Comparing Blockbuster & Netflix Management
Nineteen’s rental-by-mail model and Redbird’s $1 DVD kiosks have clearly won, but so have the online video distribution models that Nettling, Hull, Youths and there have pioneered. In a word, Blockbuster is the past; Nettling, Redbook and online video are the future. No amount of pre-arranged rationalization will fix a fundamentally broken business model. The History of Blockbuster Inc. Beginnings David and Sandy Cook started the company now known as Blockbuster Inc. , in 1982, Just when the VS. started make headway in American homes. It was originally known as Cook Data Services.
David, a former software engineer, had what at the time were revolutionary Ideas on how to make the rental business more cost- effective and efficient. In 1 985, the first Blockbuster Video store opened up in Dallas, Texas, to serve as a competitor to the many local video stores that dotted the country.
The Blockbuster store had a larger selection, at 8,000 tapes, than these family-owned video shops. It also had computerized Inventory and the tapes were left out on store shelves, which made the checking-out process much faster.
Other video stores required customers to sign out each tape individually and then wait for the clerk to get the tape out of a back room. The Blockbuster model also allowed customers to keep movies out for three nights Instead of one, made stores family- roundly by refusing to stock adult films and stayed open until midnight every night of the week, even Sundays. Ooh Expansion The Cooks’ model was so successful that they had three more stores open by 1986. That’s when they decided to rename their company Blockbuster Entertainment Corporation. The Cooks left the company In 1987, putting Investor Wayne Whizzing In control.
He favored aggressive expansion, which led to 15 corporate stores and 20 six regional offices in its push to operate from coast to coast.
One move of Blockbuster’s that ultimately led to some backlash was its reactive of buying up local video chains. These chains included Major Video, Inc. ; Oklahoma Entertainment, Inc. ; Vector Video, Inc. And several others. By the early sass, industry experts began to wonder if the chain was beginning to overestimate the market. In response, it turned to overseas operations, opening up in the U. K. It now has major operations in Europe, South America, Australia and Japan. 0 The Fall In the late sass and early sass, Blockbuster started to get some real competition from the burgeoning online rental market as DVD’s started to replace tapes. Its major competitor was Nettling, launched in 1999. DVD’s were inexpensive to ship and not as fragile as tapes, plus they were much less expensive to purchase for renting out. Fewer people headed to the stores since they could rent movies at home over the Web. Though the company went public in 1999, it began reporting significant losses. 00 Changes In 2004 the company launched its own online rental service, Blockbuster Online, to try to gain back some of its market share.
The system of charging late fees by the night was replaced with a new model that let customers buy their rented DVD’s after a certain time period instead.
At some level, Blockbuster’s demise was caused by the Internet, which made it easier to download movies and to rent DVD’s than to rent VS. tapes. But Nettling (INFLUX) faced the same threat from video streaming, and it has handled that transition masterfully. Why the difference? Nettling harnessed technology to create a service that customers like better than their competitors’ offerings. Blockbuster was deal-bait. Blockbuster’s bankruptcy will keep some of its stores open and transfer control from Fiasco’s (VIA. B) Sumner Redstone to corporate raiding veteran Carl ICANN.
So if you rent from one of Blockbuster’s 3,000 company-operated stores; 400 franchise stores, DVD-by-mail, or rental kiosks you can continue to do so, according to the Dallas Morning News. Not only that, but your rewards programs, coupons and gift cards will continue to be honored. ICANN has obtained the financing to keep all this running, helping persuade 80% of possession financing that will allow it to pay suppliers and employees. The new deal cuts its $980 million in debt to about $100 million as the Dallas Morning News reports.
Blockbuster: Doing Deals, but Lagging on Innovation Blockbuster has an interesting history that features repeated episodes of deal- makers using it to make a quick buck rather than focusing on beating the competition. According to Dustsheet. Com, Blockbuster was founded in 1985 by a Dallas oilman with a passion for databases. He sold a third of the company for $18 lion to Wayne Whizzing, a guy with a record of consolidating fragmented industries like waste management. By 1989, Whizzing had acquired many Blockbuster rivals and got into some trouble for questionable accounting.
