The Closing of Blockbuster

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The business world is not known to be kind or forgiving.  In order for a business to thrive or even survive, those that run the business must be ready to make the necessary changes to keep the business running.  Should a company become complacent with its practices and refuse to adapt to the changes that face its industry, then the consequences can be dire.  This concept is applicable to any company regardless of the size or stature within an industry, from the smallest startups to the largest corporations.  Such is the case for the video company Blockbuster.  Their story is one of a company that rose to the top of their industry with application of innovative, fresh business practices but then became to accustomed to their place in the highest levels of success.  Because of this, Blockbuster did not remain competitive with the market that they were appealing to and experienced a fall from grace.  The company is now a shadow of what it used to be and can largely place the blame upon three distinct attributes: organization structure, poor decision-making, and not creating a motivating work environment by fostering positive morale.  By not adhering to these areas of business practice, Blockbuster has not been able to keep pace with its competitors, such as Netflix, and has become a business of the past.    

Blockbuster has a rich history that shows the ups and downs of the company in which one can monitor the best and worst of the business practices that were implemented that ultimately lead to the downfall of this once prestigious company.  Blockbuster first opened its doors in 1985 in Dallas, Texas as a single store with the idea of renting movies to individuals at a bargain price (Funding Universe, 2000).  The founder of the company David Cook was originally interesting in computer software services, but he decided that the video rental business could be much more profitable because it was so highly fragmented at the time, meaning that given the right capital investment initially could yield a high profit to a successfully run operation within the market (Funding Universe, 2000).  The use of innovation and market research proved to be invaluable to Cook and his young company.  Offering over 6,500 titles and 8,000 tapes, Blockbuster offered a much higher variety to its customers than any of its competition, and it displayed its movies on shelves similar to that of a bookstore in order to let potential customers see each movie that they may want to rent from the location (Funding Universe, 2000).  By the next year, Cook had opened at three other locations, and the year after he sold one-third of the company to investors who placed $18.6 million in Blockbuster stock, effectively pushing this new video rental company into the spotlight as a giant in its industry.  

The company continued to grow in the late 1980s and early 1990s and even attempted a merged with the Viacom Inc who had recently purchased Paramount pictures, however there were already signs of trouble brewing for the company.  By the mid 1990s, there were questions about the leadership of Blockbuster following the failed merger.  The acting president of the company Wayne Huizenga gave his position up and was replaced by Steven Berrard, who attempted to aggressively expand the company further, but the damage had been done (Funding Universe, 2000).  By 1996, the company’s stock worth was only $4.6 billion, which was 50 percent lower than its worth in 1993.  By the next year the company began to struggle in the most important aspect of the business, providing its customers with the services that had kept the company on top for so many years.  In this year, “new releases weren’t making it to stores by their ‘street dates’ and the loss of so many key people with the company’s move left it stumbling in basic store operations,” (Funding Universe, 2000).  This was further seen in the 70 percent decrease in cash flow from the 2nd quarter of the fiscal year in 1997, which furthered the suspicions that Blockbuster was being mismanaged.  

After a brief turn around in 1999, Blockbuster continued to spiral downward as it was no longer “taken for granted” by investors and was seen to need a new, viable business model to follow other than the growth in the VHA/DVD rental quadrant.  Unfortunately, for all of the hardships that Blockbuster had faced up to this point, there were more for the company to deal with in the near future.  With the 2000s came the age of the Internet.  People could, from the comfort and convenience of the homes, begin to watch movies through Internet services such as Netflix.  With the ability to instantly gain movies without such factors as late fees or having to even leave one’s home, Blockbuster simply could not keep up with its competitors, and as of 2010, the company had to file for Chapter 11 bankruptcy, as it had 1$.46 billion in debts and only around $1 billion in assets (Lieberman, 2010).  By doing this, the company hoped to reorganize and regain a foothold in a market that it once was the only dominant player, but it seems more and more likely that Blockbuster will only become a figment of the past.

