A case study by, Arun Venkatachalam FT MBA 2009/10 May, 2010
Table of Contents
1. 1.1. 1.2. 1.3. 1.4. 2. 2.1. 2.2. 2.3. 2.4. 2.5. 3. 3.1. 3.2. 3.3. 3.4. 4. 4.1. 4.2. 4.3. 5. BACKGROUND ....................................................................................................................................... 3 Who or What is ‘LOVEFiLM.COM’? ................................................................................................. 3 Why are they considered a high growth entrepreneurial company? ..................................................... 4 Where they are currently? .................................................................................................................... 6 What is the basis for this report? .......................................................................................................... 6 BEGININING OF ‘LOVEFiLM.COM’ .................................................................................................... 7 The Innovative Online Business Opportunity ...................................................................................... 7 The Market Analysis of 2001/2002 ...................................................................................................... 9 Strategic Analysis of the Business Environment ................................................................................ 10 Competitor Analysis ........................................................................................................................... 12 Initial Growth of LOVEFiLM.COM (2002 – 2006) .......................................................................... 12 GROWTH OF ‘LOVEFiLM.COM’ ........................................................................................................ 14 Evolution of LOVEFiLM.COM ......................................................................................................... 14 Key Strategic Alliances for Business Development ........................................................................... 16 Sustaining the competitive advantage ................................................................................................ 17 Awarded for Reputation ..................................................................................................................... 18 FUTURE OF ‘LOVEFiLM.COM’ .......................................................................................................... 19 Strategic View of the Future............................................................................................................... 19 Changes to the Market Environment .................................................................................................. 20 Alliances for the future ....................................................................................................................... 21 CONCLUSION........................................................................................................................................ 22
Table of Figures
Figure 1: LOVEFiLM.COM Track Record............................................................................................... 4 Figure 2: The Growth of LOVEFiLM.COM ............................................................................................. 4 Figure 3: Popularity of LOVEFiLM.COM over AMAZON.CO.UK and BLOCKBUSTER.CO.UK ...... 5 Figure 4: UK Market for DVD and Video VHS ....................................................................................... 8 Figure 5: Sector-wise share of DVD and VHS.......................................................................................... 9 Figure 6: SWOT Analysis for Movie rental market in UK ..................................................................... 10 Figure 7: External influences for LOVEFiLM.COM .............................................................................. 11 Figure 8: Leaders of movie hire market in 2000/2001 ............................................................................ 12 Figure 9: Revenues vs. Profit for LoveFilm ............................................................................................ 14 Figure 10: Ownership Structure of LoveFilm ......................................................................................... 15 Figure 11: SWOT 2010 for LOVEFiLM.COM....................................................................................... 19 Figure 12: Overall Retail Sales vs. Internet Retail Sales ......................................................................... 20 Figure 13: Future of the movie market in UK (BBC) ............................................................................. 21
Arun Venkatachalam
1
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
EXECUTIVE SUMMARY
In 2002, Paul Gardner and Graham Bosher launched an online movie rental business under the name Online Rentals Limited, providing movie lovers a faster way to order the movies sitting from their home, and thereby reducing the frequency of travel to the stores. Due to their insufficient financial requirements, they sold their idea to Alliance Arts Media, a venture capitalist firm. After acquisition, Alliance Arts Media rebranded the Online Rentals Limited to ‘LOVEFiLM.COM’, which began to grow through mergers with other similar firms under the watchful eye of the venture capitalists. By 2006, the turnover started to grow in millions of pounds and in 2008, the firm recorded its highest turnover of £73.1 million. LOVEFiLM.COM, a highly successful entrepreneurial company, is a private equity firm owned by several venture capitalists, with its founders still as the board members. This report looks at how the business strategy has evolved. The first four years of this company’s operations were rugged. It had undergone three major mergers with other firms. The launch phase was well planned as the DVD market was booming at a rapid pace aided by the rapid explosion of the internet. Grasping this business opportunity, this business was started only to attract a small market with the thought of expansion in the future. Despite an unclear strategic planning and lack of financial support for facilitating growth, this company was refinanced by the venture capitalist that saw the potential for this business opportunity if marketed in the right way. Since the merger with ScreenSelect, its arch rival since 2002, this company became the dominant market leader in this segment. The entrepreneurial sprits grew and the company was keen to enter the European market. The major breakthrough was the Amazon’s deal with LoveFilm to manage its entire European operations. LoveFilm has created a strong brand reputation and their customers are often surprised with the offers for availing the company’s services. There was aggressive marketing through all forms of media and in return its subscriber member base started expanding rapidly. Now LoveFilm has alliances with many high street retailers like Tesco, WH Smith and movie theatres like Odeon and Vue Cinemas, which use LOVEFiLM.COM as a marketing media. With a strong management team led by Simon Calver as CEO and financial backing by venture capitalists and Amazon, LoveFilm is still an entrepreneurial company thriving for growth.
