Chopra Movie Rental Business
5-310-507
SUNIL CHOPRA
Movie Rental Business:
Blockbuster, Netflix, and Redbox
Jim Keyes, CEO of Dallas-based Blockbuster Inc., was facing the biggest challenge of his career. In March 2010 Keyes was meeting with Hollywood studios in an effort to negotiate better terms for the $1 billion worth of merchandise Blockbuster had purchased the year before. In recent years, Blockbuster’s share of the video rental market had been sharply decreasing in the face of competitors such as the low-cost, convenient Redbox vending machines and mail-order and video-on-demand service Netflix. While Blockbuster’s market capitalization had dropped 47 percent to $62 million in 2009, Netflix’s had shot up 55 percent to $3.9 billion that year. (See
Exhibit 1 for a comparison between Blockbuster and Netflix.) The only hope for Blockbuster, as
Keyes saw it, was to shift its business model from primarily brick-and-mortar physical DVD rentals to increased digital and mail-order video delivery. “We are a transformation work-inprogress,” said Keyes. “But I need a little help.”1
In Keyes’s favor, the studios were more than willing to provide him with that help.
Hollywood wanted to see Blockbuster win the video-rental wars. Consumers still made frequent purchases of DVDs at its stores—purchases which were much more profitable for studios than the rentals that remained Blockbuster’s primary business. Studios received up to $18 on each DVD sold compared to less than $4 for a rental, according to Sony Pictures Home Entertainment
Chairman Michael Lynton. “We want Jim to succeed,” said David Bishop, president of Sony
Pictures Home Entertainment.2
Blockbuster had made efforts at making its business model more nimble, but the results had been disappointing, and its debt continued to skyrocket. By the end of 2009, the company’s debt had climbed to $856 million, its share of the $6.5 billion video rental business had fallen to 27 percent, and its revenues had tumbled 23 percent to $4.1 billion.
The
SUNIL CHOPRA
Movie Rental Business:
Blockbuster, Netflix, and Redbox
Jim Keyes, CEO of Dallas-based Blockbuster Inc., was facing the biggest challenge of his career. In March 2010 Keyes was meeting with Hollywood studios in an effort to negotiate better terms for the $1 billion worth of merchandise Blockbuster had purchased the year before. In recent years, Blockbuster’s share of the video rental market had been sharply decreasing in the face of competitors such as the low-cost, convenient Redbox vending machines and mail-order and video-on-demand service Netflix. While Blockbuster’s market capitalization had dropped 47 percent to $62 million in 2009, Netflix’s had shot up 55 percent to $3.9 billion that year. (See
Exhibit 1 for a comparison between Blockbuster and Netflix.) The only hope for Blockbuster, as
Keyes saw it, was to shift its business model from primarily brick-and-mortar physical DVD rentals to increased digital and mail-order video delivery. “We are a transformation work-inprogress,” said Keyes. “But I need a little help.”1
In Keyes’s favor, the studios were more than willing to provide him with that help.
Hollywood wanted to see Blockbuster win the video-rental wars. Consumers still made frequent purchases of DVDs at its stores—purchases which were much more profitable for studios than the rentals that remained Blockbuster’s primary business. Studios received up to $18 on each DVD sold compared to less than $4 for a rental, according to Sony Pictures Home Entertainment
Chairman Michael Lynton. “We want Jim to succeed,” said David Bishop, president of Sony
Pictures Home Entertainment.2
Blockbuster had made efforts at making its business model more nimble, but the results had been disappointing, and its debt continued to skyrocket. By the end of 2009, the company’s debt had climbed to $856 million, its share of the $6.5 billion video rental business had fallen to 27 percent, and its revenues had tumbled 23 percent to $4.1 billion.
The