At the same time, growth was slowing and new ways for people to see movies pay-per-view and cable programming were getting more mainstream. By 1993, Blockbuster had 3,400 stores and decided that the growth market was in music. So it proposed a merger with Victim, which ended with the latter paying $8. 4 billion to acquire Blockbuster, according to Dustsheet. Com.. Blockbuster struggled with cash flow after Fiasco’s disappointing August 1999 offering of 18% of its shares to the public, but its deeper struggle was that it was consistently late to the new technology party.
Its responses to Amazon’s (AMAZON) DVD service; Interfiles mail rental service, and Constraints (CAST) kiosk service all came years too late. In 2004, ICANN who had acquired Blockbuster rival Hollywood Video bought 9. 9 million shares of Blockbuster to push through a merger between the two. That merger failed, and ICANN sold Hollywood Video to Movie Gallery in January 2005 but he still owned his stake in Blockbuster. With today’s bankruptcy filing, ICANN has finally gotten his wish to take over Blockbuster, but it seems like a pyrrhic victory.
While it’s still the largest U. S. Video rental company with 47 million customers, Blockbuster has lost market share to Nineteen’s DVD by-mail business and Redbird’s DVD rental kiosks, according to the Dallas Morning News. Nettling has “15 million by- mail customers to Blockbuster’s 2. 6 million. Redbook has more than 20,000 kiosks to Blockbuster’s 7,000. ” Nettling: Customer-Focused Innovation Leads to Growth Nettling, by contrast, has been thriving even though its traditional model of renting DVD’s through the mail is threatened by video streaming.
As I wrote in a March 26 article on Dalliance, Nettling started with a simple, but brilliant idea: Charge people a reasonable flat fee, and mail DVD’s to them as often as they want. Later, Nettling took its delivery process one step further: It started allowing people to view streaming Nineteen’s corporate mindset has been key to its ability to adapt as people started gravitating toward online video streaming. It’s method is to put new technology at the service of customers while keeping a close eye on changing delivery costs and the competition.
Nettling expects that over the next several years, following the Postal Service’s proposed 7% rate hike for DVD mailers, its annual costs to shipping DVD’s will climb from $600 million to $700 million. As these charges rise and it becomes more expensive for consumers to rent DVD’s by mail, Nettling plans increasingly to focus on online streaming and making more titles available for download. Awhile the company has grown quickly, Nettling is concerned about the competition both old- style movie viewing options and the DVD-rental kiosks.
As far as the consumers go, Nettling thinks that busy people see downloading a movie through Nettling as a less expensive at $8. 99 per month for unlimited rentals and more time efficient way to see a movie than making a trip too movie theater. 10th upshot of all those differences in corporate philosophy is that Nettling is prospering while Blockbuster is bankrupt. The contrast highlights why customer-focused innovation trumps deal- doing as a way to grow a business. That our economic system has become so focused on the latter rather than the former helps explain why we’re having so much trouble creating enough Jobs to employ the 8. Million people who have been tossed out of work since December 2007. America should take a lesson from Nettling. Nettling versus Blockbuster Nettling vs.. Blockbuster: which one is better? That depends on you. Summary: Nettling has more movie choices, is faster with delivery, has twice as many shipping centers and costs less. Nettling also ships out a new DVD the day they get your return, so turn-around time is shorter than Blockbusters. Nettling offers free online movies so any place you have High Speed access is now a movie theater. Online movies are Nineteen’s trump card; 6,000 stores is Blockbuster’s card.
Simple rule: if you don’t want to pay late fees or wait in a store line, and want to watch ivies online for free, pick Nettling; if you pass by a Blockbuster store everyday or can walk to one, pick Blockbuster. Free Trial at Nettling: Sign Up Here – – – Free Blockbuster Trial: Sign Up Here Movie Choice: Selection + Availability Nettling has 100,000 movies titles, Blockbuster 80,000. Nettling has a deeper inventory of Classic, Independent, Foreign, and Documentaries then Blockbuster, but Blockbuster seems to stock more copies of the Mega-hits or blockbusters.