Arun Venkatachalam 2
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
1. BACKGROUND 1.1. Who or What is ‘LOVEFiLM.COM’?
LOVEFiLM.com is a UK based e-Commerce entertainment company that specialises in online DVD rental and reselling with an option of watching movies online as well. It also operates in gaming arena where it rents out games for various consoles. It has its operations predominantly in UK, Norway, Sweden, Germany and Denmark.
LOVEFiLM.COM was started as a small scale entrepreneurial venture which grew itself into leading online DVD movie rental providers with over 1 million members who actively use its 65,000 unique titles of movies and games. After an initial wobbly start, it generated revenue of over $73 million in 2008 with over 4 million rentals per months across Europe contributing to the success and growth of LOVEFiLM.COM.
LOVEFiLM.COM has become a renowned online rental firm through its aggressive marketing and the wide range of customer offers provided. The brand has become synonym with the movie rental in UK surpassing its closest competitor Blockbuster. Its gifting movie services have gained widespread popularity for its seasonal offers during Christmas and Easter.
The firm is privately owned with majority of equity held by Alliance Arts Media, venture capitalists, and Amazon. But with only 350 employees, it has evolved itself into a dynamic market leader in DVD rentals with over 13000 despatches per day across Europe, has developed specific core competencies giving them sustainable competitive advantage.
Arun Venkatachalam
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LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
1.2. Why are they considered a high growth entrepreneurial company?
LOVEFiLM.COM has been consistently in the Fast Track 100 lists for the last four years. They have consistently increased their revenues and have been profitable for every year in the last four years. They are one of the fastest growing entrepreneurial ventures as awarded by Telegraph and The Sunday Times.
Year 2007 2008 2009 2010 Fast Track List Tech Track 100 Tech Track 100 Tech Track 100 Buy Out Track 100 Position 5 2 9 3
Figure 1: LOVEFiLM.COM Track Record (Source: www.fasttrack.co.uk )
On every aspect LOVEFiLM.COM has consistently performed as a high growth company. Their turnover, profitability, number of employees and customers has grown significantly over the past 8 years of operation.
Year wise Growth Aspects Turnover (in £’000) Profits (in £’000) 1,300 2,760 73,100 Consistent growth in all years. High increase in profits for an entrepreneurial venture. Very high growth rate and Sales Growth % 192.36% 367.92% 127.78% doubling every year in volume of sales. High sales reflected in high Profit Growth % 244.26% 149.21% 146.67% profits, showing the success of this venture. Employees Customers (‘000) 48 165 346 1000 (2009) Have sufficiently recruited people to match demands. Largest customer base for online rentals in Europe. 2004 2006 2008 Impacts
500
1,500
8,800
50
300
Figure 2: The Growth of LOVEFiLM.COM (Source: www.lovefilm.com, www.fasttrack.co.uk ) Arun Venkatachalam 4
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
One more interesting fact is the number of hits it gets in the internet. As shown by google trends, it has higher hits in the internet than ‘amazon.co.uk’, the largest online retailers on the planet, and ‘blockbuster.co.uk’, its largest competitor, which is a commendable feat compared to the size of the two organisations. The higher value in y axis shows the number of hits on the internet for LOVEFiLM.COM.
