Blockbuster’s lack of blockbuster
Frankie L. Jones
February 11, 2013

BUS: 642
Thomas Hennefer

Abstract
Blockbuster video, the once dominant force behind consumers’ movie rental needs has suffered a significant loss in revenue to the rise of RedBox and Netflix. The competitive advantage offered by the two companies has tapped into Blockbuster’s market and cause a lack of blockbuster for the company. Since 2009 the company has continue to reported decreased revenue and profits against its competitors. In 2010 the company filed bankruptcy and has since then implemented new services and products similar to its competitors, however, customer’s still prefer RedBox and/or Netflix.

Once upon a time on a Friday night after work, you were looking to go home, relax, and watch a good movie. You come up on a big blue sign with yellow lettering, and think, “I’LL RUN TO BLOCKBUSTER!” Today, we’re looking for the nearest RedBox, or browsing Netflix for a good flick. There was time when families would take a trip to Blockbuster, order a pizza, and make it a movie night. Today, people have the luxury of not even leaving the house to find a good movie; thanks to Netflix. After a routine run to Wal-Mart, Walgreens, or Kroger’s it has become second nature to browse the RedBox, especially since the cost is only $1. But what has happened to good ol’ Blockbuster? Over the past few years Blockbuster video locations have steadily declined. Blockbuster, the once powerful source for movie and video game rental, has become nonexistent in some areas. Due to the rise of Netflix and RedBox, Blockbuster has experienced a decline in sales, continues to close locations, and continues to post quarterly losses. Blockbuster has implemented new services; however, customers still prefer Netflix and RedBox over Blockbuster. This paper will test Blockbuster’s reported revenue from 2009-2011 against reported revenue from 2009-2011 of Netflix and RedBox, and elaborate on the declining Blockbuster locations against the expansion of Netflix and RedBox.
Reported Revenue
In 2009 Blockbuster was still among the top two competitors for consumers’ movie rental needs. RedBox was establishing a foundation and surpassing forecasted expectations every year, while Netflix accumulated revenue between $1.63 billion to $1.67 billion, which was about $30 billion more than Blockbuster.

2009 Total Revenue for Blockbuster, RedBox, and Netflix

Blockbuster's market capitalization had dropped 47 percent to $62 million in 2009; Netflix's had shot up 55 percent to $3.9 billion that year (Chopra & Veeraiyan 2010).
According to Blockbuster’s financial reports for fourth quarter 2009, total revenues were $1.08 billion as compared to total revenue of $1.31 billion for the same period in 2008, and gross profit was $540.4 million. Blockbuster ended the fourth quarter of 2009 with $188.7 million in cash and cash equivalents and $58.5 million in restricted cash related to the Company's letters of credit. According to Blockbuster’s financial reports for first quarter 2010, total revenues for the first quarter of 2010 were $939.4 million, compared to total revenues of $1.09 billion for the same period in 2009, and gross profit was $502.2 million. Blockbuster ended the first quarter of 2010 with $109.9 million in cash and cash equivalents. The company filed for bankruptcy on September 23, 2010. Fritz (2001) wrote an article on Blockbuster’s bankruptcy, and reported that on April 6, 2011, the company was bought by satellite television provider Dish Network at auction for $233 million with the assumption of $87 million in liabilities and other obligations. In 2011 Dish announced that the Blockbuster division essentially broke even by bringing in $347 million for the first full quarter (Smith 2011).
In 2009 RedBox‘s parent company, Coinstar, reported a revenue of $1.1 billion. $773.5 million were from RedBox kiosks (Smith 2010). In first quarter 2010 Coinstar announced profit of $6.4 million on revenue of $350.1 million. In 2011 Coinstar overall posted a first quarter profit of $26.7 million with revenue at $435.2 million.
In 2009 Netflix raised its revenue outlook to a range of $1.63 billion to $1.67 billion (Wilkerson 2009). According to Martinez (2011), Netflix saw $596 million in Q4 revenue of 2010, and spent 10% less on marketing in compared with the same period of the prior year. First quarter 2011 Netflix reported revenues of $719 million with a net income of $60 million. (Haselton 2011).
By 2011, Blockbuster had undergone bankruptcy, while Netflix and RedBox continued to post increasing revenue reports exceeding analysts’ forecasted anticipations. The competitive advantage of the RedBox’s $1 movie rental, and Netflix’s internet/tv streamline service tapped into Blockbuster’s market, and eventually cause the company to file bankruptcy. Jim Keyes, CEO of Dallas-based Blockbuster Inc., forecasted that the only hope for Blockbuster was to shift its business model from primarily brick-and-mortar physical DVD rentals to increased digital and mail-order video delivery (Chopra & Veeraiyan 2010). According to Shane Smith, the Blockbuster division of Dish posted $347 million in revenue for the first quarter of 2011, which was a breakeven point. Netflix posted $719 million in first quarter 2011 (Haselton 2011). And Redbox posted $435.2 million first quarter 2011 (Smith 2010).

2011 Q1 Revenue for Blockbuster, RedBox, and Netflix

RedBox eventually topped Blockbuster in revenue sales over a two year period, while Netflix still remained the top revenue earner.

