Micro and Macroeconomic Factors : Analysis of Failure of Blockbuster

Running head: ANALYSIS OF FAILURE OF BLOCKBUSTER
Programme Title
Module Code and Title
Analysis of Failure of Blockbuster
Student Details

1ANALYSIS OF FAILURE OF BLOCKBUSTER
Executive Summary
The report studies the contribution of the micro and macroeconomic factors that led Blockbuster
to certain failure. After thorough analysis of the concerned factors, the report found that the
contribution of macroeconomic factors like change in technology played the crucial role. The
company failed to adopt with the changed technology and could not compete with the new
organizations that uses the new technology and offers online streaming of movies. Inability to
adopt, failing to anticipate the change in market caused the organization to fail, The only thing
the company could do to avoid the failure was to adopt to the new business model based on the
changed technology.

2ANALYSIS OF FAILURE OF BLOCKBUSTER
Table of Contents
Introduction......................................................................................................................................3
Economic impact on business organizations...................................................................................3
Impact of micro and macroeconomic factors on Blockbuster.........................................................5
Background..................................................................................................................................5
Microeconomic analysis..............................................................................................................5
Macroeconomic analysis.............................................................................................................6
Recommendation.............................................................................................................................8
Conclusion.......................................................................................................................................9
Reference.......................................................................................................................................10

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Introduction
Sustainability and strategic decisions of business organizations are dependent on various
factors of an economy. The economic factors on which a business organization depends are
divided into micro and macroeconomic factors. Microeconomic factors that influence business
organizations are cost structure, fluctuation in market demand, supply of factors production,
competition and rivalry, consumer taste and structure of market. Macroeconomic factors include
political and socio-economic condition of a country and the factors like technology, laws and
environment. Therefore, the report analyses the above mentioned factors using PESTLE, SWOT
and Porter’s five forces to understand reasons for failure of Blockbuster in the UK (Perera 2017).
Blockbuster was a video game and movie rental service provider founded in the United States.
The models have been selected because they provide understanding of the entire economic
condition of the country and thereby helps to understand the effective policies that could help the
organization to sustain.
Economic impact on business organizations
Analysis of macroeconomic and microeconomic factors are necessary as they
significantly impact the operation of a business organization and in addition to that influences the
stability of the organization. Macroeconomic factors is going to be analyzed using PESTLE
model since factors are political, economic, social, technological, legal and environmental.
Political condition of country has large influence on business organizations because under
political factors comes government structure, international relationship policies, stability of the
government, corruption and trade policies (Gürel and Tat 2017). It is the necessary for a business
organization to understand the factors before making entry in a country’s market. Economic
factors like gross domestic product (GDP), unemployment rate, inflation and balance of payment

4ANALYSIS OF FAILURE OF BLOCKBUSTER
depict the economic condition of a country and from that, the market condition and probable
growth prospects and their impact on business organizations can be understood (Dana 2017). In
addition to these, the nature of market demand is highly influence by the social factors that
include population, culture and customs of people, level of education, and income level of
individuals’ personal and habitual preferences. Thus, based on these factors strategic decisions
are made by business organizations (Bashir and Verma 2017). One of the most important factor
is technology and thus country with danced technology and ample amount of scope for
innovation is the key to growth of a country. Legal aspect is very important because to operate in
in a country a business organization should abide by the laws present in the country.
Additionally, under environment factors stress is given on the CSR projects. The climatic
condition of a country influences the productivity of several kind of businesses.
Microeconomic factors affect the business organizations directly and some of the factors
are internal to an organization. Therefore, SWOT model is suitable for analysis of
microeconomic factors. Strength for an organization comes from brand name existence of scale
economies and cost structure (Datta, Knox and Bronnenberg 2018). On the other hand, lack of
adoptability to changing market, price of factors, resource allocation inefficiency and
organization size reflects the weaknesses. Opportunity is an external factor and it depends on
market demand, technological progress, favourable market structure and if all these factors move
favourably then a organization faces growth opportunities (Choi 2019). Lastly, for an
organization, threat comes when a new product comes in as substitute and there is rivalry and
entry of new and potential competitors.

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Impact of micro and macroeconomic factors on Blockbuster
Background
Blockbuster is an American video game and home movie rental service providing
company founded in 1985 in Dallas, Texas. The company was in business for around 25 years as
it became defunct in 2010. Blockbuster operated initially in the US only and started expanding in
other countries in 1990. The company thus entered the UK in 1990 and operated there until the
end of 2013 (BBC News 2020). The company has 528 stores in the country but due to sudden
rise of online movie streaming and gaming, the product of the Blockbuster lost its viability and
thus the company ceased to operate in the UK.
Microeconomic analysis
Strength
 The company brought in the concept
of renting CDs and DVDs of movies.
Thus, cost of watching movie was
reduced by this business model of the
company.
 Large size of the company and market
penetrability. It had 528 stores in the
UK.
 Providing video games on rent
attracted the child market.
Weakness
 Old business model and had not
changed with time.
 Inability to anticipate the change
occurring in the market of
entertainment.
 No diversified business model that
addresses the changing demand of
customers.
Opportunity
 Technological change in the market of
Threat
 The declining demand for DVD and