Blockbuster has 6,000 stores (Nettling has O) but not all stores participate with the online promotions and watch anytime for free. Advantage: Nettling Speed of Delivery: Turn Around Time + Shipping Centers 95% of the US can get a DVD from Nettling in one Mailing day; Nettling ships you a DVD the day they get it so there is no “lost time”. Nettling is fast. Blockbuster is slow to process returns and mail out a new DVD, saying it takes 1-3 days to get you a DVD- Nettling sites says 1 day. Our experience backs this up. The reason? Nettling is faster because they have more shipping centers.
Nettling claims to have 100 shipping centers, but in reality only 47 Mail DVD’s out, the others Just receive DVD’s. Blockbuster has only 23 shipping centers. If you live close to a Blockbuster shipping center it may even up the delivery time but Blockbuster is still much slower with movie processing and turn around time. Advantage: Nettling Price Comparison Nineteen’s 3 DVD-at-a-time plan costs $16. 99 flat, Blockbuster’s 3 DVD-at-a-time plan costs a whopping $34. 99 plus tax with unlimited in store exchanges, $19. 99 plus tax with 5 in store exchanges a month, and $15. 9 plus tax with no in store exchanges. Adding the tax and the “lost movie days” resulting from Blockbuster’s slower shipping and turn around time makes Nettling not only cheaper but allows you to watch more movies in the same time period. In December 07, Blockbuster raised heir prices significantly (from $2 to $10 per plan), so Just a few months ago price was in Blockbuster’s favor, but no more. Advantage: Nettling Online Movies: Nettling 17,000, Blockbuster O All Nettling memberships above $4. 99 come with unlimited and free online movies.
Nineteen’s trump card will only get better as Nettling is constantly adding more online movies. Blockbuster does not offer online movies. Watching movies online with Nettling is easy, Just download Nineteen’s program and in 30 seconds you can watch a movie or a TV show. Traveling with your laptop, for business or pleasure, is a lot more fun with Nettling. Advantage: Nettling Local Stores: Blockbuster 6,000, Nettling O Blockbuster has 6,000 stores so chances are one is in your area. If you pass by a Blockbuster on your daily commute then Blockbuster has some perks. Broken DVD? Just pop in and replace it.
But remember, every DVD you get from the store you have to return to the store – and late fees apply to store DVD’s. If your local store is a franchise they might not participate with the online program. In store DVD turn around can take a few days as it seems to take a day or two for the return credit to show up. The big hassle is you still have to go to the store, the whole point of Nettling s NOT going to a store. Advantage: Blockbuster Customer Service It is hard to compare the customer service between the two companies as the scale is so different: Nettling has 9 million members, Blockbuster 43 million.
Nettling has smart people on the phone, truly one of the best customer service experiences around. Blockbuster’s customer service is more corporate, getting a live person on the phone is hard work, as they seem to prefer to communicate with you by ‘form’ email. But you can drive down to a Blockbuster store and talk with a manager and try and make your problem the manager’s problem. Just make sure it is not a franchised Blockbuster as they do not play by the same rules and might not care about your online problems. Advantage: Nettling CIO – Action! Adventure! Thrills!
Spills! The high-stakes drama of fixing the money- losing Blockbuster movie rental company has it all, except a happy ending yet. Can the duo of CEO Jim Keyes and CIO Keith Morrow, together again after a highly successful run at 7-Eleven, remake Blockbuster? MORE ON CIO. COM Who’s Mining the Store Blockbuster Deal to Put Movies on Many Digital Devices How Blockbuster is Updating Its IT Infrastructure This storied CEO-CIO team wants to translate the technology-enabled retail ideas hey developed to sell snacks and Slurped to rented entertainment-on land and online.
