Table of Contents
Company and Background....................................................................................................................................4
Rationale..................................................................................................................................................................4
Target Audience.......................................................................................................................................................4
Company History.....................................................................................................................................................5
Legal Status..............................................................................................................................................................5
Company Issues.......................................................................................................................................................5
Vision Statement......................................................................................................................................................6
Mission Statement....................................................................................................................................................6
Ethics.........................................................................................................................................................................6
Community Relations..............................................................................................................................................7
Organization Structure............................................................................................................................................7
Organization Culture...............................................................................................................................................8
Human Resources.....................................................................................................................................................9
Global Business Strategies.....................................................................................................................................10
Global Economic Conditions.................................................................................................................................10
Future Tactics..........................................................................................................................................................10
Outsourcing.............................................................................................................................................................12
Roles and Responsibilities......................................................................................................................................12
Cultural Diversity....................................................................................................................................................12
Global Ethics............................................................................................................................................................13
Social Responsibility………………………………………………………...……………………….....................14
Organizational Structure........................................................................................................................................14
Cultural Diversity in Workforce............................................................................................................................14
Management in Virtual Environment...................................................................................................................15
Strategic Global HR tactics.....................................................................................................................................16
Compensation...........................................................................................................................................................16
Global Opportunities and Risks..............................................................................................................................16
Marketing Mix………………………………………………...…………………………………….……………...18
SWOT…………………………………………………………………………………………….…………………20
PEST………………………………………………………………………………………………..………………..22
Innovation Description……………………………………………………………………………………………...24
Balanced Scorecard…………………………………………………………………………………………………25
S-Curve Analysis………………………………………………………………………..…………………………...27
Innovation Value Proposition……………………………………………………………………………………….27
Conversion Plan……………………………………………………………………………………….…………….28
Diffusion Plan….2……………………………………………………………………………………..…………….29
Ethical Considerations…………………………………………………………………………….………………...29
Risk, Risk Mitigation, and Assumptions…………………………………………………………………………...30
Statement of Financial Position…………………………………………………………………………………….30
2008 Operating Statement…………………………………………………………………………………………..31
2009-2010 Operating Statement………………………………………………………………….…………………33
Pro-forma Profit and Loss Assumptions………………………………………………………...…………………37
Important Calculations……………………………………………………………………………………………...38
Pro-forma Profit and Loss Statement………………………………………………………………..…………….39
Comparison Assumptions……………………………………………………………………………….…………..40
Comparison Chart…………………………………………………………………………………………………..41
Dish Network Quarterly Income Statement………………………………………………………..……………...43
Financial Statements………………………………………………………………………………………………...45
Cash Flows and Financial Analysis………………………………………………………………………………...47
Balance Sheets……………………………………………………………………………………………………….48
Financial Ratio Analysis…………………………………………………………………………………………….49
Financial Conclusion………………………………………………………………………………………………...50
Business Strategy……………………………………………………………………………………………………52
Organizational Chart……………………………………………………………………………………………….53
Business Strategy Summary………………………………………………………………………………………..59
BCG Matrix…………………………………………………………………………………………………………60
References....................................................................................................................................................................51

Executive Summary Blockbuster Inc. views itself as a cable company first and foremost. Blockbuster, now a subsidiary of the satellite television provider Dish Network, provides cable, movie, and gaming entertainment through the means of cutting edge, online technology that provides On Demand services, the earliest releases of movies to the rental market, and a mail order game system that will have games in your mailbox the next day after your order. Dish Network customers receive all services for a small $10 fee bundled in their cable bill. Non-Dish Network customers will have access to the movies and games for $15 a month. All streaming shows and movies are offered on a robust, top of the line player and at full high definition, 1080p. Dish Network invested 320 million dollars into purchasing the once sinking Blockbuster. Blockbuster currently has On Demand agreements with many major networks. An additional 50 million will be spent on building out applications for mobile devices, building a Blockbuster movie option into the cable boxes, website improvements, and future technology such as being able to stream live sports and pay per view sporting events on Blockbuster.com. Entertainment is mobile now and the technology that Blockbuster and Dish Network can offer together will be a cutting edge blending of all of our entertainment needs in one place. On the go, customers can catch up on their favorite television shows via On Demand, watch a movie on the plan, and download PC games or view demos for their favorite console games. Platforms will be accessible through Android based tablets and phones, Ipads, Iphones , and of course your laptop. Also with current television technology you can easily hook laptops and computers up to the televisions so at home, customers can still watch their movies on the television. The cable industry has been under scrutiny as of recent for high fees and paying extra for premium channels. Dish and Blockbuster attack this in a few different ways. First, all new customers signing up with Dish Network, if they select the Blockbuster package, will get a year of service for 39.99 (base package) and the Blockbuster Entertainment pass. They will have full access to the Blockbuster membership and Blockbuster movies will also be available through the cable menu on their box. Also they will get to watch selected favorite shows from premium channels, saving the money of having to have a full subscription to these networks. In a tough economy with people cutting back this is a great feature that the existing customers will love and will attract new customers.

Company Background Blockbuster Inc.'s history can be traced back to 1982. Their business and operations were previously conducted by Blockbuster Entertainment Corporation, which was incorporated in Delaware in 1982 and entered the movie rental business in 1985. “Blockbuster Inc., formerly an indirect subsidiary of Viacom Inc., was incorporated under a different name (Viacom) on October 16, 1989 in Delaware. On September 29, 1994, Blockbuster Entertainment Corporation was merged with and into Viacom. Subsequent to the merger, their business and operations were conducted by various indirect subsidiaries of Viacom. Over the year and a half prior to their initial public offering in August 1999, our business and operations were either (1) merged into Blockbuster Inc. or (2) purchased by Blockbuster Inc. and/or one of its subsidiaries. In October 2004, Blockbuster Inc. split off from Viacom and became a fully independent company.” (Blockbuster Corporate Overview, 2011). In November 2006 Blockbuster introduced TotalAccess, their online site. In 2008 Blockbuster teamed up with NCR to offer their Kiosk, vending service. They are based in Dallas, TX. Blockbuster, Inc. is the only entertainment rental company that provides their service across 3 levels, in store, online, or via kiosks. In April of 2011 Blockbuster was purchased by Dish Network for 228 million because the failing company was in the midst of bankruptcy.

Products/Services
Blockbuster provides both home and mobile entertainment through streaming of movies, On Demand television shows, mail order games for gaming systems, as well as some store locations where movies, games, gaming consoles and entertainment needs can be rented and purchased. Blockbuster also provides their MoviePass for Dish Network customers through their cable box (in place of a typical pay per view package). Blockbuster offers kiosks at various store locations (i.e. grocery and convenience stores) where customers can rent a movie through the machine with a credit or debit card for $1 a day. Blockbuster also offers their mobile app technology where streaming movies and television shows can be down on the go via a laptop, tablet, and Android based phones and on the IOS Iphone system. Services for Blockbuster online will be $10 a month for Dish Network customers (charged will be bundled into their current bill), $15 a month for non Dish Network customers, and customers that sign up with Dish Network as a new customer will be given their base cable package for $39.99 a month as well as 2 free months of Blockbuster service.

Technologies
Blockbuster has a state of the art, robust player for their online streaming as well as all movies and On Demand shows are in full HD 1080p. As previously mentioned, streaming can be done on the go when members log in to the mobile app on their mobile technology. Blockbuster has streamlined their systems together with Dish Network’s and Blockbuster store locations so that transactions and the return of mail order games or movies is a seamless and easy process. Also, when customers go to store locations, a membership card is no longer needed. Customers simply provide their name and address to the customer service associate.

Markets
Blockbusters market is a vast one that expands globally and across almost all age groups, ethnicities, and socioeconomic levels. We feel the main age group will be (all genders) ages 18-55. We start with age 18 because many younger customers will access the services through their parents account. Obviously existing Dish Network customers are going to be a huge market base for us as well. Blockbuster is offering high quality, easy to use and low cost methods for our customers to access all of their entertainment needs at any time, at home or on the go. Blockbuster is also the first company with new releases onto DVD, giving a huge benefit to its customers as well as an edge over the competition.

Distribution Channels
Our distribution channels are going to be Blockbusters online member site, their Android and IOS based applications, their fast and easy mail system, their physical store locations, and through Dish Network cable boxes.

Competition
Blockbuster’s biggest competition is Netflix and Redbox. Unfortunately Blockbuster also competes with the black market of movies and shows being illegally streamed online. I think Blockbusters price point (especially with Netflix’s price increase and splitting of services last year), mobile apps, On Demand and quick releases will help pull customers that are frustrated with Netflix over to them. With Netflix, members have to wait until shows release their seasons onto DVD to air them while Blockbuster has immediate access to favorite shows on On Demand because of the Dish Network ownership.

Financial Projections
| |FY 2009 |FY 2010 |FY 2011 |FY 2012 |
|Revenue |4,051 |3,240 |601 |1,200 |
|Operating Income |(300) |(330) |(100) |14 |

We can see with Blockbuster shedding many of its stores, and being acquired by Dish Network is starting to improve the overall financial health of the company. Blockbuster will need to be focused on keeping operating expenses down, generating revenue through their existing stores, their membership services, and bringing on new customers, away from the competition.

Solution Management

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Blockbuster LLC. Is now under Dish Network’s management. Charles Ergen ultimately, as Chairman of the Board, acts in the interest of the shareholders (as Dish’s largest shareholder) of Dish Network and makes the ultimate decisions regarding the company, although has very little to do with the day to day actions and work of the employees. Ergen focuses on shaping Dish Network’s strategy and business model. Joseph Clayton, President and CEO of Dish Network, is the direct report of all Dish Network (and its subsidiaries, i.e. Blockbuster) managers and is responsible for the day to day operations. Clayton came to Dish Network in 2011 after being CEO for Syrius Radio. Under Joseph Clayton, regarding its subsidiary in Blockbuster, is Michael Kelly, President of Blockbuster. Michael Kelly replaced former CEO Jim Keyes and had previously been Executive Vice President of Dish Network’s commercial services division as well as media sales. “Michael was the visionary behind our acquisition of Blockbuster," said Dish chairman and CEO Ergen. "His leadership will be key to returning Blockbuster to profitability and improving the experience we offer to consumers across the U.S. and globally" (Szalai, 2011). Kelly’s role will not only be Blockbuster’s day to day operations, but also working at reshaping and restoring Blockbuster’s iconic brand by working with the employees and the franchises to keep giving, and find better ways of giving, customers access to Blockbuster’s 125,000 movies and games via store, mail, or online. Dennis McGill, Kevin Lewis, and Greg Nichols also manage the day to day operations in their given areas and report back to Michael. As eager as Ergen was about Kelly revamping Blockbuster, it is a process that will take time and require work, continued innovation and remaining on top of technological advances. Research and Development will be key in determining what the customers wants and needs are and constantly making sure we are offering the best product and make changes when necessary. The industry and the technology is ever changing and the vision of Kelly and the rest of the executive team will be critical going forward and they can’t afford the mistakes of the past.

Financing Sought and Uses of Funding Financing will not be sought out initially. Blockbuster already had their online site up and running when Dish Network took them over. They will be investing much of their own monies into the building of mobile app technology, building a Blockbuster movie option into the cable boxes, website improvements, and future technology such as being able to stream live sports and pay per view sporting events on Blockbuster.com.

Background and Introduction:

For our MBA Program Project we have been asked to choose one of two options, to either develop a business plan for a new venture or to create a business analysis or due diligence report for an established business. I have chosen to create a Business Analysis for an existing company that I feel I see room for improvement on some level of their business model. I will work on this Analysis throughout my MBA courses and apply what I have learned in each course to establishing where I could improve the business model of my company. I have chosen a publicly traded entity for my company so I will have almost all company resources I would need available to me.

Rationale:

Blockbuster, Inc. is the company I chose to study and prepare my Business Analysis on. My rationale for choosing this company is that it is very clear to me that Blockbuster's business model has failed along the way, but I also feel they are not lost. I feel with improvements to their research strategies and marketing plans, they can still be a pillar in the entertainment world. While Netflix and Redbox may have beaten them to the market on certain strategies, Blockbuster has the power of their brand and being a household name. Blockbuster, Inc. has had great success in the global market. “Blockbuster Inc. is a leading global provider of in-home rental and retail movie and game entertainment with over 6,500 stores in the United States, its territories and 17 other countries as of January 3, 2010. Blockbuster also offers rental and retail movie entertainment through by-mail, vending kiosks, and digital download. Blockbuster, Inc., one of the strongest and most recognizable entertainment brands in the world, reported worldwide revenues of than $4 billion in 2009.” (Blockbuster Corporate Overview, 2011). However, only 2 short years later, we have all seen probably at least one or two of our local Blockbusters closing their doors. I will study and analyze Blockbuster, Inc. over my courses and research what went wrong and why a company that was bringing in billions of dollars all of a sudden seemed to be taking a step backwards and closing doors to their neighborhood stores. I will also give insight on how companies can learn from Blockbuster, Inc.'s business model issues. "If the rise and fall of Blockbuster has taught us anything, it's evolve or fall by the wayside." (Wisniewski, 2011). With the purchase of Blockbuster by Dish Network I think Blockbuster has a huge opportunity to get back on top of the entertainment rental industry.