Diminishing Blockbuster locations vs. Rise of RedBox and Netflix
Baker (2012) reported after Dish consumed the company in 2011, Dish CEO Joe Clayton claimed stated in an interview with Reuters that "We will close unprofitable stores. We will close additional stores." Dish planned to keep 1,500 Blockbuster rental stores open and maintain 15,000 employees (Reisinger 2012). Although the plan was to maintain 1,500 stores, Clayton told Reuters that more stores than anticipated have slipped into the red, and therefore it won't actually have 1,500 stores operating (Baker 2012). Today, there are around 1000 Blockbuster stores left in the U.S. with locations in 17 countries worldwide. Clayton explained, “There's very little reason to keep the 1,000 remaining Blockbuster stores open at this point. Expect more closings as their leases expire.”
(Tuttle 2009) There are more than 15,000 RedBox kiosks in the nation and with its growing number of locations; there are already more RedBox kiosks than traditional video stores left in the U.S. Goldman ( 2010) reported the biggest Hollywood studios had become disgruntled with RedBox's business model. The $1-per-day price undercut Blockbuster, Netflix and video on demand services, especially if customers return their movies to Redbox in a timely fashion. With big studios already struggling to maintain DVD revenues, Warner Bros., Universal and Fox eventually stopped supplying RedBox with new releases. RedBox, in turn, sued the studios on antitrust grounds. In the meantime, the company pledged to continue supplying its kiosks with day-of-release DVDs, even if it meant buying them at retail. The company hired hundreds of workers to go to retailers around the country to buy up new releases in order to fill their kiosks; however, purchasing movies at retail was cutting deep into RedBox's profits. Meanwhile, studios could no longer ignore the surging popularity of the red kiosks, which recently topped 20,000 nationwide RedBox has rented out over 500 million DVDs to impulse buyers. Some movie studios, such as Sony's home entertainment unit and Lionsgate. have signed multi-year agreements to supply RedBox with new releases of DVDs.
Pepitone (2011) reported that Netflix had 23.8 million total U.S. subscribers as of Sept. 30, down from 24.6 million three months earlier. Around 21.5 million customers had streaming subscriptions, and just under 14 million had DVD subscriptions, with most customers mixing the two. The company will expand its streaming video service into the United Kingdom and Ireland. Netflix is the largest internet subscription service for consumers’ movie and TV programs needs. In July 2011, the company angered many subscribers by saying it would begin charging separate prices for its DVDs-by-mail and streaming video plans. That amounted to a big price increase for Netflix customers, as the cheapest-possible bill for customers who want both services jumped from $10 to $16 a month. Customers raged against the idea of managing two separate accounts so much so that Netflix pulled a stunning reversal a few short weeks later and canceled the plan. Netflix said it was focusing on the future, promising customers that "we are done with pricing changes."
RedBox vs. Netflix vs. Blockbuster
Tuttle (2009) reported, according to Associated Press, of the three businesses, RedBox is the fastest-growing. RedBox is cheap and fast, therefore, convenient for customers. However, RedBox does not offer a wide variety of movie choices, including older movie choices. Netflix offers an enormous selection, along with great customer service, which is service that RedBox lacks. At one point Netflix users became outraged at Netflix’s attempt to raises prices due to consumers taking advantage of both movie and TV services, although the attempt fell through, it resulted in a loss of subscribers for Netflix. However, the loss of subscribers has no effect on the how much revenue Netflix earns against Blockbuster. Blockbuster offers the most options: rent at the store, have movies mailed to you, and swap movies via mail or in-person at a store. Reisinger (2012) Dish announced Blockbuster Movie Pass, a bundle that includes streaming video, access to premium movie channels, and movies and games by mail. The service is available to existing customers for $10 a month and new subscribers who choose the satellite provider's America's Top 200 package for $39.99 a month. However, although Blockbuster offers more options, do customers still prefer Redbox or Netflix?
I polled a small group coworkers and friends through random sampling consisting of 20 people. Thematic units measured the content analysis of the question being posed, “Do you prefer RedBox, Netflix, or Blockbuster? Why?” Thematic unit was deemed appropriate based on the open-endedness of the question. 19 of the 20 polled were responsive.
What do consumers prefer?

Most respondents preferred RedBox based on the convenience, costs, and location. RedBox users enjoy the luxury of returning a movie at their convenience, to any RedBox kiosk location. RedBox users also like the $1 price for the rental. Most respondents expressed, “You can’t beat $1!” The respondents that preferred Neflix elaborated on the choices of movies and TV programs, customer service, and the ability to stream Netflix from game systems. Netflix users enjoy the convenience of streaming from home, and how movies are mailed to their homes. Netflix users did show concern with the delay in release dates for some movies or series, however, they are comfortable with the overall quality. The respondents that prefer Blockbuster enjoy the variety of the movie selection from old movies to new releases. Respondents that used Blockbuster and RedBox, preferred Blockbuster because of the delay for new releases to RedBox.
In conclusion, Newman (2010) reported that in 2009 Blockbuster had up to 60,000 employees. However, according to Blockbuster press release (2010) poor strategic planning and mismanagement as well as competition from other video rental companies such as Netflix and RedBox, Blockbuster has undergone significant revenue losses. Although Blockbuster has implemented new services, such as Blockbuster Express and Blockbuster Movie Pass consumers still prefer RedBox or Netflix over the once dominant chain. Consumers realize the release dates may be delayed or a monthly charge may be assessed, however, that has not stopped the rapid increase in RedBox kiosk and Netflix subscribers.

Sources
Baker, Liana B. (January12, 2012) “Dish to shut more Blockbuster stores than planned” Rueters, http://www.reuters.com/article/2012/01/12/us-ces-dish-idUSTRE80B1X920120112. Blockbuster Reports Fourth Quarter and Fiscal-Year 2009 Financial Results | DALLAS, Feb 24, 2010 /PRNewswire via COMTEX/ -- Blockbuster Inc. (NYSE: BBI, BBI.B), a leading global provider of media entertainment, today announced financial results for the fourth quarter and fiscal year ended January 3, 2010. | Blockbuster Reports First Quarter 2010 Financial Results | DALLAS, May 13, 2010 /PRNewswire via COMTEX/ --Blockbuster Inc. (NYSE: BBI, BBI.B) today announced financial results for the first quarter ending April 4, 2010. |

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