That is, using IT to make sure the right amount of the right product is available at the right time. “You can do it anywhere,” Morrow says. “The lifestyle on a sandwich or doughnut is measured in hours and days. The lifestyle of a new movie or game title is not very much longer. ” At 7-Eleven, legend has it, the most loyal customers visited an average of twice a day, such as for morning coffee and a snack for the commute home. But Blockbuster patrons are deserting to competitors including Nettling and video-on-demand. Under Keyes’ leadership, 7-Eleven cultivated customer loyalty by giving local managers control over their merchandise.
With near real-time access to customer activity and inventory data, a manager could see that, for instance, he couldn’t keep bear claws on hand for two days running-?and he could change his bakery order for day three. The insight to use IT to fine-tune local inventory came from Morrow, but Keyes supported it-?pushed for it even. “Jims a believer in trying things to see how they work,” Morrow says. Similar to this Article Their partnership played a large part in turning 7-Eleven into the United States’ arrest convenience store chain, with sales of $12. 2 billion at the time Keyes left in 2005.
By reprising their roles at Blockbuster, which has posted $4. 8 billion in losses since 2000, Keyes and Morrow are betting that, even in this economy, they can turn the company around. The pair is nearly two years into a three-tier transformation to stabilize Blockbuster’s core rental-store business, diversify sales and build an online distribution system to handle growing demand for downloaded and streaming media. Keyes expects to show a profit this year, but Wall Street remains doubtful bout the future: Blockbuster’s $258 million market valuation is a fraction of Nineteen’s $2. Billion. Even with IT and business in lockstep, that skepticism portends a nail- biter. Stars in Their Eyes At its founding in 1985, Blockbuster ruled video rentals. Its blue-and-yellow signage stood for VS. tapes, and later DVD’s, to rent for a few days then pay a late-fee when As the century turned, Blockbuster’s business began to slide. Profits steadily drained away as physical and then online competition grew. It didn’t help that customers couldn’t get popular movies at Blockbuster stores up to 75 percent of the time, according to the company’s own fugues. Losses mounted.
When billionaire investor Carl ICANN Joined the board in 2005 as a significant shareholder, he went after CEO John Antioch publicly. That same year, on the other side of Dallas, Jim Keyes retired from 7-Eleven, where he’d been for 21 years. During his last six, as CEO, he had hired Morrow. In 2007, Antioch stepped down at Blockbuster, which wooed Keyes for the job. Sitting in shirt sleeves in his 21st floor office recently, Keyes recalled that period, when he had to contemplate unerring. He liked the challenges he saw in movie rentals, he says. But he wanted a trusted CIO-his trusted CIO-with him.
Similar to this Article “Retail is so dependent on technology,” he says, leaning forward. “l met with Keith before I accepted the Job. ” He took it in July 2007. Two months later, Morrow Joined him. Now Keyes and Morrow face some of the same obstacles many executives do. They have to attract and retain new customers, capitalize on competitor weaknesses and predict the direction and pace of change in a volatile market. But they also have to deal with the ugly backstops. On arrival, Job number one for the team was to figure out how better to run its 4,005 U. S. Many-owned stores. Blockbuster also franchises 850 stores. ) Yes, the world is whiffed, Keyes acknowledges, but he contends that there’s life yet in Blockbuster’s physical stores-?not only in traditional rentals, which still account for 85 percent of the $26 billion industry, but also as a way to seed the ground for new-style consumers. Blockbuster very much wants the 18-year-old college kid to click on Blockbuster. Com to download Spider-Man and Spider-Man 2 to his laptop for the flight to spring break. And the company doesn’t want to ignore the 47-year-old mom who drives to its storefront at a strip mall to rent
High School Musical for that night’s sleepover. But Blockbuster also wants to cultivate new kinds of customers, such as people who bring a portable video player to a kiosk to download digital content. Or someone who will stop at a vending machine at the train station to pick up a disc or a download. “What we want to provide is convenient entertainment everywhere,” Keyes says. While Blockbuster expands the idea of what a video rental store is and does, its field of competitors has also grown, says Bobby Italians, a senior analyst at Forrester Research.