Target Audience:

Blockbuster, Inc. serves a massive clientele. Movies, games, television and entertainment in general show no discrimination in their audience. Their audience consists of children, teenagers, adults, men, women, all races, backgrounds, and ages. However we can narrow it down a little further by looking at the different presences that Blockbuster has. First off let's call the audience 18 an older seeing that children are relying on a parent's membership in order to access their entertainment rentals. The “brick and mortar” locations are going to target people who are occasional entertainment renters and are happy to return their movie, game etc within a couple days. Generally these will be a slightly older generation that is used to going to a physical store to rent their movies and not interested in renting a movie online. Blockbuster TotalAccess, their online site, is catering to a younger generation who spend a lot of time on the internet, as well as parents who may find getting their movies in the mail and returning them the same way is easier. Finally, Blockbuster now has kiosks located at various retail locations, such as grocery stores, where movies can be rented for about a dollar, as long as they are returned the next day. I think this location caters mostly

to Generation X and Y'ers. These generations like instant gratification and if they can get their movies at the same time as their groceries, than even better. Also Babyboomers might not be as comfortable using a credit card at a kiosk as this is required to rent a movie or game.

Company History:

Blockbuster Inc.'s history can be traced back to 1982. Their business and operations were previously conducted by Blockbuster Entertainment Corporation, which was incorporated in Delaware in 1982 and entered the movie rental business in 1985. “Blockbuster Inc., formerly an indirect subsidiary of Viacom Inc., was incorporated under a different name (Viacom) on October 16, 1989 in Delaware. On September 29, 1994, Blockbuster Entertainment Corporation was merged with and into Viacom. Subsequent to the merger, their business and operations were conducted by various indirect subsidiaries of Viacom. Over the year and a half prior to their initial public offering in August 1999, our business and operations were either (1) merged into Blockbuster Inc. or (2) purchased by Blockbuster Inc. and/or one of its subsidiaries. In October 2004, Blockbuster Inc. split off from Viacom and became a fully independent company.” (Blockbuster Corporate Overview, 2011). In November 2006 Blockbuster introduced TotalAccess, their online site. In 2008 Blockbuster teamed up with NCR to offer their Kiosk, vending service. They are based in Dallas, TX. Blockbuster, Inc. is the only entertainment rental company that provides their service across 3 levels, in store, online, or via kiosks.

Legal Status of Blockbuster, Inc:

Blockbuster, Inc. is a for profit, publicly traded Corporation. Blockbuster.com posts their Certificate of Incorporation and they filed for Incorporation with the State of Delaware. They also do franchise some of their store locations. Their stock symbol is BLOAQ. Because Blockbuster, Inc. is a publicly traded organization, they are transparent about their corporate information and financials. Their products and service, which is delivering entertainment for rental to the general public, are in line with local laws and regulations.

Issues Company is/will be facing:

Blockbuster Inc.'s current status is very uncertain. On September 23, 2010 they filed for Chapter 11 Bankruptcy and on March 28, 2011 they were purchased by Dish Network who won a bid to buy them for $320 million dollars. This ties into key issues that the company faces and will face in the future. These issues are mostly to do with their competition beating them to market on key parts of their business. Blockbuster has been late to the game and fell victim to a static business model that they didn't review and change with the times. Another issue Blockbuster has been facing is the closing down of many of their store locations. It seems that Blockbuster was busy expanding their store locations at a rapid pace, but failed to see the industry was changing before their eyes. They are facing bankruptcy and dealing with their physical stores that are fading fast in an technologically advanced world. I feel this aligns with my area of study because my concentration is marketing. I am/will be learning about how companies can not only produce the best, most innovative product, but how they can strategically bring that product to the market place so that it is most profitable to them, and serves their clients need best. This is where I feel Blockbuster failed. If they had more strategic marketing processes, starting with research and information gathering, Blockbuster may have seen these opportunities in the marketplace quicker and would have adapted themselves to capitalize on these opportunities.

Vision Statement:

The vision statement for Blockbuster should be, “Be the global leader in the entertainment rental industry by fulfilling the entertainment needs of our customers and in a variety of ways that are convenient for them. Our goal is to be number one in our customer’s minds for entertainment rental and as a company that values its employees and customers. This Vision Statement is appropriate in length and it answers the questions of:
What are the company’s long term goals?
What is the company’s vision? What are they trying to achieve?
What are our customer’s needs?

When I looked up Blockbuster’s actual vision statement I found that it was, “At Blockbuster, diversity means valuing differences. It's a corporate value that must be continually developed, embraced and incorporated into the way we do business." (Blockbuster.com, n.d.). This vision statement is too vague, does not give any indication of what the company’s vision is or what they are trying to achieve. “A vision statement would provide employees, stockholder, and the public a long term view of what the company strives to be.” (Mindtools, 2010). While it gives nice insight into their values and diversity beliefs, that is really more appropriate for the companies code of ethics section.

The vision statement I created for Blockbuster is more aligned with the mission statement as the mission statement will be the vehicle in which the vision is achieved.

Mission Statement:

"Blockbuster, Inc’s corporate mission statement is to provide our customers with the most convenient access to media entertainment, including entertainment delivered through multiple distribution channels such as our stores, by mail, vending and kiosks, online and at home. We believe Blockbuster offers customers a value-prices entertainment experience, combining the broad product depth of a specialty retailer with local neighborhood experience. (Blockbuster.com, n.d.)." This mission statement follows the guidelines of a mission statement in that it's a few sentences, concise and to the point, and is consistent with the vision statement. It states exactly why Blockbuster exists and what their purpose is to their end customer. I would not change too much with this mission statement, however with how much the entertainment rental industry has changed, I might go away from talking about value and price as it is pretty low cost today to have access to unlimited movies in any given month. I might align it more with the service Blockbuster offers with local neighborhood stores, which their competitors do not have, and easy access to the entertainment their clients seek.

Ethics:

Blockbuster, Inc. had a Business Conduct statement that outlines the Code of Ethics and policies that all employees are required to adhere to. They also have a Supplemental Code of Ethics for their Senior Financial Officers. Their introductory letter outlines a summary of Blockbuster, Inc’s expectations for ethical conduct and it reads as follows:

“Dear Employees:
Blockbuster strives to maintain a work environment that upholds the highest standards of business ethics and workplace behavior. The ability to work smart and the character and skill needed to overcome setbacks are far more important to our long-term success than any single victory along the way. The Blockbuster Business Conduct Statement confirms our commitment to the highest standards of appropriate and ethical business behavior. This Statement addresses a wide variety of business situations, but it cannot possibly answer all questions. Ultimately, Blockbuster relies on your good faith and sense of what is right and prudent. If the Statement does not cover the situation, each of us must act ethically and follow the spirit, as well as the letter, of Blockbuster’s ethical standards. If you have any questions, our Human Resources representatives and lawyers are there to help.” (Blockbuster Business Conduct Statement, 2004).

Community Relations:

Blockbuster, Inc. has a strong presence in their communities and provides support through various programs. They do this on both a local and national level. They do this through cash donations and volunteering in the community. Their Anchor Program supports many causes such as Children’s Miracle Network and Boys and Girls Club of America and the NAACP.

Organizational Structure:

1. James W. Keyes, Chairman and CEO: James W. Keyes is chairman and chief executive officer of Blockbuster Inc. (Pink Sheets: BLOAQ, BLOBQ), one of the world's leading providers of in-home movie and game entertainment with reported worldwide revenues of more than $5.5 billion in 2006 and more than 8,000 stores throughout the Americas, Europe, Asia and Australia. A 21-year veteran of 7-Eleven Inc., the world's largest chain of convenience stores, Keyes served as its president and CEO from 2000 until 2005. Under his leadership, the company experienced record sales and profits and implemented new retail systems technology that improved product assortment decisions in every store. He also ushered in a new era for 7-Eleven through the introduction of a host of new electronic services. Prior to serving as president and CEO, Keyes held a variety of positions at 7-Eleven, including chief financial officer and executive vice president and chief operating officer. Keyes retired from 7-Eleven upon the sale of the company in 2005. Keyes graduated cum laude and Phi Beta Kappa with a Bachelors degree from the College of the Holy Cross in Massachusetts and earned an MBA from Columbia University. Keyes serves on numerous civic boards, including the national board of governors of the American Red Cross, the Dallas Center for Performing Arts, The Dallas Symphony Association, the Cooper Institute, the SMU/Cox School of Business and the Dallas Education Foundation. A recipient of the Horatio Alger Award in 2005, Keyes was also the founder of the Education is Freedom foundation, which provides college scholarships for hard-working young students. (Blockbuster.com, n.d.)

2. Dennis McGill Executive Vice President and Chief Financial Officer: Dennis McGill is executive vice president and chief financial officer for Blockbuster Inc., where he is responsible for managing Blockbuster's financial, accounting, information systems and internal audit functions. Mr. McGill reports to James W. Keyes, Blockbuster chairman and CEO. Most recently McGill served as the executive vice president and chief financial officer of Safety-Kleen, the largest re-refiner of oil in North America, from May 2005 to September 2010. Prior to Safety-Kleen, McGill served as executive vice president and chief financial officer of GAB Robins Groups of Companies, a global financial services company and the second largest independent loss adjusting company, from October 2002 to April 2005. Mr. McGill served as chief financial officer of national and international retail companies, including Hastings Entertainment, Inc. from August 1995 until October 1999, and Starboard Cruiseline Services from October 1999 until April 2000. (Blockbuster.com, n.d.)

3. Rod McDonald Vice President, Secretary and General Counsel: Rod McDonald is Vice President, Secretary and General Counsel. Mr. McDonald joined Blockbuster in April 2008 as Vice President, Assistant Secretary and Associate General Counsel for Corporate and Securities. Prior to joining Blockbuster, Mr. McDonald served as General Counsel for Brinks Home Security, Inc. and Pizza Inn, Inc. (Blockbuster.com, n.d.).

The management team at Blockbuster is an area that could use improvement. “In 1997, Blockbuster moved its corporate headquarters from Ft. Lauderdale, Florida, to Dallas, Texas. One particularly challenging part of the move was that approximately 70 percent of the senior leadership did not follow the company to Dallas.” (FranklinCoveyresearch.org, 2008). This is a little disturbing to me and shows a complete lack of stewardship. The management style over the years has seemed to be more autocratic. “Autocratic leaders make decisions confidently, assume that group members will comply, and our not overly concerned with group members' attitude toward a decision.” (Dubrin, 2007). This is reflected by senior management not relocating to Dallas with the rest of the corporate division. It is also reflected when I read about constant power struggles between senior management at Blockbuster. With James Keyes taking over in 2007, and of course shortly following with the bankruptcy and buy out, Blockbuster really needs to take a step back and take on a different strategy, one that is more of a stewardship style. Stewardship theory is when management puts the needs of the team, and the organization ahead of their own. There can be no selfishness with this theory and no power struggle. Everything is for the good of the organization. Also with the bankruptcy and buyout management needs to take on some more situational leadership skills as well. Blockbuster for a long time controlled the marketplace. However when other companies came along with lower fees, no late fees, better service, etc., Blockbuster was not prepared to budge on their high fees and late fee policies. Senior management seemed more concerned with profits and money, then with employees and their customers. I think if management had been focused more on the client and the organization they may have seen that even if they did away with late fees and lowered their rental fees, they may actually gain profit by keeping their current customers and attracting new customers.

Organizational Culture:

The culture of Blockbuster is one that the differences and values of all management, employees, and clients are respected and accepted. Ethics is of the utmost importance at Blockbuster, Inc. as can be seen in their Business Conduct Statement and Code of Ethics. They strive to provide the best product to their customer as well as remain completely transparent as a publicly traded entity. Blockbuster, Inc., through its troubles, has remained open and honest about their financials and their bankruptcy. So while stakeholders might have lost some confidence in their business model, they can feel secure in that Blockbuster will maintain an ethical company and believe wholly in the standards that they set for their employees and management teams.

Human Resources:

The Human Resource function for Blockbuster is something that will be of very high importance. With the number of stores across the United States and other countries they need to properly train and develop the managers of the store so that their teams are aligned with the vision and mission of the company. “Blockbuster’s rapid growth presented many challenges, one of which was training. Constantly hiring new employees to handle expansion required regular, high-quality training. The company needed to improve the productivity of its employees by providing new skills and tools, and employees, who were devoting time to make the company successful, needed to feel that they knew what they were doing and how to do it.” (FranklinCoveyresearch.org, 2008). In 1998, Blockbuster hired a rep to be certified as a Franklin Covey TimeQuest instructor. The training course was a time management course that was “presented to corporate personnel, store management, regional staff, and zone management.” (FranklinCoveyresearch.org, 2008). This fact is a huge plus because if all team members from the top of the corporate ladder and down are all receiving consistent training and development on the same principals, there is a flow from the top down and the organization will be aligned with their mission and vision statements. Eventually, Blockbuster acquired other Franklin Covey training solutions and incorporated them into their Blockbuster Training Course. Blockbuster felt that, “When you have the right skills, you’re more relaxed, more productive, a better communicator, a better sales associate, a better ‘you fill in the blank. And in the long run, it makes you more profitable.” (Franklin Coveyresearch.org, 2008). Blockbuster also found that it helped them examine their organization as a whole and how the people in the organization treated each other.

