Blockbuster Takes Another Hit

I've had an insane week, with three major assignments due, hence my absence from this blog. But, I'm back now...and I have quite a bit to write about. Starting off with some Blockbuster news.

As you might know (if you've read two posts down), my recent E-Commerce assignment was on Netflix. In one section of that assignment we analyzed Blockbuster's entry into the online DVD rentals market; i.e. why it entered, how Netflix reacted, what would happen next, etc. As everyone knows, Blockbuster has a serious problem. Here's how we explained it in our assignment:

Finally – crucially – [Blockbuster] had a retail store mindset. Its online store had a channel conflict with its retail stores and it didn’t want to cannibalize its offline revenue stream (which included lucrative late fees). Because of this, it chose run its online service in conjunction with its stores. This was good because it let them use their stores as mini distribution centers and, from the customer’s perspective, it overcame the problem of spontaneous rentals. But it was also bad because it, not only made their logistics much more complicated, it also reduced their online store’s adoption rate. As explained previously, profits in online rentals are a volume game. Accordingly, Blockbuster’s rental revenues fell by 2.3% from 2003 to 2004. During the same period, Netflix’s rental revenues increased by 85.1% while its number of customers increased by 75.5% to 2.6m. To counter this slower adoption rate, Blockbuster later dropped its late fees for online store users altogether. It also reduced its subscription fees, albeit to seemingly unsustainable levels.

That was our January 2007-based analysis. Since then, of course, Blockbuster has drop its subscription fees.

What has happened since then, though, is much worse. As Don Reisinger from CNET explains it:

According to the company's third-quarter results released Thursday, Blockbuster's revenue slid 5.7 percent and the company harbored a net loss of $35 million. Worse, it has closed 526 stores in the past year, and the number of employees will be reduced to offset high overhead costs to the tune of $45 million. Blockbuster's injured stock price continues to fall and was priced at $5.06 at Thursday's close.

But if that's not enough to signal defeat, Blockbuster Chairman Jim Keyes admitted that his company's focus on Netflix was damaging and has decided to pull the plug on his demand for higher Total Access membership. Instead, he wants Blockbuster to focus on increasing overall membership.

Sorry, Jim, but I think you're out of luck.

Much like the print media and retail stores refusing to change, Blockbuster has been a victim on an online company finding new and inventive ways of bringing a product to a customer. And due to its size and outdated corporate culture, there really is no salvation for Blockbuster at this point. Try as it might, the future of Blockbuster is bleak, at best.

Reisinger gives Blockbuster two years before the company goes under. I think Blockbuster will last longer. Mainly because I think it'll hire some smart MBA grads (probably management consultants) who will figure out a way to radically change its business model, if not the whole company. (And by "radically" I pretty much mean "completely"). At least that's what I would do (or I like to think that's what I would do, should I have found myself in that position). And, judging from his comments, that might just be what Jim Keyes does as well. Let's see.

Netflix's Future Plans

Following on from my E-Commerce syndicate assignment on Netflix -- part of which attempted to answered the question: what should the company do next? -- the CEO of Netflix, Reed Hastings, recently talked about his plans for Netflix's future.

While it was obvious that the company was moving towards expanding its online video offerings, what's fun (and not so obvious at first glance) is that Netflix's strategists are thinking of creative ways to do that. For example, they're thinking of expanding Netflix's online video service on to next generation game consoles (XBox 360, PS3, etc.), networked DVD players, and set-top boxes.

As explained in the Last 100 article that I got this news from, this strategy makes a lot of sense. Getting into content delivery for gaming consoles will immediately give Netflix access millions of new potential customers. The challenge, of course, will be to convince game console creators -- i.e. potential "partners" like Microsoft and Sony -- to sign up. Especially since both Microsoft and Sony have announced their intentions to create their own online video networks (dubbed "entertainment hubs"). At least Hastings is clear on the fact that all of this will take time.

Regardless, it should be fun to see how things pan out over the next few years.

E-Commerce Assignment: Netflix

My syndicate mate and I are almost done with our E-Commerce course assignment that is due on Tuesday. The assignment is on a January 2007 Stanford GSB case on Netflix.

