Case Detail

Case Summary

Movie Rental Business: Blockbuster, Netflix, and Redbox

Case Number: 5-310-507, Year Published: 2010, Revision Date: February 09, 2012

HBS Number: KEL616

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Authors: Sunil Chopra; Murali Veeraiyan

Key Concepts

Inventory Control, Distribution Channels, Operations Management, Supply Chain Management

Abstract

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. 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.

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.

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.

Learning Objectives

The objective of this case is to discuss how different business models and supply chain structures impact the financials of the firms in the DVD rental business. In particular, the goal is to convey that the characteristics of the movie (recent/big hit or old/eclectic) affect whether it is best rented from a centralized or decentralized model. In addition, as streaming gains market share, the impact will be different for movie types and business models.

Number of Pages: 21

Extended Case Information

Teaching Areas: Management

Teaching Note Available: Yes

Geographic: United States

Industry: Movie Rental; Entertainment

Organization Name: Netflix; Redbox; Blockbuster

Decision Maker Position: CEO

Decision Maker Gender: Male

Year of Case: 2010