Figure 3: Popularity of LOVEFiLM.COM over AMAZON.CO.UK and BLOCKBUSTER.CO.UK (Source: www.google.com/trends ) Arun Venkatachalam 5
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
1.3. Where they are currently?
LOVEFiLM.COM is often awarded for their best customer service and for innovation in the entertainment industry. The value for money offered by LOVEFiLM.COM is second to none and it has strategic alliances with a number of other online movie rental providers in UK including Tesco, easy Group, CD Wow, Guardian News Media, WHSmith, Odeon and Vue Cinemas. This sort of alliance has projected its brand name as the one stop shop for all the movie desires. LOVEFiLM.COM uses the marketing media to its advantage. Customers know about the latest offers in an instant and its weekly newsletter reaches to almost 85% of its 1million subscriber base. It is rated as the number one movie rental service in UK for four years in a row outclassing its long term competitor Blockbuster. This represents the value and quality of services offered by this company.
1.4. What is the basis for this report?
The basis for this report is the information available in the company website, articles related to this company and its competitors.
Arun Venkatachalam
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LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
2. BEGININING OF ‘LOVEFiLM.COM’
LOVEFiLM.COM has developed in this business over the course of 10 mergers during its 10 years of operation. LOVEFiLM.COM, an innovative business, was a very small scale start up, with limited financial resources to exploit the potential of the market it was aiming for. Nevertheless, it had a clear vision, that is, to bring big screen cinemas to home.
2.1. The Innovative Online Business Opportunity
The concept of movie rental originated in US due to the profit sharing agreement between Disney Studios and Blockbuster (Online movie rental in US) for VHS movie distribution of Disney Studios’ movies to customers through Blockbuster retail stores in 1999. Later, due to the constraints in this agreement and evolution of DVD technology and rapid growth of the internet and e-commerce industry, the concept of DVD rental through online means was made a possible business opportunity. (Gerchak et. al, 2006) Despite the dotcom fallout in 2001, which brought down many online DVD retailers in UK, there was an opportunity for rapid growth in this market due to the evolution of DVD’s and the rapid sales of the hardware to support the disc. According to the UK government reports in 2001, 7.9 million people in UK will have internet access and 3.9 million people will have them in their households. The online DVD movie rental market was expected to increase to 8.5% in 2001 compared to the traditional mail order system. With the market value of £2.14 billion in 2001 which is an increase of 23% from previous year, UK is the largest European market for movie retail and rentals. At that time, 3million households in UK had DVD players owned. According to British Video Association, the proportion of revenues generated from DVD sales was £ 646 million in 2001 which represented a 40% increase over previous year. The statistical growth figures are mentioned below, where there is a sector wise comparison of movie rentals and retail figures of DVD’s in UK market.
Arun Venkatachalam
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LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
Figure 4: UK Market for DVD and Video VHS (Source: Keynote)
Finding this window of opportunity as an advantage, Paul Gardner and Graham Bosher in 2002, came up with the small scale entrepreneurial venture of online movie rental and retail under the banner Online Rentals Limited – DVD’s On Tap in Essex, UK, with ample scope for exploiting the UK customer base. This successful venture was the start of many strategic alliances and mergers that revolutionised the movie rental industry in UK. This venture was later bought by Arts Alliance Ventures and branded to LOVEFiLM.COM. Over the years of mergers and acquisitions, in 2006 LoveFilm and Screenselect, its largest competitor during that time, merged to form the single unified largest online movie retailers and rental providers in UK, LOVEFiLM.COM
Arun Venkatachalam
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LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
2.2. The Market Analysis of 2001/2002
In UK, the movie retail market, valued at £1.4 billion, peaks in sales volume during Christmas which almost triples the entire sales for the previous months. There has always been a huge reception for Hollywood movies and they are the largest sales reasons in UK movie industry. Although DVD’s were available from 1998, they were used as a media for movie recording only from the year 2000 when there was increased hardware produced to support DVD’s. (British Video Association)
Figure 5: Sector-wise share of DVD and VHS (Source: UK Charts Company)
The movie hire market was estimated at £465 million in 2001 with majority of this contributed by the VHS tapes. Since the introduction of DVD movies, the VHS share has dropped significantly in 2000 and 2001. Furthermore, the new feature films transact more in the rental section than in the retail section primarily due to the cost factor as new releases cost more to purchase than to rent. The main distributor of new films to UK are Universal Studios, Columbia Tristar, Time Warner and MGM, all are Hollywood (US) based. (Emily Pattullo, 2002)
Arun Venkatachalam
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LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
2.3. Strategic Analysis of the Business Environment
The DVD movie hire market was introduced in UK in 2000 which was predominated by the video retail market. Due to aggressive marketing and the release of blockbuster movies like ‘Titanic’ and ‘Full Monty’, the DVD hire market started to pick up some steam which reflected in the revenues generated. Furthermore, the DVD hire market was affected by the profit sharing agreement that the film makers were imposing on the retailers added to the piracy issues that posed a dangerous threat to this industry. Both the DVD retail and rental markets were dominated by the high street retailers (WH Smith, HMV, etc) who contributed to 80% of the market whereas internet retailers also known as ‘e-tailers’ had only 4.5% of this market under them mainly due to the fact that internet was not popular in UK during that time. The market was also concentrated only in London and the Midlands due to high population density in these areas. (The UK Charts Company) A SWOT analysis of the market will help us understand better about the potential of success for LOVEFiLM.COM in this venture.