Blockbuster employs people of all backgrounds and skill sets. They have a strong corporate management team and hire high quality employees to manage their stores, ones that have both retain and management backgrounds. Store associates are a starting block for younger people to start a career and begin their sales training in the small setting of a store, but with the backing of a huge corporation. The Franklin Covey training and development courses they provide train the store managers on hiring the best people for the store and because the training comes from the highly acclaimed Franklin Covey, it has become a great tool to retain quality employees and train them for the corporate world. This training also helps store staff, as they are usually in the age range of 18-25, focus on time management and balancing work and life. This helps show this younger group of employees the importance of balancing work and personal life so that one does not interfere with the other, because if there is an interference the company runs into issues with employees blowing of work or neglecting work to talk on their cell phone, etc. High quality training and continued development can help put some of those issues at bay. Background checks are done on all employees, particularly since they are in a retail setting, dealing with merchandise and money. Stores always have one manager on duty, at least 3 sales associates during busy hours (Friday nights and weekends), and 1-2 associates on lower volume times. The company also has one manager and one sales associate on call in case someone has to call out of work. Employees’ performances are assessed on a quarterly basis (once a month for 90 days for new employees) and if they fall below expectations for two quarters, they will attend additional training without pay, and a 3rd bad quarter entails possible termination. I feel Blockbuster has a great structure in place from a human resource standpoint and their Franklin Covey training and development plan will provide them with happy and well-trained employees which will produce the results they want as well.

Global Business Strategies for the 21st Century

The Impact of Global Economic Conditions:

“Within the international segment, Blockbuster operates 2,820 stores in Europe, Latin America, Australia, Canada, Mexico, and Asia. Of these stores, the company operates 892 stores through its franchisees. The company recorded revenues of $5,288 million in the fiscal year ending January 2009, a decrease of 4.6% compared to fiscal year 2008. Its net loss was $385 million in fiscal year 2009, compared to a net loss of $74 million in the preceding year” (n.a., Global, 2010). According to Global, the global movies and entertainment market grew by 2.3% in 2009 and reached a value of $109 billion. So if home video rentals saw its most lucrative year globally in 2009, why is blockbuster experiencing a loss? With the global economy of recent years are driving prices down, and causing consumers to cut back, one of the first threats, particularly in the global market, is movie piracy. “Piracy continues to be the prevailing issue for the global home video market. Rampant piracy led to the shutdown of two of Blockbuster’s franchise locations in Ecuador. This is due largely to the fact that people can buy the newest hits on the street corner for $1 or $2 less than Blockbuster’s rental rate.” (Wolf, 2004). Also, the movies being pirated are typically movies that have not even reached DVD yet. This is a topic we spoke about extensively in class from clothing knock offs, to “bootleg” movies, and even recently in the news, a look a like Apple store opening up in China. While globally, advances have been made to stop piracy, unfortunately it still occurs and often these bootleggers change locations and/or names.

Even with piracy issues, the current global economic conditions are affecting Blockbuster for the same reason that they are suffering domestically. The brick and mortar establishments for video rental is not cost efficient and with technological advances around the globe, Blockbuster simply never established the same online presence that Netflix did. Blockbuster’s online membership was too expensive and for many confusing on how it operated. The most recent addition to the market is the “kiosk”. The company that was at the forefront for this idea was Redbox. Redbox was innovative in that instead of investing and building their own brick and mortar establishment, they utilized other company’s existing locations, such as grocery stores, drug stores, and gas stations. So while a customer is doing grocery shopping, they can stop and rent a video on their way out of the store. On top of that they can rent that video for the low price of $1 a night. So while Blockbuster is definitely a part of the global online video rental movement and recently has entered into the kiosk market, they have consistently been last to the market on these advanced and innovative marketing strategies. Meanwhile, Blockbuster has way more overhead costs with their physical stores in that part of their profits are always going to lease payments, paying store employees, and general upkeep of their buildings.

Future Tactics and Options:

In March of 2011, Blockbuster, Inc. was purchase by Dish Network. The future strategies and how Blockbuster will operate in the future will be largely based on Dish Network’s CEO Charlie Ergen. There are many benefits and possible downsides to Blockbuster being acquired by Dish Network. I feel the downside is that, kind of like Blockbuster’s brick and mortar approach, the cable and satellite TV industry seems to be a declining one. Again, with the global economy suffering, and individuals cutting back and spending less, many are turning to online services to satisfy their TV viewing pleasures. Sites such as hulu allow you to watch most major TV shows online the day after they air, as of now for free. Netflix pops up again in that as part of their online arena they have full seasons of popular TV shows that can be streamed to your computer. TVs have even advanced to cater to this online phenomenon in that new tvs almost all have a VGA hookup to make connecting your laptop to your computer simple. Computers as well have hdmi connections to hook up to consumer’s tvs. Now watching television does not have to be confined to a small computer screen. Another disadvantage is that Dish Network is currently not available outside of the United States. Per Dishnetwork.com, “the service is available in the continental USA, Alaska, Hawaii and Puerto Rico.” They are currently working on having availability in Canada. So globally, it seems like options might be limited globally, but I will address possible scenarios.

Again, the purchase of Blockbuster by Dish Network is so recent that everything out there on what they might or will do is pure speculation at this point. I want to give insight into what my suggestions would be as future tactics for both companies. The benefit is that both companies need innovation to be a player in the global market. I feel both these companies can come together and make that a reality. The first thing that should be done is to close all Blockbuster stores. It is a dying breed and they are not necessary and are costing too much money. Blockbuster has started up kiosks and those can remain as they have very low overhead and are easy to maintain and are popular. I think the most beneficial thing Dish Network can do to bring themselves and Blockbuster global players is to first, jump head first into the internet. The second thing is to take advantage of the deal Blockbuster has with movie studios in getting releases the earliest, as well as their access to games, to their advantage. The third thing, focus on price, flexibility, and ease of use.

Globally, almost everything is available online. You can shop at any of your favorite stores online. You can rent a car, buy an airline ticket, sell your stuff, and talk instantly with friends online. It easily allows you to get the most competitive price by easily comparing similar products across different sites. As I said earlier, you can even watch TV online. I utilize hulu all the time. But here is the thing, sometimes I hate waiting to watch my show until the next day when it posts. Also, hulu is already planning towards being a paid service. What cable company is offering TV and/or movie packages online? This is how Blockbuster (via Dish Network) needs to rebuild their global brand and be competitive. A great move for Dish Network would be to take Blockbuster’s Total Access online services and combine that with solely online cable services. For example, Blockbuster already has its Total Access online services. Dish Network could combine those movie services with a low cost online cable package. For example, customers could get a limited cable package, say 10 channels of their choosing, solely online for say $10 a month. From there, movie and game packages can be offered via Blockbuster for those customers for an additional monthly fee. For customers who continue to get satellite television through a satellite to their television could have access to Blockbuster channels, with movies for a low cost price, and even a gaming channel, perhaps with an interactive remote. The main thing here is both of these companies have a large and loyal customer base and the one thing that is lacking is innovation. I feel that giving customers what they need (a basic cable option they can do online), for the price they want (its online so low cost due to low overhead), and is easy to use (sign up, watch on computer or hook computer up to TV) is what will give Blockbuster (again via Dish Network) their global dominance back.

Outsourcing and its Impact:

Blockbuster does participate in outsourcing on a global level. Blockbuster does outsource its order processing and fulfillment for its online site. “This is to help Blockbuster focus on marketing, sales, and building its online brand rather than managing technology and infrastructure, Blockbuster executives say.” (Bacheldor, 1999). This is a great strategy as Blockbuster is not a company that was designed to specialize in online order fulfillment, credit card processing, and online security against fraud. Although Blockbuster, Inc. pays for this outsourced service, it actually will save them money in the long run by avoiding processing errors and potential fraud and/or identity theft suits.

Blockbuster also outsources its suppliers of their DVDs, games, packaging etc. They have suppliers around the globe who fulfill these needs so that again, Blockbuster can focus on sales, marketing, etc.

Global Outsourcing, while important to Blockbuster in terms of having their supplies and online infrastructure maintained, is trending downwards presently. Blockbuster retail stores are closing down at a very rapid rate. I think where Blockbuster’s additional outsourcing could come from in the future, is if Dish Network and Blockbuster, as suggested above, come together for an online cable/movie/games website where they may need to outsource the streaming of videos/channels, or other aspects of the website.

Roles and Responsibilities in Domestic and Global Environments

Cultural Diversity:

Cultural diversity is something that is important to Blockbuster, Inc. and they focus their vision statement around it. “At Blockbuster, diversity means valuing differences. It's a corporate value that must be continually developed, embraced and incorporated into the way we do business." (Blockbuster.com, n.d.). The entertainment industry as a whole is very culturally diverse and has very open door in terms of acceptance. Blockbuster incorporates this into the way they do business. Despite all of Blockbuster’s issues in the past, they have a strong presence in neighborhoods across the world and that is part of their appeal. Almost any culture across the world would be familiar with the blue and yellow Blockbuster sign. It is as familiar as McDonalds in many places. Blockbuster takes this very seriously. Below is from Blockbuster.com and outlines the diversity steps they are taking in their communities and globally:
“Aligning our stores, products, marketing, community outreach, employees and vendors with the diverse communities we serve enables Blockbuster to better connect with and satisfy our customers. This is critical to driving our long-term success.” (Blockbuster.com, n.d.)
“To help drive and focus our efforts, Blockbuster has deployed resources to address eight broad areas across our organization.” (Blockbuster.com, n.d.) • Development - Examines real estate and new store development in underserved communities. • Marketplace - Develops marketing plans and strategies, working in close relationship with the Product group to connect and drive business among our diverse customer base. • Procurement - Builds diversity into our vendor relationships, seeking and retaining business alliances with women and minority-owned businesses. • Workforce - Facilitates efforts to recruit and support career paths for a diverse, qualified employee base that is representative of the communities we serve. • Community relations - Guides our community outreach and philanthropy to reflect the diverse needs of local communities and the areas of business we want to grow. • Communications - Guides and supports diversity-related training and the communication of diversity messages and activity throughout the organization. • Global - Looks at diversity awareness and goals on an international basis. • A sampling of the many diversity-related items we're working on includes. • Finalizing and rolling out a new mentoring program for our field and corporate employees. (Blockbuster.com, n.d.).
Blockbuster Inc. incorporates diversity in their work force, in their vendor relationships, in the community and across the globe.

Ethics:

Blockbuster’s Business Conduct Letter is what employees sign when being hired by Blockbuster. Blockbuster is committed to the highest standard for ethical and responsible behavior by their employees. For business internationally, the Business Conduct Letter states: “All employees are expected to comply with laws of the country in which they operate as well as United States statutes and Blockbuster policies governing business activities abroad.”. (Blockbuster Business Conduct Letter, n.d.). Part of what makes us root for Blockbuster is they have always been an ethically sound company. In times of corporate scandal, outrageous executive bonuses, and altering financials, Blockbuster has been pretty transparent and honest about the problems they have been having. While they may not have had a sound business model, their ethics model has been pretty strong in an era where ethical behavior is not always practiced.

Social Responsibility:

Blockbuster’s Community Relations Mission is: “Utilize corporate and employee resources and talents to benefit the communities we serve by supporting organizations which impact children/families, reflect a film/video focus or fulfill specific company operating objectives related to diversity and employment.”(Blockbuster.com, n.d.) If you look at the organizations that Blockbuster aligns themselves with, you can see their commitment, both domestically and globally, to culture and community. Some organizations Blockbuster aligns themselves with are:

• American Black Film Festival • Boys & Girls Clubs • Children's Miracle Network (CMN) • Gay & Lesbian Alliance Against Defamation (GLAAD) • League of United Latin American Citizens (LULAC) • Los Angeles Latino International Film Festival • Mexican American Legal Defense and Education Fund (MALDEF) • Mexican American Opportunity Foundation (MAOF) • National Association for the Advancement of Colored People (NAACP) • National Conference of Black Mayors • National Hispanic Press Foundation • National Newspaper Publishers Association (NNPA) • National Urban League (NUL) • Pan African Film Festival • U.S. Hispanic Chamber of Commerce • USO

Workforce Management in a Global Environment

Organizational Structure:

Blockbuster operates globally, and they have corporate owned stores as well as franchised stores. Their kiosks are also franchised. The definition of franchise is “An individual who purchases and runs a store. The franchisee purchases a franchise from the franchisor. The franchisee must follow certain rules and guidelines already established by the franchisor, and in most cases the franchisee must pay an ongoing franchise royalty fee, as well as an up-front, one-time franchise fee to the franchisor.” Basically this enables someone to be their own boss and purchase a business, but with that business they get the benefits of global brand recognition, an existing business model and corporate code in place, and the benefits of corporate training and resources. Some other examples of franchises are McDonalds and Subway. So basically the corporate structure has already been addressed (see pg. 7), the basic structure of the franchise

Cultural Diversity in the Workforce:

“Effective management of diversity in organizational environments can be used by companies for achieving competitive advantage and gaining strategic advantage in an increasingly global economic setting. Global business workforces of today are blended and managing those groups effectively will benefit the bottom line.” (Steven, Ogunji, 2011). Steven and Ogunji go on to explain that to be successful in managing diversity, companies must create a culture that empowers their employees to be respectful, inclusive, and use their knowledge to expand the company’s knowledge base. In the United States alone, the 2009 Census Bureau projections acknowledged that the nation will be more racially and ethnically diverse by midcentury. Minorities are expected to be the majority in 2042, with the nation projected to be 54 percent minority in 2050. (Steven, Ogunji, 2011).

The manager that overseas Global Diversity at Blockbuster is Louis Laguardia. He reports to Ed Stead, Executive Vice President of New Business Development. Blockbuster’s view on diversity in the workplace is as follows: “Succeeding in the global marketplace in the 21st century requires businesses to reach out and be more inclusive, to make sure all voices are heard and represented.” (Stead, 2002). Laguardia shares and continues this sentiment by stating, “At Blockbuster, diversity is an inclusive, strategic business platform focused on creating a differentiating and sustainable competitive advantage. We respect and appreciate the value of the diversity of our employees, of our current and potential customers, of our suppliers, and the diversity of the global arena where we compete and are committed to win.” (Laguardia, 2002).

