FREE ESSAY ON BLOCK BUSTER

BLOCK BUSTER

BLOCKBUSTER ENTERTAINMENT 
David P. Cook created the first Blockbuster Video store in October 1985 in 
Dallas, Texas. Mr. Cook intended to establish  video superstores that would respond to
the on going trends in the video industry during the 1980's because the number or 
households buying VCRs was increasing very much and so was the number of film titles.
He wanted to create a store that would respond to the customer's needs such as: nice 
facilities, wide selections of videos, fast service, and convenience.
A computer system was developed so that the company was able to track specific 
demographic data, customer's renting patterns, and the number of times a cassette has 
been rented, and the information was collected through the scanning of the customer's 
membership card. The primary target market of the superstore was eighteen to forty-nine-
year-old adults and six-to-twelve-year-old children. In 1986, it is reported that the 
company was composed of eight stores and eleven franchises in cities with a minimum 
population of 100,000; for example: Houston, Chicago, Detroit... In May of 1986, the 
company officially became Blockbuster Entertainment Corporation (BEC). 
In 1987, David Cook, founder and chief executive officer (CEO), left BEC after 
selling 35% of Blockbuster common shares to John Melk, Donald Flynn, and H. Wayne 
Huizenga. The latter became the new CEO of BEC. Under the new management team 
BEC has expanded into the West Coast, Midwest, Southwest, and Eastern regions of the 
country; by the end of 1992 the company had a total of 3,127 video stores. BEC wanted 
to open many more stores in 1993 because it wanted to acquire 25% to 30% of the market 
shares within the following two years; at that time BEC had revenues of $868 million.
BEC was growing fast and so were technology and competition. It faced 
competition from other video rental stores like West Coast video, Kroger, and Winn
in different regions. In addition, new technology brought in cable TV with the pay-
per-view or video-on-demand concept; consequently, customers are able to order their 
favorite movies from the comfort of their homes. However, BEC continued to expand 
and went international as far as Japan, United Kingdom, Chile, Venezuela, and Spain. 
The company entered into film entertainment programming, music retailing, and other 
new ventures. Finally, in 1995, Blockbuster Entertainment Corporation merged with 
Viacom,  major provider of entertainment programming, to reduce the threat to 
Blockbuster from changes in technology. In 1996, BEC became a wholly owned 
subsidiary of Viacom with new leadership and unclear prospects.
Chapter seven of the Strategic Management textbook is about competitive 
strategy and the industry environment with focus on strategies in fragmented industries,

strategies in the different lifecycles of an industry, strategies to deter entry in the
industry, 
and supply-and-distribution strategy. This relates to the Blockbuster video case because

the video- rental is still very fragmented which means that the industry is composed of 
many small companies and barriers to entry are very low. However, the book pointed 
out that the returns form consolidating a fragmented industry is often huge...[so that] 
many companies have developed competitive strategies to consolidate fragmented 
industries. For example, Wall-Mart pursue a chaining strategy to obtain the advantages 
of cost leadership, and Blockbuster opted for franchise and horizontal merger to secure a

national market for its product.
In order to become the world number one video rental chain, with more than 
4,600 company-owned stores and franchised national stores and about 2,300 stores in 
about 25 countries, Blockbuster had to arrange the merger of its regional stores and 
develop franchises to form a corporation. Management created the Blockbuster 
Distribution to look over licensing and franchising of new stores, to monitor their
start-up 
and to make sure that they keep up Blockbuster's high standards of operations as its 
chain of superstores grows. The corporate headquarter has all information about each 
store; for example, corporate tracks sales and inventory of each store through its
point-of 
-sale computer system. 
Secondly, according to the book, a company can develop competitive strategies 
throughout its different lifecycles. For example, in embryonic industries, the high
profit 
of the innovators may attract potential movers which become known later.The innovators 
can protect themselves by exploiting their innovation and develop low cost leadership or

differentiation. In our case, Blockbuster was not the first to start the video rental 
business, but it moves into the market and differentiates itself with its new concept of

superstore and acquires the largest share of the market. Blockbuster singles itself out
as 
being the family oriented video store. The chief marketing officer, Tom Gruber, used his

knowledge of family oriented advertisement from Mc Donald to strengthen the 
company's position as a family store. This strategy helps establish brand reputation for

the company. .Furthermore, with its position in the market, BEC is able to buy out small

competitors which can only compete at the lower price level. BEC also establishes high 
barriers to entry with its purchasing, marketing, promotion and advertising power. For 
instance, BEC teams up with other companies like Mc Donald, PepsiCo, Domino's Pizza, 
and Taco Bell to promote each other's products. 
A company can strengthen its competitive advantage through Supply-and-
Distribution strategy. To improve quality and protect market share, BEC decides to 
expand its entertainment concept by entering the music(which did not work out well for 
the company), and the film entertainment programming. By doing so, the company is 
able to acquire exclusive distribution right on several independent films per year. It 
started out with Spelling Entertainment, Republics, Sundance Channel, American Film 
Institute, and Channel One Network. BEC went into alliance with some other company 
like America Online, Inc.; The Blockbuster/AOL Program will have special offers on 
rentals and special services for each other's subscribers. As a result, the smaller 
competitors can decide to sell out or become a franchise of Blockbuster.
Almost everybody in the business world is pondering about the future of BEC 
after Viacom announced that it intended to auction the rest of Blockbuster's share after

selling about 20%of its shares last Summer. Will Blockbuster Entertainment 
Corporation able to stand on own? BEC has certainly the resources and competitive 
edge necessary to keep diversifying and go into alliance, if necessary, to stay on top of

the video rental industry.