Figure 6: SWOT Analysis for Movie rental market in UK (Source: Keynote 2002)
Arun Venkatachalam
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LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
Using Porters five forces analysis we can find the external influences that will affect the LOVEFiLM.COM’s venture into this market. Implications for LOVEFiLM.COM in 2002
Threat of New Entrants Amazon is a major threat to UK online movie business Other firms like Blockbuster who do online as well as in store retailing have high potential due to their financial backing. Threat of Rival Firms Threats from Suppliers Competition from both in-store retailers/ rental and internet retailers is high. Acquiring rights from movie studios is important and competition in terms of pricing will also be fierce. Internet retailers/rental providers usually charge monthly fee for services provided. Suppliers, in this case the movie studios, have significant power to decide whom should they license for their films. But on the contrary, the retailers decide whom to choose as their suppliers. So there is a balance between the supplier power and the retailers. Threats from Buyers Threat of Substitutes Individual buyers have no impact on the business and their threat is non-existent because the customers act independently in their purchase behaviour. Subscription plans for target buyer groups help improve business on the whole. Pay-per-view, video on demand, digital television has huge market potential Video games industry entering the home entertainment market making movie rental industry vulnerable Amazon penetrating into UK market for low cost alternative
Figure 7: External influences for LOVEFiLM.COM (Source: Adapted from Porter, 1980)
Arun Venkatachalam
11
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
2.4. Competitor Analysis
LOVEFiLM.COM had several competitors to deal with in the DVD rental sector. But the market for internet retailing was still open for grasp as no one was a major player in this arena. The competitors listed below are in-store retailers.
Figure 8: Leaders of movie hire market in 2000/2001
2.5. Initial Growth of LOVEFiLM.COM (2002 – 2006)
In 2002, Paul Gardner and Graham Bosher grabbed the opportunity to become entrepreneurs. They had a clear vision and target market but with a limited funding to support their venture. However, when they had the opportunity, they sold their ideas to Alliance Arts Media, a venture capitalist firm, for further funding and developing the business further. With renewed outlook and boosted by strong funding, it began its journey into the untested waters of online movie rental market. The initial four years was of a rugged start for this venture. Within two years, it was merged with two other companies and started operating under the name LOVEFiLM.COM. By 2005, LoveFilm started to emerge as the leading provider of online movie rental with its main competitor being ScreenSelect. Both LoveFilm and ScreenSelect had a customer base of 100,000 by 2005 and in March 2005, LoveFilm shipped 700,000 copies of movies to its customers which are the highest till date.
Arun Venkatachalam 12
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
Both firms were competing rigorously by acquiring smaller firms to increase their competitive advantage. In 2006, LoveFilm and ScreenSelect were merged as the largest provider of online movie retail and rental service provider in UK under the leadership of Simon Calver, CEO of LOVEFiLM.COM. Upon this merger, the revenues started growing resulting in higher profits for 2006. The key achievements for LOVEFiLM.COM in four years of its operation are; Turnover of £2.7 million and profits of £1.5 million Had over 100,000 active subscribers and movie hires Employed 165 people Established a unique brand reputation Market leader of online movie rental and retail services Launched the video game rental/retail service to boost its revenues
Although the first four years were a struggle, they provided the ideal platform for the business to grow and strengthen its reputation. However, several changes had to be made for the future.