Beyond battling Nettling, it must also compete with giants such as Apple’s Tunes store, Amazon’s digital downloads and discs, as well as cable and broadband companies offering video on demand and sites such as Hull, which offers free ad- supported video streams. Meanwhile, Wall-Mart and Target entice budget shoppers to buy super-cheap DVD’s and electronics. And getting ready for their close-ups are still relatively unknown players such as Redbook, plunking down movie vending machines in the lobbies of grocery stores. “Blockbuster has to transform its business, but so does Nettling and all the others.
We don’t know which method of entertainment with a multiplication strategy for movie viewing. Yet even if Blockbuster keeps pace on the Web and with kiosks as digital demand grows, it will still have to determine what to do with its physical stores, says Carla Caseload, an analyst at Comparing. “New Blockbuster management is doing a good Job building [other forms of] retail through its stores so the business is less reliant on rental. This takes time and initially hurts margins,” Caseload says. Real estate leases also drag Blockbuster finances. Blockbuster has closed about 250 U. S. Tortes since 2006 but is obligated to pay about $2 billion in operating leases for its remaining stores, according to its latest annual report. Similar to this Article You have to work with what you’ve got, Morrow notes. So Blockbuster’s current plan is to turn its stores into “destinations” where people can get not Just videos but the consumer electronics gear to play them on. Blue-ray DVD players, digital picture frames, e-book readers, portable AMP players, major game consoles, flat-screen TV’s-? Blockbuster now sells all of these products from Sony, Nintendo, Arches, Samsung and several other electronics makers.
Rolling out across the country are stores- within-a-store to let curious customers try these gadgets while sipping a cold drink, dated in a cushy gaming chair. This strategy to blanket retail and online outlets to sell consumer hardware next to rent-or-buy video software opens “fresh” terrain for the industry, says Italians. Nettling, for example, has no physical stores and Best Buy doesn’t offer media rentals. And another major electronics competitor, Circuit City, is liquidating (Blockbuster tried last year to buy Circuit City but could not reach an agreement with the company). There’s no reason not to offer a wider array of products, beyond popcorn, when you have all this foot traffic,” Italians says. “It’s not crazy. It is a modern electronics store. ” What Morrow and his IT staff must do to enable this hopeful pioneering involves tactical as well as strategic projects to get customers to Blockbuster locations. For example, the IT staff had to set up new databases to track digital rights for movies delivered on disc and online. Movie companies negotiate different viewing windows for streamed, downloaded and DVD content.
For example, you might be able to check out The Dark Knight on DVD for five nights. If you download it on demand, once you hit play, you have Just 24 hours to view it. You can also buy the digital copy ND keep it forever. Parameters differ for renting a movie on an phone, PC or gaming machine such as a Palpitation. Blockbuster subscribes to a Web service that updates its Oracle-based digital rights management database. “We’ve got to get that right at all times,” Morrow says. But diversifying sales means more than branching out into new product lines.
It also involves coaxing a different kind of customer to look at Blockbuster. Similar to this Article Who Gets the Girl? There’s a scene in All Quiet on the Western Front where soldiers vie for the boots and other valuables of a dying comrade. The corporate corollary is grabbing the customers of a rival heading to bankruptcy. But you can’t do that without good data. Explained how technology helps with the time-honored retail practice of capitalizing on casualties. Before Morrow arrived, Blockbuster kept an Oracle database with information about its competitors’ stores.
But the system wasn’t updated much and needed new analysis tools, he says, “to help us with store profitability and finding where the best opportunities are. ” At 7-Eleven, for example, sales and inventory data was updated frequently throughout the day to keep store employees in the know bout which merchandise moved and which got dusty. Now at Blockbuster, financial and real estate analysts add data to the system regularly-?including anything public and conformable about locations and sales statistics-?to compare with the performance of Blockbuster’s own stores and to Jump on opportunities to grab market share.
