Blockbuster Hbr Case

One of Blockbuster’s biggest value drivers is geographic location. Most people, especiall in urban areas live pretty close to a Blockbuster location. Availability of titles is also a value driver that not all video stores can provide. Their reputation is also a value driver. Economies of scale are one of Blockbuster’s largest cost drivers. The ability to negotiate with movie studios with leverage while their competitors can’t as effectively win lower prices for inventory purchases gives a huge advantage. The aforementioned reasons are ammunition to defened against competitors. Geographic location and leveraging the brand name recognition are two of the most important advantages that Blockbuster has that none of its competitors can easily overcome. After the formation of Blockbuster, the first major technological substitute to come along was the DVD (the digital versatile disc) and the DIVX (digital video express disc). There was a fierce battle between these two rival substitutes as they waged war. Both were looking to become the sole technology that would replace VHS. Blockbuster remained on the sidelines for the first few years after these technologies were introduced even though 8 major motion picture studios had committed to either DIVX or DVD (6 for DIVX and 2 for DVD) Once Antioco had made a decsion as to back DVD for a multitude of reasons, Blockbuster’s decision would lead to the demise of DIVX. Antico decided that DVD offered the most promise. They were more widespread, DVD player units were more readily available and they were cheaper. About a year after Blockbuster decided to back DVD, Circuit City decided to give up on the DIVX technology. Blockbuster also faced competition from consumer’s decsion to buy DVDs as opposed to renting them(sell through). Antioco saw this as a potential threat and decided to sell through used DVDs at a discount at Blockbuster stores. Along with some promotions, such as a free rental with the purchase of a movie, Antioco’s plan was expected to triple Blockbuster’s share of the video sales market. In 2003 Disney developed a technology much like DIVX called EZ-D. The plan was eliminate the return of rented videos as the disc would be discared 48 hours after opening because a chemical would render it useless. The technology ultimately failed as Blockbuster did not back the technology because for just a few dollars more (EZ-D discs retailed at $5-$7) consumers could outright purchase a DVD with unlimited use. One of the newest substitutes to threaten blockbuster is online video sales. This market is cannabilizing Blockbuster’s sell through numbers and Blockbuster is countering with their own online sales. Another is home delivery service. Even though this service had promise with more than a few firms, they all failed for a multitude of reasons and never posed a real threat. Netflix, a video subscription service with no late fees is also a substitute that Blockbuster is facing. After much initial success, Blockbuster decided to start their own subscription pricing model in which consumers can pay a flat fee each month for unlimitied rentals at their retail outlets. Eventually adding the feature where consumers can opt to either receive/return the discs through the mail similar to netflix or to receive/return them at a retail location to satisfy an immediate need. This option gives them a competitive advantage over Netflix.