment since Coinstar readily provides the installation and maintenance services at very affordable rates. The company will also need not invest so much in labor because a lot of human resource is not needed for the system to work. Although the stocking capacity may be a limiting factor, it is sufficient because mostly only new releases are stocked into the boxes.

The boxes will come in different sizes in terms of the capacity they can hold. Customers can simply select the boxes they wish to rent and pay for them. The Red Box is most efficient in towns. To make the system more beneficial, it will be necessary to add the charges of renting from a dollar to about ten dollars per day for the business to accrue profits.














Business Problems faced by Blockbuster

In only 3years after being acquired by Viacom, Blockbuster video collapsed. This was as a result of various financial problems that the company had been grappling with. By trying to raise large sums of money to restore financial stability, the business continued going under.

The change in market trends was also a contributing factor to the downfall of this business giant. More Americans preferred cable television. This was as a result of the development of online information technology. Very few people were at this point still interested in renting videos. The company incurred great losses since people were more interested in the new releases easily found online.

What could be referred as the last blow came when the new chair rebranded the store’s name. Bill Fields did away with videos and his efforts to rejuvenate did not bear much fruit. Even former acquaintances of blockbuster were not so eager to buy the company in order to salvage it.

Types of data that Blockbuster required

To be able to plan for its market more efficiently, blockbuster needed to know their customers based on the different categories upon which they rented movies. The system that was being used at the time compromised the privacy of the clients very much an issue that had raised much concern. Form game magazines and the distribution points, this information could be easily collected. This way one would be able understand the entertainment and buying habits of the target markets and their profiles could also be created. Apart from a customer’, average income, their marital status, age and number of kids among other information details were collected. Their preference to either CD-ROMs or game cartridges was also an important factor to consider. It was also necessary to record whether the individual had a personal computer or not. By law, the company was bound not to reveal to any third party the kind of movies the customers watched. Therefore, to ensure that they abided by the law, they did not record the title of the movie borrowed.


Failure of the games systems

Blockbuster teamed up with NewLeaf entertainment to host a server. The client-server made it possible to host an array of video games. These games could be burned onto CD-ROMs or a cartridge and then payment would be made. This meant that the transaction had to happen from the store. To reduce cost, they used rewritable cartridge. This also was so as to generate more profits. However, after considering several implications of pursuing this line of business, this option was abandoned. The greatest fear being losing sales to illegal burning that was inevitable in the near future.


The implication that customer database would have on revenue and profits

Blockbuster then decide to use the consumer database to further its various lines of business including games, reference work and education programs. The database helped them to be able to gauge the future and know the potential new markets for the video industry. This way they would be able expand their customer base and make more profits. By optimizing the supply chain, they would be able to ship and make orders according to the existing demand. By having a database, the company would be able to monitor and evaluate the effectiveness of their promotional activities.


Video stores in 10 years from now

It is inevitable that major changes in technology will continue to happen.  This will obviously affect the video renting industry. Digitization has made the need to rent videos and games unnecessary.  People no longer need to go to video stores physically; they can simply make purchases using their PCs or mobile phones as long as they have internet access. Technology is aiming at making the process of purchasing movies and getting it on your television set much easier in the near future. Imagine a world where one can purchase movies over their mobile phone and directly put it on their television set. This world will definitely not have video stores.


Management report

Blockbuster has since lost his highly competitive luster over time but is remains significant by acquiring several stores. It has faced a variety of challenges about keeping at par with its competitors.  Technological advancements remain the most important problem for the company forcing it to seek online methods to meet the needs of its customers. Perhaps the biggest mistake the company made was trying to seek partnerships with competitors instead of embracing new technology and using it wisely to meet the needs of its clients. They failed to also put into important use the information about their clients that they had in their database.

The company should use information management systems appropriately to be able to salvage their business that has since not been so good.

They have to realize that use of the internet and mobile phones is what is in vogue and especially being in the entertainment industry they cannot afford to ignore this. Streaming video technology is the way to go. They should create a website portal where customers can download the videos of their choice. In essence, they should move away from the traditional methods and find out new technologies that will best suit the needs and convenience of their customers. By meeting these needs, they will make their company survive and maybe even become as successful as before.

Actually, by creating a portal where customers can download videos at a fee as opposed to going to stores. This will greatly reduce the labor and running costs that would have otherwise incurred if running a store. This system will also not limit the company in terms of the capacity they require to keep the movies. They will not be limited to only current releases.