Arun Venkatachalam
13
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
3. GROWTH OF ‘LOVEFiLM.COM’
From 2006, LoveFilm saw an unprecedented growth in revenues and profits. The firm grew large and was the number one online movie retailer and rental providers in UK. LoveFilm has developed a strong brand reputation, customer service and consistently grown despite the changing market environment. LoveFilm had become efficient, profitable and high growth company. Since 2002, the revenues have become seventy fold and the profits also rose considerably.
Figure 9: Revenues vs. Profit for LoveFilm (Source: Company Reports)
3.1. Evolution of LOVEFiLM.COM
LoveFilm’s growth made it evolve into an international business by expanding into Europe. The company redefined its purpose by listing out what are the most important things for this business to carry forward as put forward by Simon Calver, CEO. Management The leadership under Simon Calver as its CEO is the start of the business to grow into Europe. He helped create a set of core values for LoveFilm which will help itself identify as a brand renowned for the quality of services provided.
Arun Venkatachalam 14
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
The core values of LoveFilm are listed below;
Value for money Choice Quality Speed Innovation Customer service
The management team was always keen to continue its entrepreneurial business approach. “We are proactive and have always been quick to act, often leaving bigger organisations behind. We are always looking for opportunities where we can offer something new and more valuable to our members.”(LoveFilm.com) Funding LoveFilm is a private equity backed firm with consortium of venture capitalists holding the major stake in this company.
The consortium of venture capitalists includes DFJ Esprit, Index Ventures and Balderton Capital and Arts Alliance Media. With strong funding support LoveFilm began its expansion into Europe.
3.2. Key Strategic Alliances for Business Development
LoveFilm was quick to grab the big opportunities that came in its way because of its growth. In 2007, there were some big alliance partnerships made with leading high street retailers. The list includes of partnerships include; Tesco WHSmith easyGroup CD WOW! Guardian Newspapers Odeon Vue Cinemas
Some of these partnerships were from movie theatres like Odeon and Vue cinemas. This was a way to boost the customers to go to theatres often. This is an alliance to boost up the revenues of both firms. Not only partnerships, LoveFilm also maintains their respective online portals of these companies which brings additional revenue to LoveFilm. One of the major alliances that LoveFilm got in 2008 was the partnership with Amazon to manage its entire European market of movie retail & rental and in exchange Amazon got 32% of LoveFilm’s stake, a further financial boost for LoveFilm. Now LoveFilm operates in Sweden, Denmark, Germany, Norway and UK. This is excluding the Amazon’s operation in Europe. In 2009/10, LoveFilm has partnered with Sony, Columbia Tristar, Ubisoft, etc to deliver the digital entertainment on whole new level. LoveFilm is concentrating on delivering the online streaming services to all its subscribed members. It has also partnered with several video game manufacturers to deliver latest games to its game enthusiastic customers.
Arun Venkatachalam
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LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
3.3. Sustaining the competitive advantage
With the changing market conditions, new movie studios emerging into the film industry, LoveFilm’s expansion into Europe and to sustain the competitive advantages that LoveFilm holds, there was a necessity to rebrand itself that suited its entrepreneurial growth. LoveFilm had a unique set of core values which now is common for all divisions across Europe.
We love our Customers We are Passionate about film We are Innovative We are Famous for the right stuff
It began marketing aggressively across all customer segments which enabled LoveFilm to reach the 1million customer and subscriber base. LoveFilm has differentiated itself as a complete home entertainment provider’s right from rental and retail of movie, videogames to movie gifting and movie ticket booking. Customer surveys are a regular part of its business, getting to know what customers feel about the services offered and areas where it can improve. Based on the customer recommendations for the new technologies and are adopting them at a surprising fast rate:
17% of our subscribers rent Blu-ray discs Awareness of next generation DVD technology is high - HD-DVD (73%) BluRay (58%)
Customers are interested in downloading more full length films and TV shows, not video clips and short films
Rapid growth in internet has created a market for Video on Demand services, movies on the internet, which posed a great threat to LoveFilm’s business. Exploiting this opportunity, LoveFilm launched its own interactive library of movies available for download to its members.