Blockbuster is aware that not only is having an open door in terms of diversity is the right thing to do but its essential to remain competitive in a global marketplace. Blockbuster also realizes and has succeeded in effective management of their diverse workplace. They expect inclusiveness and respect of all cultures and they invite their employees to share their experience and knowledge to better the company.

Blockbuster will need to continue the effective management of diversity going forward. With the increasing purchase power of developing countries like India and China, and as the world is becoming more integrated, this represents a huge opportunity for Blockbuster, and other companies to expand into new markets and to sell their goods into these markets. As markets grow, the world becomes smaller and organizations that are able to connect with these cultures on a global and local level are going to have the upper hand.(Steven, Ogunji, 2011.)

Managing People in a Virtual Environment:

In today’s global economy, “many managers find themselves in reporting relationships that cross time zones and country or continent borders.” (Williams, Kaye, 2011). Actually one of my managers works in Connecticut while I work in Phoenix, so I am just getting up when he is settling in for work. Managing people and coaching employees can be tough when you are not face to face, but with a development focus and continuous connection it can be done. (Williams, Kaye, 2011). Blockbuster’s corporate offices are in Dallas, TX. However we know that Blockbuster has thousands of stores worldwide. Managers of those stores (particularly the corporate stores) are generally be managed by corporate in Texas so that can be challenging. Blockbuster does a lot of Franklin Covey training, a lot of it virtually as you might expect, for their employees. Blockbuster finds training and advancing their employees of the utmost important and this will be a great topic to explore their success with this virtually.

One of the main reasons Blockbuster has so much success in that they are using Franklin Covey Training programs. Franklin Covey is very highly regarded and present topics that will not only be useful at work but also with their personal lives. The training helps the store manager delegate effectively, hire effectively, and train employees effectively. Also, the store’s non management employees, who is normally a younger aged employee, receives beneficial training on time management and career advancement. So the employees are receiving training that will ultimately help them with work/life balance.

Another reason Blockbuster is very successful, is that Corporate also has their own training from Franklin Covey that they attend. The consistency here is so important, as employees are spread out all over the world. Consistency can be one of the hardest things to maintain in a virtual environment but Blockbuster is making excellent decisions with their training and coaching methods.

Strategic Global Human Resource Practices:

One of the things that Multinational companies do to prepare future global leaders is to institute global leadership programs. (Caligiuri, Santo, 2001). Blockbuster has its own Global Leadership Program. It allows managers to work in other countries temporarily to gain global exposure, among other training and different aspects to the program. If managers can get this type of real life experience it is going to expand their knowledge, skills, and ability to relate to different cultures in a way that no virtual training can really teach. Training can teach a skill or a process, however, “global managers must present a global mindset, which is a state of mind, rather than specific knowledge, skills or abilities. (Caligiuri, Santo, 2001).

Compensation, Assessment, Rewards and Recognition:

Blockbuster Inc employs many different people across the country, from positions in their corporate office, to store managers and employees. On job site indeed.com, Blockbuster is rated 4 out of 5 stars as an employer, and is recommended by 80% of reviewers (Unites States data). They are rated high on compensation and benefits, culture and values, job security and advancement, management, and work/life balance. (indeed.com, 2011). The compensation is across the board competitive with the similar positions out there. Also, Blockbuster offers a nice feature of free movie rentals. The health and retirement benefits were rated highly as well. As we know, paychecks simply motivate employees to show up for work. As a company, it is important to be making the employee feel secure and taken care of, as well as involved in the company in order to be their most productive. Blockbuster is very consistently strong across providing their employees good pay, benefits to keep them and their family healthy and taken care of, future retirement security, and job training and involvement to be a part of contributing to the company’s success.

Global Opportunities and Risks:

Blockbuster has many opportunities for a fresh start now that they are owned by Dish Network. If together, Blockbuster and Dish Network can be innovative in how they use each other to reach more customers globally easier, and faster, the sky is the limit. Again, all is speculative at this point in how Dish Network is going to use Blockbuster. The entertainment world is a huge global industry, and it is an industry that is always (and quickly) evolving to the next level of technology and platform. A lot of the risk is going to rest on Dish Network. They own Blockbuster now. People know Blockbuster and what they have to offer. The basis is there to go back to being a huge global entertainment provider. They are a very strong employer, they are culturally diverse with their employees and customers, they have strong contracts with movie studios which gives them an edge on Redbox and Netflix, and now they have a satellite TV outlet to work through. There is lots of opportunity here, but it will involve taking a step back (particularly from the brick and mortar stores) and revamping their venue and how they present their entertainment. Piracy, the economy, prices dropping, etc. is always going to be going on at some point, however Blockbuster can’t get held down, instead they must continuously be innovative, priced to compete, and globally available to all their customers.

Marketing Plan

Marketing Mix

Product:

Product goes beyond the physical product itself, and the way it is presented, packaged and the service that comes with it are part of the product a company is offering. (Ehmke, Fulton, Lusk, 2005). Blockbuster’s physical product quite obviously is DVDs, television series DVD sets, video games, and Blue Ray’s. In their physical retail locations, Blockbuster also sells movie theatre type food items to enjoy while watching your movie rental. Also Blockbuster rents out gaming stations such as Playstation and Xbox. Some services Blockbuster provides are their no late fees and their guaranteed in stock rental. Also they provide their online service, Total Access, which allows customer to order DVDs through the mail. An intangible that Blockbuster does offer is they have new releases earlier than any other video rental company due to contracts that Blockbuster formed with studio executives. According to their website, “Blockbuster has it 28 days before Redbox and Netflix” (Blockbuster.com, n.d.).

Pricing:

This was one of the more interesting challenges in our marketplace simulation this course. We learned how rebates can help and at times it is not always about having the lowest price. “Price refers to how much you charge for your product or service”. (Ehmke, Fulton, Lusk, 2005). Blockbuster has always been extremely competitive on price. For their in store locations, customers are often provided coupons, discounts for multiple rentals, and customer care cards where after you rent 10 dvds, you get a free rental. Blockbuster’s two main competitors are Netflix and Redbox. Netflix is an online mail and streaming site for movies, while Redbox is a kiosk often located in grocery stores and shopping centers where you can rent movies for a dollar. Blockbuster has recently started popping up with kiosks in location to compete with Redbox. Blockbuster is charging $1.50 however they seem to have more recent movies and more desirable choices than Redbox. Blockbuster’s online service, Total Access, with plans starting at $11.99 a month and currently have a free 2 week trial. Total Access offers unlimited movie, TV, and games for this price and they are sent via mail. They also offer no due dates or late fees and unlimited exchanges. Netflix is very similar in that it offers different plans starting at $8 a month, and many of the same services, however Netflix has movies that you can stream right from your computer, which Blockbuster has recently answered with their On Demand service. Again, Blockbuster’s price points are slightly higher, particularly with no streaming service, however Blockbuster has a much more recent and diverse movie list and Netflix is very limited on the movies it can stream.

Place:

Place refers to the distribution channels used to get product to the customers. (Ehmke, Fulton, Lusk, 2005). Blockbuster currently has three channels in which they distribute their product: their retails stores, online, and the newest channel, the kiosk. The channel that is proving to be the biggest challenge for Blockbuster is their retail stores. We have seen their stores across the country shutting down. In the 1990’s Blockbuster grew and expanded so quickly and quite often there were at least a couple Blockbuster stores within a few miles of customer’s home. However, as technology has advanced, consumers soon found they could access movies even easier online via sites such as Netflix. Blockbuster’s response to this was their online service, Total Access. It enabled customers, just as Netflix did, to order their movies online and have them mailed to their home. Blockbuster had the added advantage of being able to return them to the store and to use their Total Access benefits in their retail store as well. However, with the threat of bankruptcy, Blockbuster is still closing retail stores to this day due to the high overhead cost of expenses associated with them. The kiosk venue was a clever response to this issue; however Blockbuster was beaten to market again here by Redbox. A kiosk takes advantage of another company’s retail space (i.e. grocery store, gas station), so there is none of the retail costs, and acts as a vending machine for DVDs. Customers can come and use their debit card and rent movies for $1.00. The price remains $1.00 as long as it is returned the next night by 9pm. Blockbuster has kiosks popping up now and although it is too early to see how they will fare in this market, especially since Redbox has established itself in many communities for a few years now.

Promotion:

“Promotion refers to the advertising and selling part of marketing.” (Ehmke, Fulton, Lusk, 2005). The purpose here is for potential customers to understand what your product is and why they should purchase it, as well as contain a clear message targeted to a specific audience. Blockbuster does most of their promotion via television and print ads. Sales ads usually are paired with heavy couponing to attract existing and new customers. Currently, for their online service, Blockbuster is promoting their discount of 2 weeks free. Also Blockbuster heavily promotes, especially on their website, that they have releases well before any of the competition, 28 days in fact. On a smaller scale, promotion is done within the individual store as well. Employees at Blockbuster store often cross sell based on movie selections by recommending similar movies in attempt for the consumer to rent additional movies, selling memberships to Blockbuster, and selling their food items as well.

SWOT Analysis:

“A SWOT analysis is an important part of strategic business planning and should always be performed in conjunction with the initial creation of a company’s business plan. On an ongoing basis, performing an annual SWOT review to update the business plan ensures that the business plan will remain a living, breathing document that the firm and employees can follow” (Simoneaux, Stroud, 2011). SWOT stands for the company’s strengths, weaknesses, opportunities, and threats in regards to the marketplace. This key analysis shapes what the company’s goals, strategies, and overall objectives will be and this analysis can also be used to target isolated situations such as launching new product or analyzing a competitor’s product and how it compares to the company’s product. The SWOT Analysis should be revisited on an annual basis so that the information does not become outdated or stale and that the company and its employees are in front of how the organization is positioned to do in the marketplace. Following you will find the SWOT Analysis for Blockbuster, Inc.

Strengths:

There are three key strengths I want to outline for Blockbuster. The first is having a lock on the earliest release date of movies onto DVD. When Blockbuster was the monopoly of the entertainment rental industry, they negotiated contracts with movie studio executives to allow them to be the first rental company to get the rights to release and rent movies on DVD (and VHS at the time). This is one of their greatest strengths to date and it still attracts and retains many of their customers as opposed to them switching over to Netflix. Particularly with the economy and the high price to see a movie in the theatre these days, many are waiting on movies to be released to DVD before they view them. When the movie is finally released, most people are anxious to get that movie in their hands so they can watch it and for about 30 days, the only place they can get this movie from is Blockbuster. This is a huge advantage over their competition and I know for me personally, it has kept me being a Blockbuster customer. This benefits Blockbuster, particularly since they are not the cheapest movie rental service, because they are able to validate their slightly higher prices and consumers are more than happy to pay it in most cases to have access to their movies faster.

The second strength I want to focus on is the launch of their On Demand service. In 2010 Blockbuster began offer movies that could be streamed directly to your gaming console, mobile phones and devices, and computers. This was a huge move for Blockbuster as their main competitor Netflix has been offering movie streaming for years, however whether this is too little too late remains to be seen. Overall, this is a very good direction for Blockbuster, and with the acquisition of Blockbuster by Dish Network, it may be just the beginning of services like this (which I will touch on in opportunities).

The third strength would be their multiple delivery methods. “As of January, 2010, Blockbuster operated 4,018 stores in the US and 2,482 stores in Europe, Latin America, Australia, Canada, Mexico, and Asia.” (DataMonitor, 2010). Now, the stores themselves are a burden to Blockbuster due to their high overhead cost, and they have been shutting down a lot of stores since they filed for bankruptcy. However, I do believe the retail stores have importance and having a store in certain regions will be important. First of all, none of Blockbuster’s competitors have retail locations. Older generations who are not internet savvy, or may not even own a computer, could be eliminated as customers if Blockbuster got rid of all of their stores. Blockbuster also sells movies, TV series box sets, games and many other movie items in their stores and could lose that revenue if they closed stores. So Blockbuster does have very important reasons to leave strategic retail locations open. For the younger generations who are internet savvy, they have the online delivery of movies either via mail with Total Access or through streaming with OnDemand. Finally, Blockbuster is rolling out their kiosks to bring movies to customers for $1.50 per night if movie is returned at specified time the next day.

Weaknesses:

The first weakness is the downgraded default ratings. “Against the backdrop of the current and anticipated market conditions and the general unavailability of capital on favorable terms, Blockbuster’s downgraded debt ratings will have an adverse impact on Blockbuster’s financial position.” (DataMonitor, 2010). Now in March of this year, Blockbuster was purchased by Dish Network which will help Blockbuster in terms of their financial position and their access to capital. Really in general, Blockbuster’s biggest weakness, with the downgrade and bankruptcy, is their overall reputation at this point.

Another weakness, as I hinted at earlier, is the number of retail locations for Blockbuster. Now as I said earlier, I do think Blockbuster should keep some retail locations over, and in a strategic manner (i.e. in areas that might have a high population of older generation). However, this burden is weighing Blockbuster down because retail stores cost money, which Blockbuster does not have a lot of access to at this point. Blockbuster has been selling off their stores, as well as everything in them down to structural pieces so I think if they can continue to do this and keep the strong performing regional stores open, they will be in a better position.

