econ511 blockbuster video

5-204-2 59 JAMES D. DANA JR. Blockbuster Video " 11 is like going inlo McDonold's , asldng/or your burger a nd gelting French/ries. "/ In April 1997, after a 20 percent decline in revenues at Blockbuster that sent Viacom's stock price tumbling, Viacom CEO Sumner Redstone was anxious to show inves tors that his 1994 acquisition of Blockbuster for $8.4 billion from founder Wayne Huizenga was not a catastrophic mistake. Investor concerns about the maturity o f the industry, the highly fragmented market structure, and especially the threat o f video-on-demand technologies that would render videos obsolete, had reached a new high. The problems at Blockbuster were largely attributed to a plan to expand Blockbuster's product line beyond movies, which included opening several hundred Blockbuster Music outlets. In early 1997 Sumner Redstone replaced the executive in charge of Blockbuster and led the finn in a new strategic direction. Bloc kbuster implemented a new strategy designed to deliver more value to consumers and stockholders. "Go Home Happy" became the new slogan as ad dollars shifted towards marketing availability. Blockbuster offered guaranteed availability of select new releases and signed new reveoue sharing agreements with suppliers . In just three years Blockbuster increased the number of outlets from 3,701 to 4,793 and revenues increased from $2,933 10 $4,463 (see Exhibit I ) . By th e tum of the millennium, a Blockbuster store was located within a 10-minute drive of nearly 70 percent of all u .S households. The Video Rental Industry Formed shortly after videocassette recorders were introduced for the home market, the video rental industry grew rapidly during the 1980s. By 1999 video rentals generated $8.1 billion and video sales generated $9. 2 billion in domestic retail revenues (See Exhibit 2 and Exhibit 3.) About hal f o f total U.S. video rental and sales revenue went to the movie studios, although their share of the consumer rental spending was only $2.4 billion. Overall, the video market generated more than half of the studios' domestic film-related revenue, much more than the $3.6 billion generated from the domestic box-office in 1999. 2 (See Exhibit 4.) Nine major movie studios produced most of the movies in the $7.4 billion dollar domestic film industry. Di sney's Buena Vista and Time Warner's Warner Brothers were the box office I Michael Johnson, the pre s ident of Buena Vista, Disney's video division . Sec Shapiro (1998) . Eben Shapiro, "Tired of Renting ' Shanghai Surprise'? Blockbuster, Ho ll ywood Hope to Help ," The Wall Slree.1 Journal, March 2S , 1998 . 1 The industry statistics are from "An Annual Report on the Hom e Video Market. 1999," Video Software Dealers Association. 0 2004 by the Kellogg School of Management, Northwestern University . This case was prepared by Professor James Dana. Cases are developed solely as the basis for class discussion. Cases arc not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management To order copies or request permission to reproduce aterial s, call 847-491-5400 or e-mail cases@kellogg.northwcstern . edu . No part of lhi s publication may be reproduced, stored i n a retrieval system, used in a spreadsheet, or rransmilted in any fonn or by any mcans-elcclronic, mechanical, phol'ocopying, recording, or otherwise-withou t lhe pcnnission of ho Kellogg School of Management

econ511 blockbuster video

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