Blockbuster Case Study

3814 words 16 pages
1. Analyze Blockbuster's current position (based on its brick-and-mortar business model) using Porter's 5-forces model. What are the conclusions of your analysis?

In Porter's 5 forces model, the five underlying forces for an industry's structural attractiveness are the barriers to entry for new competitors, the intensity of rivalry among existing competitors, the threat of substitute products or services, the bargaining power of suppliers, and the bargaining power of buyers. In analyzing Blockbuster's business model and current position, it is evident that it faces issues in all five areas.

Barriers to entry
In the brick and mortar movie rental industry, Blockbuster is clearly the leader. With the merger of Hollywood Video and
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Because studios make about $2 on each VOD showing, they'd need about eight rentals to make up for just one $15 DVD sale lost (Liebermann). Rights issues, distribution agreements and fears of damaging existing revenue streams have retarded what had been presumed to be more rapid [VOD] rollout rates for cable (Sweeting & Kaplan). In addition, VOD has been unpopular because of its lack of recent new-release movies. Movie studios create a 45-day window which allows retailers to market, rent, and sell DVD's before they are available to VOD or PPV customers.

Another substitute showing potential is the DVR. The number of cable or satellite TV households owning DVR's, such as TiVo, are steadily increasing, but there has been some consumer reluctance to purchase movie rentals using this equipment. A DVR such as TiVo not only allows the recording and replaying of TV movies, but also the downloading of movies broadcast by Satellite to be replayed "on demand". Currently TiVo is partnering with Netflix to take this technology even further. Soon, subscribers who belong to both services will be able to download their Netflix DVDs over the Internet directly into the TiVo boxes in their homes, instead of receiving them in the mail (Stone).

Online movie downloads, illegal movie downloads, DVD copying and disposable DVDs have not shown major potential to substitute Blockbusters traditional movie rentals. The

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