Opportunities:

The biggest opportunity I see for Blockbuster is their fresh start after being purchased by Dish Network. The bankruptcy is behind them, and now that they are owned by Dish Network, has a major satellite cable company behind them and providing huge opportunities for them. Now as I said earlier in the paper, the purchase with Dish Network was just finalized and really anything they might do with Blockbuster at this point is really just speculation. I do see great opportunities here though for Blockbuster to separate themselves from their competition. I see the opportunity of being the brand of Pay per view for Dish Network. I also think a huge opportunity would be to provide Dish Network customers full access to Blockbuster On Demand through their cable box for a nominal fee. Taking it even a step further, maybe down the road we can integrate Blockbuster’s access to games via the television. Also to flip that around, to link Blockbuster Total Access site to be able to provide a small package of streaming satellite channels for a nominal fee. Particularly in this economy for some that might not want to but a full cable package, that would be huge. All in all I think the possibilities are endless here and I will be excited to see how these two companies work together and the services they provide.

Threats:

The first threat to Blockbuster’s success is a global problem to movie rental companies, and that is piracy. “Piracy is on the rise, particularly in international markets such as Latin America and Asia.” (DataMonitor, 2010). Really though it is a full on global problem because movies can be watched the same day they are released in movie theatres on bootleg movie sites. Now, initially piracy was a hindrance, but the qualities of the DVDs were so low that often they were almost useless and didn’t affect Blockbuster quite as much. However, the cost of digital and high definition recording equipment has come way down in price and quality of these pirated movies is getting better by the day. While piracy is such a large scale, global problem, it is hard to regulate as pirators simply start a new website, or move to a new location. Piracy is going to continue to be a problem for Blockbuster and other movie rental companies.

Many store employees in Blockbuster’s retail stores start out at minimum wage. With the recent government-mandated minimum wage increases, this will impact Blockbuster’s profitability. Blockbuster is combating this, to an extent, by closing many of their stores.

P.E.S.T. Analysis

A P.E.S.T. Analysis is “a management technique that enables an analysis of four external factors that may impact the performance of the organization. These factors are: Political, Economic, Social, and Technological. PEST analysis is often conducted using brainstorming techniques. It offers an environment-to-organization perspective as opposed to the organization-to-environment perspective offered by SWOT analysis” (Bloomsbury Business Library, 2007). It focuses on political, economic, social, and technological analysis. In the global marketplace, analyzing these external factors becomes important for the company to ensure that it is upholding the environmental laws of the country, prohibits political contributions to any political party, follow taxation laws, understanding socioeconomic issues, and making sure they are maintaining a safe environment for its customer’s online. Following, I have conducted a P.E.S.T. analysis for Blockbuster, Inc.

Political:

For the political segment, I will focus on the environmental challenges blockbuster faces, as well as their practices in terms of doing business overseas and following those countries trade and regulatory processes. As I said earlier in the paper, Blockbuster has always been very involved in social groups and causes. Blockbuster does that part to with making their products as environmentally sound as they can. The online delivery method of movies is already very environmentally sound as it really uses no materials and causes no waste. For their mail service, Blockbuster packages their movies in paper cases so that it is recyclable and not creating non bio degradable waste. In their store locations, Blockbuster does still use plastic casings however they have significantly decreased the size of their casings over the years. Blockbuster put together a Business Conduct Statement which deals with many of these political situations including, but not limited to, the environment, prohibiting political contributions to any party (both domestic and foreign), following antiboycott laws, following trade restrictions with countries the US embargoes with, such as North Korea and Cuba, and following competition laws in foreign countries. Every employee and officer signs this statement upon employment at Blockbuster.

Economic:

Blockbuster Inc, like all businesses, must follow taxation rules, fair competition laws, and industry regulations in the US and abroad. Blockbuster has not run into any problems with this. The major economic influences have been the recent economic downturn and of course their bankruptcy and financial issues. Blockbuster, like many others such as Borders and Circuit City, have shut the doors to countless stores and have had to revamp their financial outlook as well as their prices. The online services and the kiosks will help as they have lower overall costs for both Blockbuster and the consumer.

Social:

Social issues that will affect Blockbuster is consumer opinion about Blockbuster going forward, technology advances and how Blockbuster capitalizes on this, and consumer buying patterns with the current economic situation. Blockbuster is going to battle with a poor company image and a poor reputation because of their downfall. I believe it’s crucial at this point for Blockbuster to keep prices competitive and be at the forefront in all the movie renting venues. The purchase of Blockbuster by Dish Network should help with their image and pairing up with a satellite conglomerate should help in delivering top entertainment to their customers as they always have done. The economy is still going to be a challenge but as unemployment rates decrease, and companies start hiring more, Blockbuster should have no problems getting through the downturn.

Technological:

One of the technological issues Blockbuster faced was the lawsuit against Blockbuster and Facebook that it had violated privacy laws. “Texas native Cathryn Elaine Harris has filed a lawsuit against Blockbuster, alleging that the company is actively and knowingly violating the Video Privacy Protection Act by reporting users' activities back to Facebook.” (Cheng, 2008). This litigation is awaiting judgment. Also with movies having such an online presence, Blockbuster will need to make sure they are staying ahead of the curve on their technology and providing the best website and streaming services to their customers. Currently they are well ahead of the competition for their movie selection and earlier release dates, but they still have to be competitive on the manner in which these are delivered.

Going forward, I feel Blockbuster has a fresh start and a fresh opportunity to now reassess their marketing strategy and how they will move forward. In referring back to the SWOT Analysis, Blockbuster should focus on some key strengths such as being first to market on release dates, the advantageous pairing with Dish Network, and their online service (as well as most recently, their kiosks). Recently Netflix and Redbox have come under major scrutiny for announcing price hikes for their products. Pricing is extremely important in the market and higher prices are not always a bad thing, however with the current economy if Blockbuster can keeps its prices low, focus in on their online offerings, I believe they will be able to rebound very strongly. Blockbuster must also be aware of its weaknesses, especially its financial health. It will be important for the company to assess how it will handle its retail locations and close those that will not be profitable. Retail locations are much more expensive than their online site and kiosks, however I feel some strategically placed stores can be extremely profitable. Blockbuster has a huge opportunity in the recent buyout by Dish Network and there is a lot of opportunity here to offer new services that involve satellite television and pay-per-view. Finally, the biggest threat will be the ongoing problem of piracy. Piracy is more prevalent then ever with the online presence of bootlegged movies. As sites get shut down, new ones pop up, often by the same people just under different names. Blockbuster truly can’t control this problem, they must simply maintain quick release dates of their movies, high quality, and great customer service and that will keep them from being overly affected by piracy.

Product Innovation Description:

Now that Blockbuster is getting a fresh start with the recent purchase of the company by Dish Network, they need fresh and innovative ideas to put the company back as the leading entertainment provider. If you have been watching the news you have probably seen a few headlines as of recently. The first one is that the economy is still hurting and people are still cutting back and saving where they can. Also, you may have heard about Netflix’s recent troubles. They announced that prices would be raised and their streaming services would be handled by another company. This sparked a huge outrage for current Netflix subscribers who did not want to pay more for their membership. One of the many things people have cut out of their budget during these tough economic times is their cable bill. People realize that they can watch many of their shows online via sites such as Hulu or directly from the network’s website. Blockbuster and Dish Network have some huge opportunities to combine their customer bases and provide them innovative services that will stretch their dollar. The innovative service that Blockbuster and Dish Network will combine forces on is by offering bundled services to Dish Network customers and Blockbuster Total Access customers. The way this would work is that Dish Network subscribers would automatically have full access to Blockbuster Total Access and Blockbuster On Demand movies, and Blockbuster customers would have access to a small channel package that Dish Network would stream live on Blockbuster’s website. This idea can help Blockbuster pull in current Dish Network subscribers that are not currently customers of Blockbuster, and provide them a great service without having them pay anything additional for it. Since Dish Network owns Blockbuster this is mutually beneficial but basically this would simply be a simple adjustment to the bill, i.e. a portion of the customer’s Dish Network bill is now allotted to Blockbuster and vice versa, without the customer every paying anything additional. For the customer who belongs to Blockbuster Total Access membership, this now gives them the ability to have a small sampling of cable channels streamed live and watch television without having to incur that separate cable bill. Now watching tv and movies online might not be innovative, people are already doing this in their everyday lives, but this service will prove to be very innovative in that it is providing a service that no other cable or entertainment rental company is offering, allows their customers to save money, and offering a one stop shop for all of the customer’s entertainment needs.

Balanced Scorecard:

Customers:

“Customer’s concerns tend to fall into four categories: time, quality, performance, and cost.” (Kaplan and Norton, 2005). In terms of lead time for this new service, this is something that Blockbuster and Dish Network can bring to the marketplace fairly quickly. Blockbuster will need to update their website to be able to allow customers to enter in their Dish Network account numbers for recognition and to be able to access the site. Dish Network must work with Blockbuster and upload their streaming capabilities to their website. Finally of course, both accounting departments need to be able to link together their billing information to make sure that for each service the correct allocation of the customer’s current bill is going to the proper provider. The qualities that Blockbuster’s customers will expect are going to be timely releases of movies and superb streaming quality of Dish Network channels. Blockbuster has always been on top of the marketplace with having the first releases of movies and they are already streaming movies online, so adding Dish Network channels should not be a huge challenge. The performance and service aspect should not change for existing customers. Customers are really not changing companies here and their bills are staying with the same company. In reality, they are simply being provided an additional service by the company to enhance their experience. New customers to Blockbuster and Dish Network will expect that the companies will bill them properly and make the service easy and convenient to use. Finally, cost is the biggest advantage here. Blockbuster and Dish Network are being sensitive about cost and about the overall economy. This idea is going to allow customers more products and more service for the price of one.

Internal Business Perspective:

“Excellent customer performance derives from processes, decisions, and actions occurring throughout an organization.” (Kaplan and Norton, 2005). The key to making these innovative changes succeed for Blockbuster, let’s focus on three internal processes that will need to occur within the company. The first think will be promoting the innovation to the employees via the Human Resource Managers. “HRM systems can help to reinforce the transfer of knowledge between individuals so that it assumes a collective dimension. Where organizations focus on team-based activity and horizontal processes that require reciprocal interdependence, employees can develop a frequency of contact with others that promotes effective co-ordination. (Shipton, Fay, West, Patterson, Birdi, 2005, p. 120). Human Resources will need to work together with team managers to ensure that not only is information is being passed down to the employees but that managers are gathering suggestions and input from the employees about the service and, from their perspective, how it can be developed to best serve the customers and provide top performance. “Extensive induction and socialization can help employees to understand how they fit into the collective dimension of the workplace” (Shipton, Fay, West, Patterson, Birdi, 2005, p. 120). The second aspect, which will also involve Human Resources, will be training and development. “a strong and consistent vision for employee development should reinforce the value of collective endeavor and help to promote trust in the organization and its commitment to employee growth and employability” (Shipton, Fay, West, Patterson, Birdi, 2005, p. 120). Training and development on the new service will result in efficiency and consistency across the organization in regards to the service, not only because they are receiving training on it, but because it again, involves the employee, improves their knowledge and expertise, and positions them to step in their career which fosters the sense of trust between them and the organization, which is the most important component of internal business practices. The final step will be comprising a strong project management team that will involve senior management and MIS representatives from Blockbuster and Dish Network. Also any third party that will be responsible for the day to day maintenance of the website, billing information and services, etc. will need to be brought in on the project management team. This team will be the most involved in gathering the research, developing the service, overseeing the project, and making sure the service is quality tested and making any necessary improvements along the way.

Financial Perspective:

From a financial perspective, Blockbuster has already hit bottom. When Blockbuster didn’t move fast enough into the online world, and was plagued with poor service, high fees, and a poor online presence, Blockbuster stock sunk and their assets were hit, especially with high cost of their retail locations. So last year, Blockbuster declared bankruptcy, and earlier this year ended up, as stated many times, being purchased by Dish Network. Financially, Blockbuster can really only go up from here. Blockbuster now has a clean start and one of the first things they must do is reduce the number of liabilities, particularly the retail stores. Now, I have stated earlier, I do feel some strategic locations need to be kept. For example, ones in big retirement areas such as Florida or Arizona as the older generations are not necessarily comfortable at streaming movies or television from online. There does though need to be a cleaning of the house for most locations though. It costs too much to run them, and everybody is watching movies online, which consists of very low overhead. Blockbuster also needs to make sure financial processes are in place to ensure their creditors are being paid back on schedule, that their books are accurate and transparent, and that they are focused on these future opportunities to help rebound their financial outlook. If Blockbuster makes and honest effort to be trustworthy, stable, and consistent, shareholders will turn back to Blockbuster as they are a strong company, who lost their position a little bit, but can return with some smart decisions and a little innovation.

Innovation and Learning Perspective:

One of Blockbuster’s biggest mistakes over their time was not researching the development of the internet, how they could use it to their advantage, and what their competition was doing. “In Blockbuster’s case this meant keeping stores open where profitable while leveraging their market share and brand visibility to address the newer distribution channels. From my view, Blockbuster continued to operate, but only paid lip service to innovation, which is how competitors Netflix and Redbox stole their customer base” (Welchman, 2010). The fact of the matter was, Blockbuster was simply not innovative enough to see where entertainment was going, and that was online. Netflix was and Blockbuster was simply too late to the game at that point. This is the same for the kiosk development when Blockbuster again was beat to the punch by Redbox. Blockbuster is already inserting itself into the kiosk realm, however, with Netflix in a bit of turmoil due to their announcement about raising fees and outsourcing their streaming services, Blockbuster has a huge opportunity to regain entry into the online world with the innovative combination of online movies and satellite streaming, all in one package, again to provide cost effective ways in which consumers can access their entertainment.