Netflix, for those of you who don't know, is the leading brand in online, mail-order DVD rentals [see Wikipedia entry]. The case is set in early 2005: Netflix has been in operation for seven years, last year Blockbuster entered the online DVD rentals market with a bang, and now Amazon is threatening to enter it as well (having already launched its online rental services in the UK).

The assignment is pretty straightforward and is what you would expect for a strategy case such as this one: discuss what Netflix has to offer (business case, strengths, weaknesses, etc.); discuss what happened when Blockbuster entered (what each side did, did well, and did poorly); and discuss what Netflix should do now. The challenge, of course, is to write all this down clearly and concisely (we have a strict 2,500 word limit that includes headers, footers, headings, attachments, references, etc.). I'm confident we've done a good job of it. I guess we'll find out just how good once we get our grade.

I really enjoyed doing this assignment, by the way. This kind of strategic analysis in the tech industry is precisely the kind of thing that interests me. In fact, one of my objectives for doing an MBA was specifically to learn how to do this. And thanks to professors like Doug Dow [faculty profile], who taught us the Business Strategy course, and John Asker [faculty profile], who taught us the Managerial Economics course -- and all the other professors who taught us all the other core courses, of course -- I think I've learnt that pretty well.

Meanwhile, the E-Commerce course itself is fantastic. It covers all things e-commerce from the management, strategic, operational, leadership, human resources, and organizational behavioural points of view and is taught by Pat Auger [faculty profile], an industry expert and one of the best teachers I've had so far.

Aside: A bit about my elective course choices and why I'm so happy this term.

When I first joined MBS and went through the entire list of electives offered here, I divided the courses I wanted to take into three sub-lists: courses I had to take, courses I really wanted to take, and courses that would be good to take. If I remember correctly, E-Commerce, Information Strategy, Negotiations, and Leadership were the only four in the first list. I'm taking all four of those this term so you can probably imagine how much I'm enjoying myself these days.

For completeness' sake, a whole bunch of strategy, entrepreneurship/new venture, and marketing courses made it to the second list. And about half the remaining courses made it to the third.

You'll hear more about the course as this term progresses.

Negotiations - Class #1

Friday morning we had our first Negotiations class. The course, taught by John Onto, is supposed to be one of the best in the school. Everyone who's taken is tells everyone who hasn't taken it to, well, take it. And judging simply from the very first class, I can see why.

For starters, the course is incredibly relevant. Negotiating is something that all of us, no matter what we do after the MBA, will be doing on a daily basis. Starting, of course, with our first post-MBA negotiation of our next job's salary. The course is also incredibly practical. Negotiating, according to John, is a skill. That is, you can learn it. And learn it we do: primarily through lots of experiential learning exercises, but also through theory, discussion, sharing of previous negotiation experiences, and video clips.

This is an exciting course so expect to hear more about it as it progresses.

My MBA Journey So Far

I started writing about my "MBA journey" in a section called Ameel's MBA Journal on my website. Relevant from that are the following:

To quickly recap, though, these are the courses that I have taken so far:

  • World of Management (core) with Paul Dainty
  • Accounting for Managers (core) with Jim Frederickson
  • Data and Decisions (core) with Chris Lloyd
  • Financial Management (core) with Sam Wylie
  • Managerial Economics (core) with John Asker
  • Managing People for High Performance (core) with Carol Gill
  • Business Strategy (core) with Doug Dow
  • Economics and Public Policy (core) with Ian Harper & Mark Crosby
  • Managing Processes (core) with Kannan Sethuraman
  • Marketing (core) with Jody Evans
  • Corporate Finance (elective) with Ning Gong

And these are the ones that I am taking now:

  • E-Commerce (elective) with Pat Auger
  • Information Strategy (elective) with Pat Auger
  • Leadership and Change (elective) with Amanda Sinclair
  • Negotiations (elective) with John Onto
  • Implementation of Strategy (elective) with Jack Goodwin

I am 5 weeks into this study term (all study terms are 12 weeks long) and my first three courses have already started. The last two are second-half intensives -- i.e. taught in half the time with double the number of classes per week -- and will start on Friday.

Now that I've set the scene, I can start talking about what we're doing in each of the courses I'm taking right now. I will do this in future posts, of course, and not all in this one!