Risky Business
Ellen Kim
Suniti Patel
Patrick Rader
Jonathan Ryder
Kelvin Shum
2
Overview
Vision & Mission
Industry Analysis
Internal Analysis
Competitor Analysis
Financial Analysis
Strategic Recommendations
3
Overview (cont.)

Vision
◦ “To be the leader and number one choice for customers
in home entertainment across multiple distribution
channels.”

Mission
◦ “To provide our customers with the most convenient access to
media entertainment, including movie and game entertainment
delivers through multiple distribution channels such as our
stores, by mail, vending and kiosks, online and at home.
Blockbuster offers customers a value-price entertainment
experience, combining the broad product depth of a specialty
retailer with local neighborhood convenience.”
4
Industry Analysis – Porter’s 5 Forces

Threat of New Entrants: Low
◦ Economies of scale.

Bargaining Power of Suppliers: Low
◦ Many other large companies within
industry.

Bargaining Power of Buyers: High
◦ Low switching costs.

Threat of Substitutes: High
◦ Main substitutes include Video on
Demand and Pay-Per View.

Intensity of Rivalry: High
◦ Main online competitors within
industry include Amazon.com,
Apple, Wal-Mart, and Netflix.
5
Industry Analysis (cont.)
Bargaining
Power of Buyers
• Low switching
costs
• Many
competitors
• Hovering
prices
• See Figure 1
Threat of
Substitutes
• Video on
Demand &
Pay-Per View
• Similar/exact
quality of
product
• Competitive
response:
Blockbuster
Total Access
Intensity of
Rivalry:
• Competitive
actions against
Blockbuster
• Blockbuster’s
competitive
response
• Acquire
Movielink
Figure 1
Strengths
Opportunities
Brand Familiarity
Multiple Communication Channels
Acquisitions/Partnerships with Movie
Studios
Customer-Orientation
Company Growth
Improve Home-viewing Tech
New Business-level Strategies
Enhance Customer Service
Lack of expertise in Digital Market
Acquisition defensive, not strategic
Inadequate evaluation of Movielink
Inability to create synergy
Increasing popularity of video-ondemand services
Established position in digital download
market
Piracy
Weaknesses
Threats
8
SWOT Analysis – Strengths &
Opportunities
• History of quality
services
• Core
Competency
Brand
Familiarity
Company
Growth
• Market Presence
• New Channels
• Partnerships/
Acquisitions
9
SWOT Analysis
Multiple Comm.
Channels
• Satisfy all
demographical
segments
• Core Competency
• Increase
diversification
• Reduce online
renting risks
Improve homeviewing tech
10
SWOT Analysis
Customer
Driven
• Means of Revenue
• New product
development &
customer needs
• Emphasize R&D &
Innovation Depts.
• Maintain longer
competitive
advantages
New Businesslevel Strategies
11
SWOT Analysis – Weaknesses &
Threats
Lack of
expertise in
digital
download
market
Inadequate
evaluation of
Movielink
Inability to
create
synergy
Increasing
popularity of
video-ondemand
services
Threat
12
SWOT Analysis
• Compete with
Netflix
• Loss of
innovation
Acquisition
defensive, not
strategic
Established
position in digital
download market
• Hinders
market share
• Need new
value
13
Competitive Environment

Immediate Competitors
◦ Netflix and Redbox

Impending Competitors
◦ DVD Avenue, GameznFlix, CafeDVD.com, eHit.com, and Intelliflix

Invisible Competitors
◦ Game Stop
14
Main Competitor: Netflix

Market Commonality
◦ Blockbuster and Netflix both target the same
groups of customers and operate in the
online DVD rental market

Resource Similarity
◦ Access to most of the same resources,
although some of them differ
15
Standard Cycle Market

Most competitive actions are taken to
increase market share
◦ Blockbuster launched marketing and
advertising campaigns and had joint
promotions with fast food chains
◦ Blockbuster used global management
consulting and technology company to build
network of distribution centers. One-day
delivery to 90% of customers.
Competitive Advantages
16


Physical stores where
customers have the option of
returning their online rentals
in exchange for new in-store
rentals
Acquisition of Movielink
◦ Founded by Paramount Pictures,
Sony Pictures Entertainment,
MGM, Universal Studios, and
Warner Brothers, and has
distribution agreements with all
of them, as well as Lionsgate and
20th Century FOX.
17
Financial Analysis
Total Net Income:
 3rd quarter of 2007 total net income was
($35) million. 4th quarter of 2006 was a
positive $12.90 million. $47.90 million
decrease in past 9 months.
◦ More money is leaving the firm than entering it.
◦ Must be fixed in order to be profitable
18
Financial Analysis (cont.)
Total Revenue:
 3rd quarter of 2007 total revenue was $1,238.20
million.
 Decreased $224.9 million since the 4th quarter
of 2006.
◦ Overall sales, rentals, and downloads have decreased.
in millions
Operating Revenue
Total Reveunue
Cost of Sales
Cost of Sales w/ Depreciation
Gross Margin
Gross Operating Profit
Q3-2007 Q2-2007 Q1-2007 Q4-2006
Sep-07 Jun-07 Mar-07 Dec-06
1238.20 1263.20 1473.00 1463.10
1237.20 1263.20 1473.00 1463.10
396.30
570.40
667.80
841.90
441.00
627.70
635.50
822.20
531.60
711.00
762.00
941.40
536.90
699.90
763.20
926.20
19
Financial Analysis (cont.)
Earnings Per Share:
 3rd quarter basic EPS total in 2007 was ($.20) million.
 $.25 million decrease from 4th quarter in 2006
◦ A negative earnings per share is very bad considering a firm’s
main goal is to generate positive returns for its owners.
Future Projections:
 Annual revenue for the online video download market
is expected to increase by $3.7 billion by the year 2010.
 DVD rentals and sales are also expected to increase to
around $29.5 billion.
 With Blockbuster’s recent acquisition of Movielink, it
will be able to take part in the online video download
market and is expecting to see an increase in its
revenue.
20
Strategic Recommendations

Lower Costs
◦ Brick and Mortar stores

Technological Advancement
◦ Speed to the market can serve as competitive advantage
◦ Easy navigation will attract users (both technologically
advanced and challenges)

Increase Market Share
◦ Marketing
◦ Cost Savings passed on to customers
◦ Wider selection of movies continuously added to
database
Questions?