The bottom line is that this service will be unique because Blockbuster’s competition does not have the satellite television venue to offer these services. Blockbuster already has the capability to have movies released earlier than any of its competition. Netflix is shortly behind for its mail order movies, however, and one of Netflix customer’s biggest complaints, is the movies it offers for streaming are much older and out of date. Customers want instant gratification for little cost. The reality is, with the current economy, less and less people are willing to go to the movies and spend $15 a person on tickets. This is the very thing Blockbuster must capitalize on. If Blockbuster can already get the movies faster than Netflix and Redbox, combine that with satellite television streaming so customers can watch their television shows in real time, and not have to wait for them to be uploaded to sites such as Hulu, Blockbuster can put themselves back on track to being a leader in the entertainment industry and provide customers with the fast and reliable service they expect.

S-Curve Analysis

As discussed, the online movement of entertainment viewing is not a new concept. Blockbuster would simply be redefining the platform. Blockbuster’s new service would be part of the Growth Phase of the S-Curve Analysis. The growth phase is represented by “improvements in the uses and processes directly related to the technology” (White & Bruton, 2007).No other movie rental company, whether it be mail order and online like Netflix, or kiosks like Redbox, offers a bundled viewing package that includes the most recently released movies, but also bundles that with a scaled down channel streaming package from Dish Network. Where Blockbuster is being innovative is not streaming movies or television shows, this concept is not new, but bundling their services with Dish Network’s, and giving their customer’s real time television streaming and online movies for the price of one. The economy has shifted the priorities of people across the globe, from indulgent spending and living on credit, to living on tighter budgets and scaling back on luxuries such as satellite television and eating out. Blockbuster is answering a direct need of people around the world by providing and innovative service that gives them movies and television, online, for a small bundled fee, and gives people the ability to enjoy entertainment with their families and maintain a budget friendly lifestyle.

Product Innovation Value Proposition

The online services that Blockbuster will offer will definitely fill a need of the customer and bring value to their online viewing pleasures. The need it will fill is satisfying the customer’s desire for one stop shopping. The end customer, whether it’s a Dish Network client or Blockbuster Total Access client, ultimately wants one place they can go to for all of their entertainment needs. These days, people want to be able to watch movies and television on their laptops, tablets, and phones while they are on the go. They also want to be able to sit down with their family on a Friday night for quality time, watching a movie without having to incur the cost and inconvenience of going to the theatre. Customers want immediate gratification. With this bundled service, they have just that. Everything about this service is online as well as Blockbuster has a mobile app that can be downloaded to any smart phone or tablet. People have immediate access to the movies they want and the television shows they want. Also customer’s can record their shows online as well (as long as its one of the channels offered for online viewing) so they can catch up on their recorded shows at anytime. Families can simply turn on their computer or hook their laptop up to their televisions and sit down for a family movie night by accessing Blockbuster’s extensive and very current movie offerings. This bundled service offers value to the customer because it ultimately saves them money. For the same price they are currently paying for either their satellite television service or Blockbuster Total Access service, they ultimately get both for that same price. This truly is the most important thing to the customer. There is always a market demand for entertainment. People around the world will always watch television, watch movies, and play video games. There is also a demand for services to be affordable and with this service Blockbuster can address both of these needs.

Product/Service Innovation Implementation (Conversion) Plan

A strong implementation plan will be vital to the success of this innovation. There will be certain requirements that will need to be addressed and satisfied.

Resources: The first thing Blockbuster must handle is making sure they have they necessary online infrastructure and systems in place to ensure that streaming online movies and television runs smoothly. If the site can run with minimum problems, customers will be happy as well as more likely to recommend the service to people they know. Management and Human Resources will need to ensure that their customer support staff goes through extensive training and development to enable them to answer and technical and service issues they are having with the site, their account, their bill, etc.

Quality: Blockbuster’s quality is going to be embedded in how well the site runs and the quality of the videos their customers are streaming. First, it will be important for the project management team to work closely with the web developers on what is needed in terms of networking and computer systems to ensure optimal quality. The next step will be to take their website to testing, starting with employees and after reviewing feed back and making changes, expand to employee’s families as well as a test sample from existing customers. From there, research and development teams will assess the feedback, what changes need to be made, and start preparations for release of the service.

Time: Blockbuster will need to create a timeline that is sensitive to the needs of the customers, but gives the company the ability to make sure their product is of the utmost quality before release. There is a lot of complex code and development this web service will require and it needs to be done correctly and tested extensively to make sure it fits the customer’s needs. Blockbuster will most likely spend the first six months developing the site, embedding the code, uploading the movies and linking up the streaming for Dish Network. The next 6 months should be a combination of taking the service to the test market, and analyzing the feedback and making necessary changes. This gives Blockbuster one year until they launch their service.

Budget: The main costs associated with this will be paying the web developers to build the site, paying to upgrade their current systems and infrastructure to be able to easily handle this new site, and paying for training and development necessary for the employees. Blockbuster is now owned by Dish Network so the majority of funding will come from them, as well as through revenue currently coming in from their existing Total Access service. Ongoing funding to maintain and make improvements to the site will come from the customer’s monthly fees as well as companies that advertise on the website.

Product/Service Diffusion Plan

The diffusion phase involves project management, which includes coordinating, scheduling, scope, and monitoring activities and resources, which includes project objectives. (Woodside, 2011). The project management team will consist of senior managers from Dish Network and Blockbuster, MIS managers, third party web developers, and senior HR managers. According to Woodside (2011), team work is an important aspect throughout any implementation project. This requires close cooperation between all department areas and business and technical teams, including top management, consultants, end-users, and vendors (Woodside, 2011). Senior management will oversee the entire project and ensure that the implementation process is going as planned and that the different parties work well as a team. MIS and the third party web developers will work closely together in developing the site, its content, putting together the necessary components and systems to run the site, and will also assist with the training and development of the site. The Human Resource managers will be the ones responsible for generating excitement among the employees, creating sessions where ideas can be generated and discussed, and reported back to the developers and MIS, and coordinate all the training on the new site to ensure employees are ready to answer questions and handle problems that might arise. Once the test site is developed, it will be released to the employees to test outside of the office. The employees will report back on how it operates, what the glitches are, and things that can be added and/or taken away. Promotion to current Blockbuster and Dish Network customers will happen first and it will officially be released only to the current customers. After gathering feedback and making the final touches, it will be release to the general public.

Ethical Considerations

Blockbuster does participate in very ethical business practices. Blockbuster is a very large contributor to many community organizations such as Boys and Girls Clubs and they practice very ethically across the global in their international locations. While Blockbuster was going through financial turmoil and bankruptcy, in a time where many businesses “cooked the books” to make their numbers look better, Blockbuster remained very transparent and upfront about the issues they were having. One issue that Blockbuster did face was when they launched their “End of late fees” campaign. Consumers could rent a DVD or game and if they were a few days late in returning it they would not be charged. What many consumers did not know, and this brought on a lawsuit by New Jersey’s Attorney General’s office, was that after 30 days you would be charged for the value of that DVD or game. This was thought to be very deceptive and really hurt Blockbuster on a customer service level. Blockbuster later modified this policy to be more transparent in how it worked and ultimately they were fine. Going forward, with being owned by Dish Network and having more movies streamed online, Blockbuster will need to be on top of their accounting practices and they customer’s are being properly charged for online services, and also being careful of young minors streaming movies where they do not meet the ratings requirements.

Risk and Risk Mitigation and Additional Opportunities

Blockbuster has weathered many storms and the biggest being their bankruptcy. Now, being a subsidiary of Dish Network, they have many potential innovative opportunities in front of them. But with these opportunities comes risk. For example, will Dish Network cut the cord on us, will the economy keep causing customer’s to cut the cord on cable services in order to save money, or are we too late to the game to be relevant on an online basis. Dish Network and Blockbuster have already started working together to pull in current Dish customer’s with great streaming and/or mail order packages at special pricing of $10 a month. Currently this is only available to Dish Customer’s however another promotion is that anyone that signs up for Dish Network service gets a free year of this service. Blockbuster is also heavily integrated in Dish Network’s pay per view service. Overall, Dish Network paid a lot of money for Blockbuster and they need them. The innovative services that can come from this ownership are limitless and with the economy starting to turn back around, customers are coming back around to cable again. Blockbuster and Dish management will need to continue to be innovative together. Blockbuster has no real assets as of now but the opportunity to generate consistent and profitable revenue.

Statement of Financial Position:

The balance sheet is defined as “showing the financial position of a business-its assets, liabilities, and equity-at the end of a financial period” (Collier, 2009, p. 85). The below outlines the Consolidated Statements of Operations for Blockbuster, Inc. for the years 2008, 2009, and 2010. As can be seen from the below statements Blockbuster has been plagued over these three years with decreasing revenues. The company recorded revenues of $4,062.4 million during the financial year ended January 2010 a decrease of 19.8% as compared to 2009. The operating loss of the company was $355.2 million during 2010, compared to the operating loss of $304.3 million in 2009. The net loss was $569.3 million in 2010, compared to a net loss of $385.4 million in 2009. It is continuous net losses and dropping revenues and high debt that had Blockbuster file for bankruptcy in 2010 and subsequently get purchased by Dish Network in 2011. I feel this balance sheet shows that the business model of brick and mortar that Blockbuster was operating under was starting to fail and become too costly in comparison with the rest of their competitors, namely Netflix and Redbox. Base rental revenues were decreasing as their consumers stopped going to video rental stores and relied more and more on direct mail and online streaming of movies. Blockbuster did address this issue with Total Access however it was poorly marketed and more expensive than Netflix. Putting the bankruptcy and new ownership aside, it is clear Blockbuster must either cut costs or raise prices to compete with its current competitors. We have seen recently in the news the response to Netflix announcing price hikes, so it looks like cutting expenses might be Blockbuster’s best option at this point, and it seems they realize this as well with the closing and selling off of merchandise of many of their locations. They have also expanded with the recent installments of their new kiosks in response to Redbox. Finally in touching back on the recent purchase of Blockbuster by Dish Network, I think this will provide a huge opportunity for Blockbuster to keep fees down and rely on more technologically advanced venues for its entertainment.

Blockbuster, Inc. Consolidated Operating Sheet (2008) (in millions except for per share amounts)

| |2008 |
|Statement of Operations Data: | |
|Revenues |4,062.40 |
|Cost of sales |1,884.20 |
| | |
|Gross profit |2,178.20 |
|Operating expenses(1) |2,533.40 |
| | |
|Operating income (loss) |(355.2 |
|Interest expense |(111.6 |
|Loss on extinguishment of debt |(29.9 |
|Interest income |1.3 |
|Other items, net(2) |(10.4 |
| | |
|Income (loss) before income taxes |(505.8 |
|Benefit (provision) for income taxes |(11.8 |
| | |
|Income (loss) before discontinued |(517.6 |
|operations | |
|Income (loss) from discontinued |(40.6 |
|operations, net of tax(3) | |
| | |
|Net income (loss) |(558.2 |
| | |
|Cash Flow Data: | |
|Cash flows provided by (used in) |29.3 |
|operating activities | |
|Cash flows provided by (used in) |(74.9 |
|investing activities | |
|Cash flows provided by (used in) |72.4 |
|financing activities | |
| | |
|Other Data: | |
|Depreciation and intangible amortization |144.1 |
|Impairment of goodwill and other |369.2 |
|long-lived assets | |
| | |
|Margins: | |
|Rental margin(4) |63.4 |
|Merchandise margin(5) |21.2 |
|Gross margin(6) |53.6 |
| | |
|Worldwide Store Data: | |
|Same-store revenues increase | |
|(decrease)(7) | |
|Rental revenues |(11.1 |
|Merchandise sales |(17.9 |
|Total revenues |(13.1 |
| | |
|Company-operated stores at end of year |5,220 |
|Franchised stores at end of year |1,300 |
|Total stores at end of year |6,520 |
| | |
|45 | |
|Real Estate Data at January 3, 2010: | |
|Domestic | |
|Company-operated stores | |
|Distribution centers | |
|Corporate/regional offices | |
|International | |
|Company-operated stores | |
|Distribution centers | |
| | |
|Corporate/regional offices | |

Blockbuster, Inc. Consolidated Operating and Balance Sheet (2009, 2010) (in millions except for per share amounts)-Debtor in Possession

| | |2010 | | |2009 |
|Gross sales |$4,062 |$4,051 |$3,240 |$601 | |
| |Less sales returns and|0 |0 |0 |0 |
| |allowances | | | | |
| | | | | | |
|Beginning inventory |$2,002 |$1,538 |$1,184 |$0 | |
| |Plus goods purchased /|0 |0 |0 |0 |
| |manufactured | | | | |
| |Less ending inventory |433 |299 |242 |0 |
| | | | | | |
| | | | | | |
|Selling | | | | | |
| |Salaries and wages |$1,735 |$1,918 |$1,268 |$1,070 |
| | | | | | |
|Total General/Administrative Expenses |$2,235 |$1,918 |$1,697 |$1,500 | |
| | | | | | |
| | | | | | |
| |Taxes on income |10 |9 |(41) |0 |
| | | | | | |
|Income tax on extraordinary gain |0 |0 |0 |0 | |
| | | | | | |

Comparisons and Assumptions:

We see mostly decreases across the board, again the most significant factual evidence of Blockbuster’s decline over the past three years. Revenues, sales, costs and margins were all down. Blockbuster expanded its stores so quickly in the beginning and also did not change with the industry when the industry drifted more towards online. This and high overhead costs, higher prices than the competition, and a poor service and business model reflect in the decrease in numbers over the years. Also adding to Blockbuster’s woes was an excessive amount of debt. After declaring bankruptcy, Blockbuster no longer retains any assets.

