Blockbuster Videos Environmental Impact Analysis

Once considered the leader in the video rental industry, Blockbuster Videos now finds the business in a downward spiral and is now in the process of filing for Chapter 11 reorganization. Most of the stories about the demise of Blockbuster focused on Netflix and the move to digital technology, but the underlying reason Blockbuster failed was a lack of strong and credible leadership. While battling against its external environment such Redbox and Netflix, Blockbusters was also dealing with internal power struggles from top executives. From an external standpoint, there were several factors that led to Blockbuster’s decline. First, DVD costs declined substantially through increased economies of scale and reduced manufacturing costs. This led to a lower price for DVDs and had many consumers buying the videos outright, instead of opting to rent. Second, rental copies were expensive for Blockbuster to manage, which is why most of the company’s revenue came from late fees on returns. In addition, these DVD rentals are only made once and are costly to replace if lost or stolen. Third, large retail chains, such as WalMart, started to sell DVDs below wholesale, further diluting the market. However, despite all of these threats, the one external threat that had the largest impact was Netflix. Netflix stole market share by combining video sales with on-demand streaming videos at a fraction of the cost. Not only did Netflix continue to sell videos through an easy to use online rental service, they also provided physical videos through a flat rate DVD-by-mail service. This allowed Netflix to provide the same physical video as Blockbuster, but at a much lower cost and without the hassle of facing late fees. Also, Netflix anticipated the inevitable shift in consumer needs and buying habits. They recognized that consumers would rather deal with an online rental service with physical media versus dealing with the inconvenience of going to a Blockbuster store, renting a DVD and then returning it in time to avoid any late fees. (Wolfe, 2010). Netflix relied upon their DVD-by mail service, which eliminated DVD cases and expensive packaging. Instead, the user would receive the DVD by mail, watch the movie, and then return it with minimal inconvenience and cost to them or to Netflix. Blockbuster’s failure to innovate and keep up with current technologies was the beginning of its demise in the video rental industry. Blockbuster tried to innovate with a video by mail service but by then, Netflix was firmly established in that new business. Blockbuster had to play catch up and was on the defensive at that point. Also, Blockbuster maintained and even expanded its store model years past its relevance as the use of the internet was gaining momentum. The store model became unsustainable due to the high operating costs, and Blockbuster’s punitive late fees pricing model alienated customers instead of providing convenience and flexibility. Customers were tired of paying the late fees and Netflix capitalized on the customers’ dissatisfaction by offering rentals without late fees. Most of the information about the demise of Blockbuster focus on Netflix and the advancement in technology to digital, but the underlying reason Blockbuster failed was the internal lack of strong and credible leadership. While the introduction of the DVD and Netflix created external business obstacles in which significant strategic changes were needed, the Blockbuster CEO and the board were busy fighting internally about the business strategy of Blockbuster. They were steadily building cases against each other, undermining the others’ credibility, and driving the organization into the ground (Darling, 2011). The board and CEO became fragmented and ultimately incapable of effectively executing the kind of strategy needed in a highly competitive market. Blockbuster’s leadership team stubbornly perpetuated their status quo, the known and the comfortable, while options flourished all around them that better met customer needs and preferences (Antioco, 2011). The internal leadership of Blockbuster did not respond very well to the external challenges of the media industry, and just when the leadership team was called upon to define the future of Blockbuster, they could not even get aligned around how to deal with the urgent and critical forces hitting them (Gandel, 2010). Blockbuster’s leadership could not engage the organization with a call to action and did not describe a logical series of events to get them on the right path to success. John Antioco, CEO, attempted to create a new model that could compete in the media industry but was met with strong opposition from a hostile board. Then Blockbuster requested assistance from Carl Icahn to help realign its vision, goals, and mission statement. As he stepped in to work with the board of directors to provide guidance to Blockbuster, his ulterior motive was for personal gain. He made deals that were not in the best interest of Blockbuster and the deals appeared to undermine the organization’s strategy. As Blockbuster filed for bankruptcy, Icahn and a group of liquidators were positioning themselves to purchase the troubled Blockbuster. Also, board members aligned themselves with different facets of the organization and some board members even resigned due to all of the scrutiny that Blockbuster faced. At the current time, Antioco and Icahn are still publicly defending their positions and explaining how the other person screwed up. The video rental business has always been a game of distribution. A generation ago Blockbuster put thousands of mom-and-pop video stores out of business by offering better selection, efficiency and convenience. Today, Blockbuster is a victim of those same forces via a host of competitors, from premium cable to pay-per-view to Netflix to Redbox. As technology rapidly evolved, Blockbuster’s bricks-and-mortar strategy increasingly looked like ancient history. So now, Blockbuster is trying to evolve by experimenting with its own mail-order, online, kiosk, and even cellphone download options, but it may be too little too late. The lesson for Blockbuster is that no matter how big, strong and successful your organization may be, there are always competitors out there looking to tap into your success. So what actually caused the demise of Blockbuster video? Was it a lack of operational control? Was it a stubborn business model with executives that refused to acknowledge a trend or lack of business agility that prevented them from offering new products and services? Should Blockbuster have conducted market research to see what the customer really wanted? (Mow, 2010). Or was it the success of Netflix? Unfortunately, this scenario happens all of the time. Businesses cling to one business model until its death just because it was successful. Management should have recognized that technology moves so rapidly that platforms and systems reach the end of its life cycle all too quickly, but they were too busy basking in the prior success of the company and fail to realize the downward spiral that they were headed for.

WORKS CITED

Antioco, John. (2011, April). How I Did It: Blockbuster’s former CEO on Sparring with an Activist Shareholder. Harvard Business Review.
Darling, Janice. (2011, March 24). Blockbuster Leadership Gone Bad. Real Change Management Leadership.
Mow, Doug. (2010, September). Blockbuster Failure-Was it lack of BPM agility? Ebiz.
Wolfe, Ira. (2010, October). Lessons Learned from Blockbuster’s Demise: Stay Ahead of Technology. Business Innovation, Technology.