Arun Venkatachalam
17
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
LoveFilm has spearheaded the digital entertainment market in Europe by becoming the largest online stop for satisfying the movie desires. They have collaborated with some of the big name like Sony to deliver the digital entertainment on a whole new level in online platform.
3.4. Awarded for Reputation
There were several awards that LoveFilm has received in the past for its performance and business growth out of which a few are highlighted below.
Telegraph 100 Growth Companies
Tech Track Award 2008 - 2nd place
Rentailer of the year 2008
UK Technology Innovation & Growth Awards 2008 - Winner
Fast growth business awards 2008!
BVA Rental Home Delivery 2007
Media Momentum Awards - Top 50 fastest growing media companies for 2008
Arun Venkatachalam 18
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
4. FUTURE OF ‘LOVEFiLM.COM’
The company has grown greatly in a seven years of its business and for an entrepreneurial venture it has proven to be very successful and it is eager to develop beyond its current potential. The core brand values of customer centric, innovation and excellent value for money has been rightly utilised for developing the company’s core competencies in providing high quality services focussed in bringing the latest movies for the customers 24x7. This section will give an outlook of how they could develop and equip their business for the future demands and market trends.
4.1. Strategic View of the Future
LoveFilm has modified its vision for the future. Having accomplished the vision to become the market leaders of online entertainment, their new vision states „To revolutionise home entertainment for everyone, by delivering the best choice of films and entertainment to people when they want it, at a price that they can afford.‟ To achieve this new vision, it is essential to find out whether they can utilise the internal core capabilities to deliver to the external market needs through the SWOT analysis.
Strengths Brand name Market knowledge Management team Financial security Control over most of the value chain Opportunities Video Services through television Online movie Streaming market Online Gaming Industry Partnership with Universal Studios Advertisement market in website Figure 11: SWOT 2010 for LOVEFiLM.COM Arun Venkatachalam 19 Weaknesses Dispute with Universal Studios Dependence on monopolistic suppliers i.e. Royal Mail Appeal to broader market especially in Europe Threats Over stretch Dependence on systems Acquisition by Amazon New Competition
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
LoveFilm has to create a community of movie enthusiasts to share the views of movies and actively participate in such forums of discussions. The video on demand market is rapidly growing and could affect this business as many customers prefer to watch and download movie from the internet and watch it at their convenience. Also the service it offers in UK is not available in all its markets in Europe. Unless it delivers the complete services, the market is going to deteriorate due to its competitors offering better services. LoveFilm enjoys the customer marketing. By offering the highest quality services to one customer, they bring at least three more customers to LoveFilm. Its reputation is also built up this way. The gifting services bring the highest revenue during the festival seasons especially during Christmas.
Figure 12: Overall Retail Sales vs. Internet Retail Sales (www.statistics.gov.uk )
4.2. Changes to the Market Environment
Market conditions have changed significantly changed over the past decade. The emergence of various players’ sites like iTV from BBC has caused a disruptive innovation to the movie retail industry. They offer similar services online but free of charge. Mostly TV programmes are telecast over the internet but they may come into video streaming in the near future. So care should be taken to identify such threats and try to set high entry barriers through first mover advantage.
Arun Venkatachalam 20
LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
4.3. Alliances for the future
LoveFilm and Universal studios have a never ending dispute in the rent sharing agreement between the two firms. Universal are expecting a better deal from LoveFilm i.e. a higher rent for its movies. This is not agreed by LoveFilm and henceforth it has stopped distributing the movies by Universal. This has put the customers in a fix and has tarnished the reputation of LoveFilm. They should resolve this dispute and form a stronger alliance for the future to ensure that all movie lovers use LoveFilm as the main source of online movie services.