The key to Blockbuster’s future financial strength will now be dependent on Dish Network. Blockbuster currently is integrating their store-based business model with Dish Network through subscription based programs Blockbuster Movie Pass and Blockbuster Movie Combo. “Indeed, Dish said the recent launch of the in-store Movie Combo has generated 600,000 subscribers, underscoring what it believes is a revived interest in consumers visiting Blockbuster Stores. Overall, Dish reported net income of $319 million, up 30% from net income of $245 million during the same period last year. Revenue, which includes Blockbuster LLC, totaled $3.6 billion, up 12.5% from revenue of $3.2 billion last year” (Gruenwedel, 2011). One of the biggest keys to keep Blockbuster generating revenues will be keeping prices down. Recently I went into a still open Blockbuster near my store to see if they have implemented any changes recently (I already know from research that the website and web membership has improved and that kiosks are already popping up) and was pleasantly surprised. In order for the stores to keep customers coming in instead of going to Redbox they now have great pricing that is a sliding scale model. New releases (that only Blockbuster will have) are 2.99 for a one-night rental and $.99 each day after. Mid range releases are $1.99 for a one-night rental and $.99 each day after. Old releases are $.99 for a one day rental and $.99 for each day after. The Blockbuster Movie Pass Combo (streaming and mail order) for Dish Network customers is only $10 a month whereas Netflix is currently $8 each. The major hang up presently is that it is only available for Dish customer’s however they are currently offering one year free of Movie Pass to new customer’s that sign up for Dish’s Top 200 package. (Tuttle, 2011).

The final thing that will prove important is the control systems that both Dish Network and Blockbuster sets into place. It will be important to have stringent financial controls in place to ensure that there are established parameters for costs and tight budgets in place. However management controls will need to be in place to ensure that Blockbuster’s services are used innovatively and that Dish Network takes full advantage of the potential of combining movie rentals and satellite television can have. The inclusion of non-monetary factors within a control system can provide insight and allows management to view the organization as a whole and integrated unit in which each component has an influence and impact on other areas. The evaluation of non-financial measures such as innovation and customer operations alongside traditional financial measures can ensure that each component of an organization is equally valued and one aspect does not become the sole focus with detrimental consequences (Collier, 2009). A balanced and more multi-tiered approach that addresses all issues management must control such as cultivating innovation, improving skill sets, and meeting financial and performance goals can ensure a more realistic evaluation of organizational control and performance.

|Comparison of Fiscal 2010 (52 | | | | |
|Weeks) to Fiscal 2009 (52 Weeks) | | | | |
| | | |January 3, 2010 | |
| | | |(52 Weeks) | |
| | |

|Period Ending |
|Sep 30, 2011 |
|Jun 30, 2011 |
|Mar 31, 2011 |
|Dec 31, 2010 |
| |
|Total Revenue |
|3,602,651 |
|3,590,161 |
|3,224,131 |
|3,206,579 |
| |
|Cost of Revenue |
|2,040,231 |
|1,705,934 |
|2,189,974 |
|3,368,227 |
| |
| |
| |
|Gross Profit |
|1,562,420 |
|1,884,227 |
|1,034,157 |
|(161,648) |
| |
| |
| |
| |
|Operating Expenses |
| |
| |
|Research Development |
|- |
|- |
|- |
|- |
| |
| |
|Selling General and Administrative |
|382,620 |
|325,262 |
|161,784 |
|164,582 |
| |
| |
|Non Recurring |
|- |
|23,728 |
|(340,677) |
|73,457 |
| |
| |
|Others |
|229,146 |
|237,049 |
|229,697 |
|236,998 |
| |
| |
| |
| |
| |
|Total Operating Expenses |
|- |
|- |
|- |
|- |
| |
| |
| |
| |
| |
| |
| |
| |
|Operating Income or Loss |
|624,839 |
|717,782 |
|983,353 |
|503,382 |
| |
| |
| |
| |
| |
| |
|Income from Continuing Operations |
| |
| |
| |
|Total Other Income/Expenses Net |
|28,825 |
|(11,193) |
|17,919 |
|14,544 |
| |
| |
| |
|Earnings Before Interest And Taxes |
|653,664 |
|706,589 |
|1,001,272 |
|517,926 |
| |
| |
| |
|Interest Expense |
|155,601 |
|143,564 |
|120,179 |
|118,521 |
| |
| |
| |
|Income Before Tax |
|498,063 |
|563,025 |
|881,093 |
|399,405 |
| |
| |
| |
|Income Tax Expense |
|179,085 |
|228,187 |
|331,767 |
|147,550 |
| |
| |
| |
|Minority Interest |
|121 |
|(78) |
|68 |
|(27) |
| |
| |
| |
| |
| |
| |
|Net Income From Continuing Ops |
|319,099 |
|334,760 |
|549,394 |
|251,828 |
| |
| |
| |
| |
| |
| |
|Non-recurring Events |
| |
| |
| |
|Discontinued Operations |
|- |
|- |
|- |
|- |
| |
| |
| |
|Extraordinary Items |
|- |
|- |
|- |
|- |
| |
| |
| |
|Effect Of Accounting Changes |
|- |
|- |
|- |
|- |
| |
| |
| |
|Other Items |
|- |
|- |
|- |
|- |
| |
| |
| |
| |
| |
| |
| |
| |
|Net Income |
|319,099 |
|334,760 |
|549,394 |
|251,828 |
| |
| |
|Preferred Stock And Other Adjustments |
|- |
|- |
|- |
|- |
| |
| |
| |
| |
| |
|Net Income Applicable To Common Shares |
|319,099 |
|334,760 |
|549,394 |
|251,828 |
| |
| |

Financial Management Analysis

In this section we will analyze Blockbuster’s profitability, net income, ratio analysis and poor cash flow. I will focus primarily on 2009, the year leading up to their 2010 bankruptcy. In the below analysis it is apparent that the writing was on the wall with Blockbuster showing poor sales, negative income, too much inventory, and too much debt. They now have a clean financial slate under new parent company Dish Network, although they will be in payment arrangements with their creditors. It remains to be seen how Blockbuster fares under their new company.

Financial Statements

BLOCKBUSTER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Source: annual report 10k for 2009 | | | | |
| | |January 3, 201| | |January 4, 200| | |January 6, 200| |
| | |0 | | |9 | | |8 | |
|Cash flows from operating activities: | | |
| | | |
| | | |
|Cash Flow from operating activities: | | |
|Net income |-558.20 | |
|Total adjustments to reconcile net income to net cash provided by operating activities |587.50 | |
| Net cash flow provided by (used) in operating activities |29.30 | |
|Cash flow from investing activities | | |
| Net cash provided by (used) in investing activities |-74.90 | |
|Cash flow from financing activities | | |
|Net cash provided by (used) by financing activities |72.40 | |
|Effect of exchange rate changes on cash |7.00 | |
|Net increase (decrease) in cash equivalents |33.80 | |
|Cash and equivalents at beginning of year |154.90 | |
|Cash and equivalents at end of year |188.70 | |

Financial Analysis

Operating activities
The operating activities involve buying/receiving goods and providing services. Operating cash inflows include cash receipts from the rental activity and other revenue transactions. Operating cash outflows include payments related to accounts payable, services and supplies, interest and income taxes. Blockbuster’s cash flow from operating activities was $29.3 million in 2009 before declaring bankruptcy in 2010.

Investing activities
Investing activities include proceeds from maturities of the sales of short term-investments, purchase of short-term investments, proceeds of sale of DVDs, purchase of property and equipment, and investments in other assets. Cash used for investing activities totaled -$74.9 million for Blockbuster and cash outflows for investing activities were mostly spent in Capital expenditures for $32.3 million and in change of restricted cash for $58.5 million.
Financing activities
Financing activities involve obtaining resources, borrowing money from creditors and repaying the amounts borrowed. Cash used for financing activities showed $72.4 million. The cash inflows were related to the proceeds from senior secured notes for $634 million and the proceeds from credit agreements for $381 million. Repayments on credit agreements for $864 million are the most important cash outflows for the period.

BALANCE SHEETS FOR THE YEAR ENDED 2009
(Amounts in millions)

| | | |
| | | |
| | | |
| | | |
|Assets | | |
|Current assets : | | |
| Cash and equivalents |189 | |
| Short term investments |0 | |
| Receivables |79 | |
| Inventory |639 | |
| Deferred income tax |14 | |
| Other current assets |0 | |
| Prepaid expenses |139 | |
|Total current assets |1,060 | |
|Non-Current assets |478 | |
|Total assets |1,538 | |
| | | |
|Liabilities and stockholder equity | | |
|Current liabilities |935 | |
|Non-current liabilities |917 | |
|Stockholders' equity |-314 | |
|Total liabilities and stockholder's equity |1,538 | |
| | | |

I. Risk Analysis- Solvency/Liquidity risks

|Short-term solvency and liquidity ratios (2009) | | |
| | | |
| | | |
|Current ratio (current assets/current liabilities) |1.13 | |
| | | |
|Quick ratio (current assets-inventories/current liabilities) |0.45 | |
| | | |
|Inventory Turnover Ratio (Sales/Inventories) |2.73 | |
|Long-term solvency ratios (2009) | | |
| | | |
|Total debt ratio (Total debt/Total assets) |120% | |
| | | |
|Long-term debt ratio |-5.90 | |
| | | |
|Profitability ratios (2009) | | |
|Profit margin on sales (Net income/sales) |-13.74% | |
| | | |
|Return on asset (ROA) (Net income/total assets) | -36.28% | |
| | | |
|Return on equity (ROE) (Net income/common equity) |-177.54% | |

Ratio Analysis

Short-term solvency and liquidity ratios

The current ratio measures the short-term debt-paying ability. Blockbuster had a current ratio of 1.13. We can start seeing Blockbuster’s downfall here with their current assets and liabilities being the same. Blockbuster had too much debt with their stores and money borrowed and in the end, were not able to pay the investors back. Dish Network now has taken over Blockbuster and hope that the decision is profitable while Blockbuster hopes they can once again become a leader in movie and game rentals while satisfying their judgments to their debtors.

The quick ratio measures immediate short-term liquidity. This ratio was of 0.45. Blockbuster had so much inventory among their stores, unlike competitor Netflix which operated online and by direct mail. “Inventories are typically the least liquid of a firm’s assets, hence they are the assets on which losses are most likely to occur in the event of liquidation” (Brigham, Houston, 2008, p. 104). Note, we saw this as Blockbuster started liquidating their stores down to the furniture and equipment and had to sell at fractions of the price they paid.

The inventory turnover ratio is 2.73 which indicates that Blockbuster is only turning over its inventory 2.73 times a year.

Long-term solvency ratios

The total debt ratio measures the percentage of total assets provided by creditors. As Blockbuster had a debt ratio of 120% , 120% of its financing is from creditors. Blockbuster at this point was not attractive to lenders and lead to their ultimate bankruptcy.

The debt-equity ratio refers to the relationship between the total debt from creditors and the equity of shareholders. Blockbuster displayed a poor situation (ratio of -5.90).

Profitability ratios

The profit margin on sales measures net income earned on each dollar of sales. With a profit margin on sales of -13.74% we can say that Blockbuster provided -$13.74 of net income for $100 of sales. This implies a poor situation. The overall profitability was -36.28%. The return on equity measures profitability of owners’ investment. Blockbuster experienced a degrading situation with a return on equity of -177.54%.

Financial Conclusion and Recommendations

With the net income, lack of profitability, and poor financial ratios we can really see how in 2009 Blockbuster was beginning to sink. At this point it is in the hands of Dish Network to help Blockbuster turn a corner and become a profitable company once again. They seemed to be on the right path with offering Blockbuster On Demand streaming services to Dish Network customers and realigning stores by closing non profitable ones and having new pricing and rental structures for stores they felt could still be successful. Also we had seen Blockbuster step into the kiosk industry. However if recent news reflects correctly, Dish Network is losing confidence in its expensive purchase. It has passed the deadline Dish Network had set for opening open Blockbuster On Demand for everyone. For now they have decided to not move forward on that. Rumors are a foot that Blockbuster will be selling their kiosks to none other than CoinStar, the parent company of Redbox. It would have been a prime time for Blockbuster to rise back to the top, particular with Netflix shocking its customers by splitting their mail service and streaming services as well as raising prices. So it still remains to be seen what will happen with Blockbuster. Their revenues for 2010 were not stellar and it remains to be reported how they performed in 2011. Looking at past numbers though we can see how sick Blockbuster was for a number of years and how their business model, while extremely successful in the 90’s, did not change with the times.

Business Strategy

Organizational Chart

[pic]

Blockbuster LLC. Is now under Dish Network’s management. Charles Ergen ultimately, as Chairman of the Board, acts in the interest of the shareholders (as Dish’s largest shareholder) of Dish Network and makes the ultimate decisions regarding the company, although has very little to do with the day to day actions and work of the employees. Ergen focuses on shaping Dish Network’s strategy and business model. Joseph Clayton, President and CEO of Dish Network, is the direct report of all Dish Network (and its subsidiaries, i.e. Blockbuster) managers and is responsible for the day to day operations. Clayton came to Dish Network in 2011 after being CEO for Syrius Radio. Under Joseph Clayton, regarding its subsidiary in Blockbuster, is Michael Kelly, President of Blockbuster. Michael Kelly replaced former CEO Jim Keyes and had previously been Executive Vice President of Dish Network’s commercial services division as well as media sales. “Michael was the visionary behind our acquisition of Blockbuster," said Dish chairman and CEO Ergen. "His leadership will be key to returning Blockbuster to profitability and improving the experience we offer to consumers across the U.S. and globally" (Szalai, 2011). Kelly’s role will not only be Blockbuster’s day to day operations, but also working at reshaping and restoring Blockbuster’s iconic brand by working with the employees and the franchises to keep giving, and find better ways of giving, customers access to Blockbuster’s 125,000 movies and games via store, mail, or online. Dennis McGill, Kevin Lewis, and Greg Nichols also manage the day to day operations in their given areas and report back to Michael.