For example, Movie Gallery, which owns Hollywood Video and is Blockbuster’s nearest competitor in video rental stores, entered Chapter 1 1 bankruptcy protection in 2007. The court required it to release the addresses of the locations targeted to close. Blockbuster analysts were able to take that information and fill in anything missing from their Oracle records. Then they ran queries using Oracle business intelligence and ASS statistical analysis tools to figure out whether to lease vacant Movie Gallery spots and where to do local marketing to lure customers to nearby Blockbuster stores.
Movie Gallery emerged from Chapter 11 last May, about 560 stores smaller. Morrow declines to cite specifics about the financial gain from such moves, but he carefully lays down his fork and says, “We absolutely made that a priority. It’s a pretty important tactic, to go after the revenue of closing stores. Of course, no one thinks scavenging will be enough to lift Blockbuster’s financial results. A happy ending means Blockbuster-?to borrow from another movie genre-?has to get the girl.
Not lovable Meg Ryan in any of her numerous chick flicks, but that ravishing beauty known as a loyal customer. Similar to this Article The Once and Future Patron Blockbuster is striving to attract customers from various demographics to its stores and ease them gently into new technology. If people can relax in a cool, low-pressure environment to learn how to load movies onto portable AMP players, do the hula pop on Nineteen’s WI and watch a feature film through kooky computer eye glasses, they’ll be grateful. They’ll see what else you offer. They’ll come back in person and on the Web.
When they someday spot the Blockbuster name on a kiosk at the supermarket or a vending machine at the mall, they’ll walk right up and swipe a credit card. Blockbuster will have diversified its sales and been sustained into the future. That’s the theory, anyway, that pushed the redesign last year of about a dozen stores in Nevada and Dallas to house new “Rock the Block” shops: stores-within-the- store that display gear for shoppers to touch and try. These internal shops are dedicated either to gaming consoles and accessories, consumer video equipment or a kids’ play area to relieve tense parents trying to browse.
In Dallas, Jeff Gloom, Blockbuster’s senior director of operations strategic development, walks among clean white counters arranged in a circle to show off electronics at the center of a “Not like a Best Buy, where it’s all crowded. ” Gloom sweeps his arm above the gear. “These are all products you can load content onto. ” For example, there’s an Arches portable media player ($100) and docking station ($70) to use the player on a home TV, such as a Sony Home Theater ($250) sitting nearby. In time for Christmas, Blockbuster released a set-top box it built with rewire; $99 gets you the device and 25 downloaded rentals. These products might not be familiar to some customers, so they can experiment here. See what it’s all about,” he says. “Whole families come to hang out on a Friday night. ” The Rock the Block shops have increased the average time customers spend in the store as well as their average purchases, according to Gloom, although the company declined to provide specifics. The new merchandise is changing how Blockbuster employees and customers interact, says Lauren Garrett, who manages this location. “l have my people talk to customers about the products, make them feel comfortable,” she explains.
Similar to this Article One effective conversation, she says, is to teach people that a ASS game machine can play Blue-ray discs. “l had to get customers to understand that last year. Now they’re customers of games and movie titles. ” Which stores get which concepts and electronics will depend on local demographics, sales trends and what competition is around-?variables that will be tracked and analyzed by store managers as Blockbuster expands access to those central Oracle databases and reporting tools.
Having store managers rather than a central merchandising department decide the merchandise mix at individual stores usually means better product availability, Morrow says. Inventory had been a problem at Blockbuster. Two years ago in-stock availability of hot new movie releases was Just 20 percent chained. By late last year, it had climbed to 74 percent, according to Keyes. What was the miracle cure? A homegrown application measures various inputs comprising customer demand-? such as sales history-?and a custom algorithm fugues where to spread inventory cross the company’s 40 distribution centers.
That’s part of the IT strategy Keyes and Morrow brought from 7-Eleven. “We’re using technology to create a pull system so stores can decide how many copies of a movie they want,” Morrow explains. “Like how 7-Elevens ordered sandwiches. ” At that Blockbuster store in Dallas, Garrett and her team will be able to repair to a Windows desktop in the back room to run numbers and form hypotheses using historical data plus their localized knowledge. If there’s a college nearby holding Batman parties the day The Dark Knight is released, it’s best to stock up.