When breaking down the issues that Blockbuster faced in terms of its business model and corporate structure, three key areas can be addressed as to why the company has not seen the success that it once did.  The areas are: organizational structure and change, poor decision-making, and creating a motivating work environment.  For each of these areas, there is a unique solution that could have been enacted by the company that would have helped in making Blockbuster less susceptible to the damage that it faced by not adhering to each of these areas.  If the company had managed to deal with each of the aforementioned areas instead of trying to expand and work with the outdated business model that was in place, Blockbuster may not have found itself in such dire consequences as it has been placed within in recent years. 

The first area that Blockbuster should have immediately addressed was that of company organizational structure specifically with regards to change and their resistance to change.  In general terms, what this refers to is the ability for a company to adapt to its competition over time so as to not become stagnant, which allows the company to remain competitive and relevant within their industry.  For Blockbuster, the largest change that was never addressed, and the one that proved to be the most problematic for the company to deal with, was the advent and popularity that electronic movie viewing has gained in recent years.  The largest threat to Blockbuster now clearly comes from the company Netflix, who over the years was able to, “sling DVDs through the mailbox and undercut the giants hold on the market,” (Antonio, 2004).  By doing this, Netflix gained a foothold in the market that Blockbuster paid no real attention to until the threat was much too real and unable to be ignored.  This ultimately lead Blockbuster to making extreme, rash company moves such as waving their late fees, which has provided the company with between $200 to $300 million dollars in revenue (Antonio, 2004).  If the company had made incremental changes instead, they would not have likely had to drop this large generator of revenue in such a hasty manner to combat the threat posed by their competition.  

What this pushes is the idea that corporate and business changes are absolutely necessary for a company’s survival and continued revenue production.  As noted by authors Andrew Hede and Wayne H. Bovey, “individuals go through a reaction process when they are personally confronted with major organizational change.  This process is composed of initial denial, resistance, gradual exploration, and eventual commitment, and presents the greatest challenge to leaders, who must figure out how to keep employees comfortable while they transition from the know to the unknown,” (Bishop, 2012).  In the case of Blockbuster, the leaders got stuck in for much too long in the initial denial and resistance phases, which cost the company dearly.  Further, this made it harder for Blockbuster to effectively react to its competition because it was, “burdened with a chain of large physical stores,” (Lee, 2011).  The competitors were all digitalized and did not rely on pushing their products from venues such as retail stores, kiosks, etc. and could operate from a central location or through the means of electronic interactions entirely.

To combat this particular area, Blockbuster needed to make one fundamental change that would have made all of the difference: do not become complacent with one’s position within the business world.  It took Blockbuster absurdly long to react to the changes that its industry was seeing, and this cost the company a great deal of resources and revenue.  Instead of assuming that its position was secure, Blockbuster needed to immediately look into the merits that such companies as Netflix could have with direct mailing of the product to the customer and the use of Internet technologies in streaming movies to one’s computer and television.  If they had done this, Blockbuster may have been able to break onto the scene of both practices earlier and been able to undercut the prices that Netflix had offered or even bought out the company before it became a serious threat.  Instead, Blockbuster’s website attracted a mere 2.9 million unique visitors in July of 2010, which was down 72.6% from the same month in 2007, while Netflix saw over 21.7 million visitors, which equates to a 132.9% increase in the same three year period (Lieberman, 2010).  Unfortunately, this plays right into the second key area of business practice that Blockbuster did not display over the years that lead many of the problems that the company has faced since: good decision-making. 

For Blockbuster, there has been clear documentation of poor decision-making that has lead to many of the problems that the company has been plagued with over its history.  This poor decision-making was not entirely bound to the times when the company was suffering either.  Rather, it has displayed poor choices in its decision-making in a number of areas over the company’s history.  Even when the company was experiencing rampant success in the mid 1990s, management was putting in place business practices that were not necessarily best for the company but simply ones that could generate the most amount of short-term gain.  Such examples of this were the failed merger with Viacom.  