As eager as Ergen was about Kelly revamping Blockbuster, the process has been slow. Much of the physical store locations have been shut down. Initially Dish resolved to keep as many open as possible, but as tough economic times hit, Clayton announced they would only be keeping open the profitable stores. Also in regards to Blockbuster’s online services, these have only been opened up to Dish Network customers. The date to open these services to the public seems to keep getting pushed back. Time will only tell if Kelly can be successful as re-energizing Blockbuster. The industry in general, even with once successful Netflix, seems to be dwindling as the ease of getting movies online, through places such as Itunes, Apple TV, etc. increases and customer’s don’t need the added services. Blockbuster was once a strong business model. It set out to give their customers something that was expensive to buy (VHS) to something that could rented and watched for a few dollars. Unfortunately Blockbuster’s model remained stagnate through the tech boom where companies like Netflix thrived. Now, neither company can hardly offer a service that can be gotten essentially for free. So while I feel Dish Network made some strong choices regarding management, it will remain to be seen if Blockbuster will strive once again in this current industry

Value Chain Analysis

Value Chain Chart
|Firm Infrastructure |See Organizational Chart, new Management for Blockbuster under Dish Network and newly appointed President of |
| |Blockbuster, Michael Kelly. |
|Human Resources |High turnover in the past. Closing of more stores, uncertainty. |
|Technology |Blockbuster On Demand, Total Access |
|Procurement |Low Credit, Backed by Dish Network |
| |Inbound Logistics: |Operations: |Outbound Logistics: |Marketing & Sales:|Service: |
| | | | | |Online, store, |
| |Low Inventory, no creation |Focus on retailing and |Stores, Distribution |Members, Consumer |Mail. Games |
| |of product. |tracking demand for |Centers. |Needs, | |
| | |products. | |Industry trends | |

Value Chain Analysis

A value chain analysis is used to determine the value in particular segments of Blockbuster’s operations. The value chain is broken down into primary and support activities.

Primary Activities

Inbound Logistics

Inbound logistics are activities such as materials, handling, and inventory control used to receive, store, and distribute inputs to a product. Because Blockbuster does not “create” a product, but merely packages and distributes it, there are no raw materials or a production process. Items are purchased and shipped directly to distribution centers.

Blockbuster purchases their movie rental inventory for US company-operated stores directly from the studios by two methods, the first being a title-by-title basis through purchase orders, and second through various “revenue-sharing” arrangements. International locations utilize the same two methods as the US purchase system, with the addition of one other method. Some studios appoint sub-wholesalers to distribute the studios’ product in certain countries.

Blockbuster also acquires retail movie and game inventory through various trading programs. In these programs, Blockbuster purchases general merchandise that is complementary to rental and retail movie and video game inventory, such as confection (candy and other sweet things), game and other accessories and consumer electronics, from a variety of suppliers on a product-by-product basis through purchase orders.

Operations

Operational actives are used to convert inputs provided by inbound logistics into the final product form. Because Blockbuster does not convert inputs into a product, but merely distributes products, their operations focus more on retailing and tracking demand for their products.

Blockbuster uses Management Information Systems to accurately and efficiently manage their purchasing, inventory, and sales records. They maintain information, updated on a daily basis, regarding revenues, current and historical sales and rental activity, demographics of store customers, and rental patterns. All Blockbuster retail stores use a point-of-sale system. In the United States, the point-of-sale system is linked with a data center located in their distribution center. Using scanned bar code information, all products distributed from the distribution center to each US store are tracked and recorded. At the close of business each day, the point-of-sale system transmits the domestic rental and sales transactions data to the data center and the membership transaction database.

Outbound Logistics

Outbound logistics are activities that focus on collecting, storing, and physically distributing final products to customers.

Blockbuster has 1,500 stores within the United States, and 1,300 stores in 22 markets outside of the United States. Their primary distribution center is located in McKinney, Texas, with an additional 35 online distribution centers spread throughout the United States to support their domestic online rental service. International distribution occurs similar to the methods in the US. The distribution center in McKinney, Texas, is a highly automated, centralized facility that is used to mechanically repackage newly-released movies and games to make them suitable for rental at retail stores. This center is also used to restock products and process returns, as well as to provide some office space. The McKinney distribution center supports virtually all of Blockbuster’s company-operated stores in the United States and operates 24 hours a day, six days a week

The other 35 distribution centers are spread throughout the United States, in strategic locations. Blockbuster uses the United States Postal Service to deliver their online product DVD orders to customers. The closer a customer is to a distribution center, the faster a customer will receive an online rental product. Approximately 90% of Blockbuster’s online customers are reachable within one business day from distribution centers due to the utilization of roughly 90 different mail entry points. Also, store locations are used to fulfill a portion of online orders in order to keep up with demand.

Blockbuster uses a network of third-party delivery agents for delivery of products to US stores. Products are shipped to delivery agents, located strategically throughout the United States, and they in turn deliver them to Blockbuster stores. The use of third-party distributors allows Blockbuster to process and distribute a greater quantity of products while reducing costs and improving services to stores.

Marketing and Sales

Marketing and sales activities are carried out for the purpose of providing means through which customers can purchase products, and to induce them to do so.

Blockbuster designs their marketing and advertising campaigns to best maximize opportunities in the marketplace, and thereby increase the return on their marketing and advertising expenditures. Information for marketing is obtained from their membership transaction database, their real estate database, and outside research agencies. This information is then used to formulate and adjust marketing and advertising campaigns based on the following factors:

1. Membership behavior and transaction trends 2. Consumer needs and attitudes 3. Market share in the relevant 4. Financial position; 5. Evaluation of industry trends 6. Local demographics 7. Other competitive issues

Blockbuster uses a customer relations management (CRM) business strategy to build relationships with specific customer segments. The CRM program is used to maintain relevant value across all customer groups and to introduce customers to new customer proposition initiatives. The process of segmenting the customer base and targeting their direct marketing channel communications, Blockbuster tries to improve the effectiveness and efficiency of their direct marketing efforts. They use a variety of communication channels, to include direct mail and e-mail, as well as non-traditional channels such as voice marketing and point of sale.

Service

Service activities are designed to enhance or maintain a product’s value. The following is a list of services offered by Blockbuster:

i. Online Subscription Service: launched in mid-2004. This program allows customers to rent DVDs by mail and offers a much larger selection that traditionally maintained in physical store locations. The only competitor to this program is Netflix and is about equivalent in quality.

ii. Blockbuster Total Access: Under the Blockbuster Total Access program, online subscribers have the exchanging their DVDs through the mail or returning them to a nearby participating Blockbuster store in free in-store movie rentals. Again, Netflix is the only competitor for this type of service; however, Netflix does not offer the in-store option making this service superior to competitors.

iii. No Late Fees: The “no late fees” program eliminates extended viewing fees on movies and games at substantially company-operated Blockbuster stores in the United States and Canada and at certain participating franchise in the United States. The “no late fees” program was launched to eliminate our most prevalent customer complaint movie rental experience and to combat our competitors’ use of “late fees” as a means of differentiating their service offerings. Of Blockbuster’s three top competitors, Netflix, Hastings Entertainment, and the Movie Gallery, both Hastings and the Movie Gallery still have late fees associated with rentals, making this service offered by Blockbuster superior to competitors.

iv. Guaranteed in Stock: The Guaranteed in Stock program offers customers the assurance that certain popular newly video titles will be in stock or the customer will receive a coupon that can be redeemed for a free rental of that the following 30 days. Of Blockbuster’s three top competitors, Netflix, Hastings Entertainment, and the Movie Gallery, all three have similar services, making this service offered by Blockbuster equivalent to competitors.

v. Blockbuster Movie Pass and Blockbuster Game Pass: These in-store programs allow customers to watch an unlimited amount of movies or games (the number of movies or games allowed out at a time is dependent customer selects) for one monthly price and keep them for whatever period of time that they desire during the pass, subject to certain limitations. Of Blockbuster’s three top competitors, Netflix, Hastings Entertainment, and the Movie Gallery, all three have similar services, making this service offered by Blockbuster equivalent to competitors.

vi. Blockbuster Rewards: This premium in-store membership program is designed to offer benefits to our customers enhance customer loyalty by encouraging our customers to rent movies and games only from our stores. This program is not really applicable in comparison with its competitors because Netflix does not have in-store rentals, and Hastings and the Movie Gallery do not offer online rentals and therefore do not need an extra incentive to customers for renting only in their stores.
Support Activities

Procurement

Blockbuster is beginning to generate new revenues since the bankruptcy. Their credit worthiness is very low and fortunately they have the backing of Dish Network going forward.

Human Resource Management

Human Resource Management activities are those involved with recruiting, hiring, training, developing, and compensating all personnel.

Blockbuster has experienced a high rate of turnover in high-level corporate positions, over the years before the bankruptcy, putting the writing on the wall essentially. With the shutting down of stores, it will create more turnover. Blockbuster is much weaker in this area than its competition and it remains to be seen how they address this.

The conclusions from the Value Chain Analysis is that again, Blockbuster had a great business models, with its stores, distribution centers, combining the enjoyment of going to the store to rent a movie, get popcorn, etc. The problem is that this is no longer relevant in today’s digital world. Blockbuster provided great service, had great services that its customers could take advantage of but quite frankly it is too expensive for Dish Network to maintain stores that are not profitable, and unless they package it with the cable service, I don’t see Blockbuster retaining or gaining new customers. This is part of the reason I think management has not opened Blockbuster’s On Demand up to the general public, only their Dish customers. I feel the best way to use Blockbuster in the future will be bundled together as a proprietary service for Dish customers and for Dish to use this as a perk to sign up new customers for cable services.

Business Strategy Summary

[pic]

A long time ago, Blockbuster created their blue ocean of video rental. No one else had done it, and what Blockbuster did was look at the red ocean of video sales, which at the time was very expensive for the end consumer, and turned it into their Blue Ocean by renting videos to consumers for a low cost. If you see the BCG breakdown below, and in the below chart, you will see Blockbuster is in the Dog category. As you can see in the BCG Matrix, the online rental market as a whole is put in the dog category because the industry is no longer growing. Netflix holds on to a Cash Cow status a little bit as it streams movie via game consoles, internet tv, and through PCs. You can see by the BCG Matrix that as we move from Cable TV to Internet Provider TV/movies we see the Stars and Duds of the marketplace. Showtime and HBO are under stars. These cable stations have a huge following and have created their own blue ocean somewhat as they now have their own tv productions that they solely own the rights to. The cash cow category includes companies such as Hulu, Movielink, and BitTorrent. These companies were the stars of a few years ago as they gained market share, and have for the most part leveled out but still remain very profitable. As we move to the Internet Provider side of the Matrix, services such as FiOS (Fiber Optic Service for internet and television) which are largely unproven and have low revenues but have the possibility of being the future stars. Finally the dogs are Blockbuster, Gamefly, and Movie Gallery which are in an industry that is dying.

BCG Matrix Breakdown:

Stars: Stars are business units that have a relatively large market share and operate in fast-growing markets. These are usually new units in growing industries, with resulting high profits. They are leaders in their industry and generate relatively large revenues from sales, though they are frequently in rough balance with respect to bottom-line net cash flow, since they require large investments in fixed and working capital to ensure high growth rate in a growing market.

Cash Cows: Cash Cows have, in the past, gained large market shares, but they currently compete in industries whose growth rate has slowed down. They usually are the Stars of the past, which today supply the corporation with enough profits to maintain the current market position. Cash generation is good and cash needs are minimal. These businesses can generate large cash surpluses. They form the foundation of the corporation, providing the cash flow necessary to pursue other strategic goals.

Problem Childs: Problem Childs or Question Marks compete in a growth market but they have a relatively small market share. This combination leads to increasing amounts of investments to defend their (small) share of the market and secure survival. High growth requires cash to support it, but the Question Marks have difficulty generating cash because of their low share. They are net users of cash, and will probably remain that way unless measures are taken to improve their market share. There are significant uncertainties about these units: they may be very profitable or not. Without substantial investment they are very likely to become Dogs.

Dogs: Dogs are small market-share business units in non-growing industries, condemned to low profits. Net cash flow is typically small and frequently negative. Any move to gain market share is forcefully counter-attacked by the dominant competitors. These Dogs are low-profit business units – frequently losers that require large investments of top management time and skill to keep them alive. (Valuebasedmanagement.net, 2008).

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Charles W. Ergen, Chairman of Board

Joseph P. Clayton, President and CEO

Michael Kelly, President of Blockbuster

Dennis McGill, Executive VP and CFO, Blockbuster

Kevin Lewis, Senior VP and CMO, Blockbuster

Nick Sayeedi, Senior VP and General Counsel, Blockbuster

Charles W. Ergen, Chairman of Board

Joseph P. Clayton, President and CEO

Michael Kelly, President of Blockbuster

Dennis McGill, Executive VP and CFO, Blockbuster

Kevin Lewis, Senior VP and CMO, Blockbuster

Nick Sayeedi, Senior VP and General Counsel, Blockbuster