F igure 13: Future of the movie market in UK (BBC) As shown above, the industry is changing rapidly due to the progression of the Video on Demand and Pay per View segments. Already new competitors like Virgin Media have entered to exploit this market segment. LoveFilm should be cautious in their approach to handle this segment of the market either through alliances or be the first to provide better services aided by its aggressive marketing. LoveFilm could also start its own television channel that helps its customers rent a movie directly from their TV sets. This could be a further achievement in innovation for them.
Arun Venkatachalam
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LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
5. CONCLUSION
LOVEFiLM.COM remains an entrepreneurial firm. They have developed over the years to become the market leaders by providing the best quality service to its customers through online means. During this growth, they have developed significant core competencies to gain and sustain their competitive advantage. Whilst their ongoing dispute with Universal continues, the brand reputation may come down slightly as Universal are having big budgeted releases planned for the future. If this dispute does not end, a certain portion of the customers may stop availing the services of LoveFilm. Therefore getting the right movies at the right time is crucial for its success. The company’s core remains entrepreneurial with its employees given the freedom to work with the entrepreneurial spirit. The strong management team fosters to sustain the competitive advantage that LoveFilm has which means that they are not willing to take any major risks. This is to ensure that the business has strong foundation for growth in long term. Although they have become market leaders, they want to increase their market share and are actively looking at new strategies to achieve this objective. The management have identified the core competencies required to give competitive advantage. They have invested in their workforce to develop interactive platforms for movie rental. In the dotcom business, there is no secured future guaranteed for any business. While exploring strategies for growing this entrepreneurial venture, they should also look for alternative market to expand or partners to tie with. With this changing business world, if LoveFilm is equipped with the right people with the right skill set to attack the right market with the right offers for its customers, they are sure to grow bigger and better in the future.
Arun Venkatachalam
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LOVEFiLM.COM
Strategy in Entrepreneurial Ventures
REFERENCES
1. Gerchak, Yigal , Cho, Richard K. and Ray, Saibal(2006). 'Coordination of quantity and shelf-retention timing in the video movie rental industry', IIE Transactions, 38: 7, 525 — 536. 2. Julie Holland Mortimer (2002). ‘The Effects of Revenue-Sharing Contracts on Welfare in Vertically-Separated Markets: Evidence from the Video Rental Industry‟, Harvard University – USA. 3. Lehmann, D.R. and Weinberg, C.B. (2000) ‘Sales through sequential distribution channels: an application to movies and videos’. Journal of Marketing, 64, 18–33. 4. Lariviere, M.A. and Cachon, G.P. (2002). ‘Supply chain coordination with revenue sharing contracts’. Journal of Management Science, 51(1), 30– 44. 5. Pattullo, Emily (2002). ‘Video & DVD Retail & Hire- Market Report 2002’, Keynote UK. 6. Keen, Ben (2010). UK Movie Market Update 2010 available on www.bsac.uk.com. Last accessed on 10th May 2010.
7. ‘REPORT ON THE IMPACT OF CANVAS ON PAY VOD SERVICES‟. BBC Trust, London 8. Corporate Website of LoveFilm www.lovefilm.com/corporate/index.html. Last Accessed on 11th May 2010. 9. www.fasttrack.co.uk. Last accessed on 10th May 2010. 10. www.google.co.uk/trends. Last accessed on 10th May 2010. 11. www.keynote.co.uk. Last Accessed on 11th May 2010. 12. www.statistics.gov.uk. Last Accessed on 8th May 2010.
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BIBLIOGRAPHY
1. Micheal A.Hitt, Duane Ireland and Robert Hoskisson(2005). ‘Strategic Management: Competitiveness and Globalisation’, USA: Thomson 2. James D. Dana, Jr. And Kathyrn E. Spier(2001). ‘Revenue Sharing and Vertical Control in Video Rental Industry’. Journal of Industrial Economics(3) 3. „Video Rental Developments and Supply Chain: NetFlix‟ available at http://apps.olin.wustl.edu/workingpapers/pdf/2004-03-225.pdf accessed on 4th May 2010. 4. ‘(Block) Busting the Movie Rental Industry’ available at http://www.mcafee.cc/Classes/BEM106/Papers/2005/Blockbuster2.pdf accessed on 4th May 2010.