In order to secure merger and gain a larger hold in the entertainment industry, those in charge of Blockbuster invested heavily within Viacom with the hopes of strengthening the company in a hopeful buyout of Paramount against Viacom’s rival QVC Network Inc. (Funding Universe, 2000).  This move ended up paying off for Viacom, as they purchased Paramount and won their battle against QVC, however it cannot be said the same holds true for Blockbuster.  The corporation invested a great deal of time, money, and other resources into this transaction and the merger talks between the two would ultimately stall and never come to fruition, which prompted investors within the company to question the leadership of Blockbuster (Funding Universe, 2000).  This would lead to a revolving door of leadership for the company as many in charge of Blockbuster would resign and be replaced by a new individual that had a new idea for the direction of the company should move in.  This instability in leadership saw Blockbuster go in different directions from conservation of company assets to aggressive expansion to general stagnation.  This allowed Blockbuster’s competition to build itself up gradually as the industry’s leader was plagued with so many instabilities in upper-management.  What is worst of all is that these were the poor decisions that were made during the company’s high point!

For Blockbuster, the poor-decisions that were made during the lows of the company were nothing short of catastrophic.  Nothing can sum up the problems that would face Blockbuster more than the statement from John Antioco who would become the CEO in 1997, when the company was the largest video rental company and controlled 25% of the market (Zeff, Higby, & Page, 2012).  He was quoted as saying, “I decided to join Blockbuster for a few reasons: I liked the brand.  I saw a lot that could be fixed quickly.  And I didn’t believe that technology would threaten the company as fast as critics thought,” (Zeff, Higby, & Page, 2012). What this shows is that from the top position of the company in this time period, there was the poor decision of assuming that the company was immune to the growing threats from the outside world.  Because of this failure to recognize a top threat to the company, the necessary defenses and steps to combat against them were never taken.  What was basically seen was how, “the top management team’s perception of opportunities and threats is essential in shaping the response that a firm gives,” (Almeida, 2011).  In the case of Blockbuster, the response was simply to ignore them.  

To combat the poor decisions that were made by Blockbuster over the years, there is no simple, easy solution that can be given.  Instead, incremental changes would have to have been made in order for the company to not experience the problems that it was plagued with.  These, however, do all stem from the same area: stability in the company’s upper management.  Obviously, the attempted merger with Viacom back in the mid 1990s was the wrong business move, but it is something that was unforeseeable until after the fact.  What followed, the revolving door of presidents for the company, set the foundation for the end of the company’s time as the leader of its industry, however.  By placing a single, long-term leader in place of the company, Blockbuster could have avoided the poor decisions that were made that let the company’s competitors gain a foothold within the market, ultimately leading to the company’s fall from grace.  One such practice could have been to select individuals with a more consumer related mindset in upper level management positions for company decisions.  Such a practice worked extremely well with the company New Seasons Market Inc.  This company holds the ideas of “local identity, quality products, and employee freedom to meet the needs of customers,” (Bauer & Erdogan, 2010).  This practice places individuals in charge that are more concerned with business practices that value the company’s worth to consumers than that of turning profit for top-level investors, which helps make a company profitable in the long-term.                                     

The final area that Blockbuster should have paid a greater amount of attention to was that of creating a motivating work environment for their workforce.  What this implies is that Blockbuster did not promote an atmosphere in which its employees had an effective means of communicating with their corporate higher-ups and that this ultimately lead to an unmotivated workforce that delivered a substandard performance to their customer base.  The upper management needed to be able to reach out to their workforce through transformational leadership practices, the backbone of the company, so that they could remain motivated and feel that their jobs were integral to the company, especially when Blockbuster was facing the staunch competition of Netflix and other electronic providers of video viewing.  Specifically in the case of Blockbuster, it can be seen that the six aspects of the communication climate that were discussed in Krivonos’ The Relationship of Intrinsic-Extrinsic Motivation and Communication Climate in Organizations.  

The work mentions the aspects of: “supportiveness, openness and empathy, perceived accuracy of downward communication, upward communication satisfaction, perceived information reliability, and the overall openness of communication,” (Krivonos, 1978).  In particular, the employees of Blockbuster were placed in an environment where they were deprived of some of the key areas of these means of an effective communication climate.  The employees had no means of feeling openness or empathy from their superiors because the company had so many different stores and kiosks that it would feel impossible to be noticed in a large franchise environment.  The nature of the company was that communication in both upwards and downwards manners felt very formalized and lacked the necessary human component that would be needed to create a supportive environment.  For this reason the employees had no reason to believe within the information’s reliability that they received from corporate sources as well.  All of these added up to a work communication line that was overall not very open at all.  As noted by Krivonos, this sort of system can very well lead to poor worker motivation as they feel that the communication climate is more closed because it is ran by individuals that are extrinsically motivated (Krivonos, 1978).  

