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Surviving Disruptive Technologies
Blockbuster
How to Define an IndustryAnd Still Fail
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Surviving Disruptive Technologies
A short history Opened in 1985 in Dallas
David Cook thought there was a marketfor a family-friendly video rental store
No X or NC-17 films
8,000 videocassettes in appealing
displays
Built a warehouse for fulfillment which
became highly automated distribution center Customized stores with films
geared for the neighborhood
Franchised and expanded to 19 stores
Source: Wikipedia
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Surviving Disruptive Technologies
A new owner
Needed capital to expand Wayne Huizenga of Waste Managemen
Skeptical about video rentals
Did not own a VCR Became convinced and bought in
$18.5 million for 50% of company
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Surviving Disruptive Technologies
Rapid expansion
From 1997 to 2004 Became $4 billion company
3700 stores in 11 countries
Revenue from $7.4 million to
$2.2 billion
Market cap grew 118% per year At peak opened one store
every 17 hours!
Source: Coughlan & Illes, Blockbuster Case , Harvard Business School Publishing, 2004
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Surviving Disruptive Technologies
Expansion
Television studios, music stores Discovery Zone
Make a movie, put it in theaters,
rent in video store, sell on pay-per-
view, show it on cable and play in
TV stations all owned by
Blockbuster; publish the book
release the sound track, and sell
Blockbuster stores
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Surviving Disruptive Technologies
The Viacom Years
By 1994 Blockbuster stock underperforming Huizenga thought new technologies were years away
Investors nervous, depressing stock
Approached Sumner Redstone
of Viacom
Viacom paid $8 billion for Blockbuster Slimmed the company and used its
cash flow to pay down $10 billion
debt from buying Paramount
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Surviving Disruptive Technologies
Exit Viacom
Redstone had buyers remorse
Deal from Hell
Satellite movie services impact business
Lack of product
4% decline in movie rentals Viacom sold part of Blockbuster
in an IPO, keeping 80%
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Surviving Disruptive Technologies
How about a new CEO
1997 John Antioco from Taco Bell become Rent videogames, too
2001 8000 stores in 27 countries,
89,000 employees, $5 billion revenue
2005 Carl Icahn bought 10 millionshares
Antioco lost proxy fight and left
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Surviving Disruptive Technologies
Bankruptcy 2010 Blockbuster declares Bankruptcy
Bought at auction by Dish Networks for $233 million plusmillion in liabilities About 1000 stores remained
January of 2013 Dish announces
closure of 300 U.S. stores leaving less
than one-third of the stores it acquiredin 2011 Layoffs of 3,000 out of 7,300 remaining
employees
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0.00
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BLOCKBUSTER
CALENDAR YEAR SALES AND EOY STOCK PRICECALENDAR YEAR SALES IN
MILLIONS OF $
Sales in millions
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Surviving Disruptive Technologies
What went wrong?
At first some good ideas In cassette days Blockbuster had to pay $6
movie
Led to shortage in stores
Pushed studios for revenue sharing $1 purchase, 40% of rental to studios
Now enough copies in stores
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Surviving Disruptive Technologies
Disruptions
On-demand: cable providers scheduling pmovie showings
Pay-per-view: stream movie to viewer
Illegal sharing
Antioco thinks it was DVDs Best Buy and Wal-mart want to sell
them for under $20
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Surviving Disruptive Technologies
Movies by mail?
Antioco skeptical of Netflix model
In 2004 Blockbuster started mail business
Could never make it work!
Eliminated late fees costing $200 million
Starting an online businessrequired another $200
million (why?)
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Surviving Disruptive Technologies
A lot went wrong
Major management turmoil
Different owners turned capital
for investment on and off
All of senior management denied
that coming technology would disrupt
their business model
When Blockbuster tried to
respond, it failed to execute
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Surviving Disruptive Technologies
Can you fill out and post a box score forBlockbuster-we can see if there is any
consensus opinion on the reasons Bloc
could not respond to management turm
and disruptive technology