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movie and video game entertainment.
 Increased consumption of movies at
home.
 Increasing demand for different types
of movie watching experiences such
as open air theatre.
CD rentals.
 High speed internet and available
downloadable movie contents in the
internet (Banner 2018).
 Entry of new firms in the industry.
 Mode of movie watching platform is
changing.
 Availability of free online video
games.
 Availability of cheap internet in home
and over phone.
Macroeconomic analysis
The factors of a country that influences the macroeconomic condition of country are
political, economic, social, technology, legal and environment. Thus, PESTLE is the suitable
model to analyze these factor.
Political
The UK is a country where the head of the country is Queen Elizabeth II. Thus, it is a
constitutional monarchy. The government in the country is a parliamentary government. The
country during the time of operation of Blockbuster was politically stable and the international
relationship was good as the process of Brexit was not initiated then. The amount of corruption

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was low too as the corruption rank of the country during 2010 was 20 (Tradingeconomics.com.
2020). Thus, the country was suitable for expanding business operations.
Economic
The United Kingdom is one of the developed countries in the world and thus it has
performed well in respect of economic growth except for the period of financial crisis in 2009.
Every business in the country during that time faced economic difficulties. Otherwise, the
economic condition of the country was favourable of businesses.
Social
The UK is a high income country and thus most of the people in the country has high
earning assuring good economic status . Increased amount of population assures the availability
of large market. Among the population of the UK, there is practice of watching movies and thus
it is favourable for companies that provide movie services.
Technology
Technology is the main drive of any business organization and the UK has significantly
advanced technologies to support the growth of any business organization that operates in the
UK (Chopra and Veeraiyan 2017). Thus, for Blockbuster a country with continual innovation is
beneficial for the organization.
Legal

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A business organization that operates in the UK shall abide by all the laws of the
government meant for business organization. The country has laws for the employees and the
customers as well such they can be protected from exploitation.
Environment
The environment condition of the UK is suitable for operation of any business especially
for the business organizations that is related to service industry. The only thing that the
organizations need to do is to fulfill their corporate social responsibilities (CSR).
Recommendation
It is evident from the analysis of micro and macroeconomic factors that the failure of
Blockbuster is mainly due to both micro and macroeconomic factor. The company was unable to
adopt the changing technology in the industry it operated in (Voigt, Buliga and Michl 2017). The
major reason for the failure of Blockbuster not only in the UK but in case of every country it
operated in is the use of obsolete product and the business model. In the era of online streaming
and gaming, it offered the age old movie DVD rental services (Visnja et al. 2016). Owing to this
company faces heavy losses that led to bankruptcy and ultimately cessation of operation. There
is only one recommendation that could have saved the company is to adopt to the new
technology and provide online streaming services.
Conclusion
From the above discussion regarding the failure of Blockbuster, it can be inferred that the
failure of the company occurred due to the internal factors and the change in the market of movie
entertainment. The problem with the company is that it did not change according to the market
and thereby made the market change the main rival of the company. The failure of Blockbuster

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was not due to entry of new firms but due to market change. With change in technology, every
business organization should change the business model, otherwise it has to face the same fate
like Blockbuster.

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Reference
Banner, M., 2018. Digital Presence and Transformation: The growing importance of digital
presence in today's business marketplace.
Bashir, M. and Verma, R., 2017. Why business model innovation is the new competitive
advantage. IUP Journal of Business Strategy, 14(1), p.7.
BBC News. (2020). Blockbuster to shut remaining stores. [online] Available at:
https://www.bbc.com/news/business-25345257.
Choi, K.S., 2019. Technological Innovation and Product Market Conditions: R&D Rivalry,
Market Competition, and Customer Satisfaction. Entrepreneurship Research Journal, 9(2).
Chopra, S. and Veeraiyan, M., 2017. Movie rental business: Blockbuster, netflix, and
redbox. Kellogg School of Management Cases.
Dana, J.D., 2017. Blockbuster video. Kellogg School of Management Cases.
Datta, H., Knox, G. and Bronnenberg, B.J., 2018. Changing their tune: How consumers’
adoption of online streaming affects music consumption and discovery. Marketing
Science, 37(1), pp.5-21.
Gürel, E. and Tat, M., 2017. SWOT analysis: a theoretical review. Journal of International Social
Research, 10(51).
Perera, R., 2017. The PESTLE analysis. Nerdynaut.
Tradingeconomics.com. (2020). United Kingdom Corruption Rank. [online] Available at:
https://tradingeconomics.com/united-kingdom/corruption-rank.

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Visnja, I., Jovičić, J., Arsovski, S., Živković-Drezgic, M. and Badjok, D., 2016. Economic
Factors Affecting Business Decision Making.
Voigt, K.I., Buliga, O. and Michl, K., 2017. Entertainment on demand: The case of Netflix.
In Business Model Pioneers (pp. 127-141). Springer, Cham.