To deal with such a problem comes from the notion that the leadership could implement different polices that would motivate the workforce and create an environment that promotes communication both upwardly and downwardly.  The domains of capabilities, customers, and a competitive environment can all be addressed in order to create such a workplace and workforce (Brown, 2013).  By capabilities, it is implied to the concept of understanding what the company does well and how to improve upon that notion; for Blockbuster this could have been addressed to how to reach a client base that does not want to have to travel to a location to receive their entertainment from video.  Blockbuster could have spun this concept of providing the same features as a company such as Netflix but still having the faces for customer support that Netflix, as an Internet corporation simply could not provide.  This also ties into the concept of customers in that the company needed to realize sooner what its customers wanted and possibly reached out to its employees for aid on how to reach the base again and keep individuals wanting to go back to Blockbuster locations.  Finally, the aspect of competitive environment could have been addressed by Blockbuster by creating a new environment for its employees in which not only does it address and reach its customers by new means but also promotes internal growth in such a way that employees would want to continue to work for the company and feel a sense of not only pride but desire to advance within.  

By addressing each of the three mentioned areas, Blockbuster may have been able to keep a grip upon the video rental business that it once had.  The best means for doing this would have come from early action and breaking into new areas of business early through innovative means, but even addressing these factors after the fact could still have been beneficial to the company.  The key being that innovation is the most important element to many companies such as Blockbuster and that they lost it along the way.  It is important to remember that, “innovation is the engine of the world’s economy because there is no end to the problems in this world, and there will never be,”  (Gorman, 2007).  However for where Blockbuster is now, the most important area to address and implement would come from the organizational structure and change - Kotter's theory is a blueprint for this.  Without this, the best leadership and most motivated workforce will be of no avail as the business model is simply ineffective.  

To implement the changes that were noted as to the difficulty that Blockbuster faced in changing the nature of the organization in order to keep up with modern technological advances, the most pressing matter is to continue to explore new options for reaching out to the customer base.  Blockbuster must be at the forefront of new means of delivering its products to its customers if it wants any chance of survival as a business.  If there appears to be a new means of technology to appealing to its clients, the company must take the risk of investing in it or, at the minimum, investigating the potential of utilizing such technology.  The practices the business is performing currently are not enough; it is not a viable option to simply “accommodate a market leader” to create a “mainstream design,” (Zhang, 2011).  What Blockbuster must do is to show that it has a firm business plan that will allow it to survive into the future to attract back investors, customers, and workers.  This will create a corporation that has customer loyalty in which individuals want to purchase and use the services that the company offers.  It is impossible to guarantee success within the business world, but by taking the steps in the right direction, these actions would at least give Blockbuster a fighting chance at surviving and gaining back the market share that they were once a dominant force within.                  

References

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Antonio, Victor (2004). The logic of success. Retrieved from http://www.thelogicofsuccess.com/blockbuster-netflix-innovation-competition.htm

Bauer, T., & Erdogan, B. (2010). Organizational behavior. (1.1 ed.). Irvington: Flat World Knowledge, Inc.

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Brown, J. (2013). Leading successfully starts with the right strategy. Retrieved from http://www.greatleadershipbydan.com/2013/05/leading-successfully-start-with-right.html

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Lieberman, D. (2010, Sept 23). Blockbuster files for chapter 11 bankruptcy, will reorganize. USA Today. Retrieved from http://conwaymackenzie.com/documents/9-23-2010USATodayBlockbusterFilesforCh11.pdf

Zeff, L. E., Higby, M. A., & Page, R. A. (2012). Blockbuster- a business model from long, long ago: how to maintain focus and lose the star war. Business Research Yearbook, 19(2), Retrieved from http://carmine.se.edu/cvonbergen/Business Research Yearbook, 2012, Num 2.pdf

Zhang, J. (2011). The perils of behavior-based personalization. Marketing Science, 30(1), Retrieved from http://marketsci.highwire.org/content/30/1/170.short