Innovation and New Technology: A Case Study of Blockbuster and Netflix

This case study analyzes the downfall of Blockbuster and the rise of Netflix through various analysis models and assessments. It suggests ways for Blockbuster to remerge in the market through innovation and better marketing strategies.

Running head: INNOVATION AND NEW TECHNOLOGY
INNOVATION AND NEW TECHNOLOGY
Name of the University
Name of the student
Author Note

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Table of Contents
Introduction................................................................................................................................3
Brief introduction of Blockbuster..........................................................................................3
Brief introduction of Netflix..................................................................................................3
Discussion..................................................................................................................................4
PESTEL ANALYSIS.............................................................................................................4
SWOT ANALYSIS................................................................................................................5
MCKINSEY’S 7S FRAMEWORK.......................................................................................7
TR TECHNOLOGY CYCLE................................................................................................9
3 PHASES OF INNOVATION MODEL............................................................................10
HOW CAN BLOCKBUSTER REMERGE IN THE MARKET.........................................11
Conclusion............................................................................................................................11
References................................................................................................................................13

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Introduction
In this assignment, an incumbent has been chosen that is beaten by a challenger. The
incumbent has been taken as Blockbuster and the challenger has been chosen as Netflix. In
this assignment, several analysis models and assessments have been taken to help
Blockbuster remerge in the market.
Brief introduction of Blockbuster
Blockbuster is an American based movie provider which rents movies and games
through mails, rental shops and streaming services as well as movie theatres. In its peak time,
it had over 83000 employees and had over 20000 employees coming from abroad. The
organization eventually closed in 2014 due to continuous competition from Netflix and other
video on demand services. In 2010, the company filed for bankruptcy. Later its last remaining
stores were bought by Dish Network.
Brief introduction of Netflix
Netflix is an American entertainment company which was founded by Marc Randolph
and Reed Hastings. The company specializes in online video on demand services, streaming
services, DVD by mail and invests in TV and film production. The company initially started
its business by rental services and DVD sales but later they decided to send the DVDs by
mail service. Netflix first started its streaming service in Canada and later expanded
worldwide (around 200 countries).

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Discussion
The required strategic analysis frameworks are written as follows to understand the
present condition of Blockbuster with respect to Netflix.
PESTEL ANALYSIS
The Pestle analysis of Blockbuster is written in the following sections. The PESTLE
analysis will help to understand the general environment that Blockbuster is facing.
Political – The availability of entertainment content with associated risks of digital
right violation issues as well as piracy issues make the process legally costly and increasingly
complicated. Further political factors faced by Blockbuster include issues with employment
taxes, safety and regulations, tax guidelines and political stability.
Economic- The increasing cost of fuel will affect the distribution costs of
Blockbuster. Substantial strain will be faced by the company to manage the distribution
network. The consumer discretionary spending is decreasing with the starting of the subprime
mortgage crisis. Blockbuster has also faced other economic factors such as rise in the rate of
unemployment, internal and external policies, decrease in the economic growth and inflation
(Blockbuster to close U.S. retail stores, mail DVD operation, 2018).
Social- Rising pressure on Blockbuster will affect its business operations due to its
rising IT literacy and rising customer expectations. The rental industries and the media sales
of Blockbuster has been significantly affected with the rising consumer access to bootlegs,
online resources and pirated Medias. Other social factors include the rising awareness of
consumers towards the green initiative that comes with the adoption of digitization
(Blockbuster Video Stores & On Demand Movies, 2018). Moreover, change in the lifestyle

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attitude of people, education on piracy and different customer demographics has also affected
the market conditions of Blockbuster.
Technological- As consumers are increasingly opting the digital media offered
through web, it opens up a market entry for Blockbuster to survive in this changing market
scenario. The inevitable role of internet in the market scenarios of the future and
technological advancements in the digital sector has affected the external market conditions
of Blockbuster (How Blockbuster Failed at Failing, 2018).
Environmental- With the dawn of globalization, customers are rapidly getting access
to more web content due to the presence of multinational brands and online media. Increased
digitization will improve waste management of companies which was not followed by
Blockbuster, Moreover, lack of use of eco-friendly products by the company also affected
their market conditions.
SWOT ANALYSIS
Strengths
As products that are provided on an hourly basis and DVDs are easily available to the
consumers in the market, Blockbuster has created a good control over its prospective
customers. Good quality product are provided by Blockbuster and the games and movies they
provide are updated regularly. This provide the consumer with totally updated version of their
content prior to their release. Blockbuster also provides multiple ways of offering their
services and products to their customers (A Look Back At Why Blockbuster Really Failed
And Why It ..., 2018). The product are offered all over the world so Blockbuster has a good
control over the global market. The prices are also low compared to other services.
Weaknesses

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One of the main weaknesses of Blockbuster is that it has little or no control over the
shipping costs of its products. The movie player that is provided by the organisation is not
popular as well. Moreover, countries such as Africa has huge opportunities for growth but
Blockbuster is not interested enough to tap into the market. Blockbuster is also facing
problems with issues such as proficiency and funding.
Opportunities
Blockbuster can use the business functions that are used by its competitor Netflix
(Blockbuster | Netflix Official Site, 2018). It can start by digitizing its contents just like its
competitor or it can formulate a new revolutionary idea to tackle its competitor. With recent
surveys showing that customers prefer online content more than physical ones, this factor
becomes more evident. The market demand that is used by Blockbuster is very innovative
with product prising rising during holidays.
Threats
The damage that Blockbuster can face due to piracy concerns can be extremely
significant and can hinder its future growth process. Blockbuster has already garnered a lot
of competitors which is why it has to update its contents regularly (Blockbuster
(@blockbuster) | Official Twitter, 2018). Otherwise, the company can face significant losses.
Blockbuster also faces problems when the mobile is not released in due time affecting its
services.
PORTER’S FIVE FORCES
Threat of potential new entrants
As the products are not differentiated properly, there is a threat from new entrants in
the market scenario. The cost of starting a new movie outlet is also relatively low. The only

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setback that the new entrants will face is that loyal customer base that Blockbuster has
achieved by offering their services over the year (Jr. & Schacknow, 2018). The risk is still
high.
Bargaining power of buyers
As the products are not differentiated and the industry price of the products are also
sensitive, buyers have a lot of bargaining power (high) in this aspect.
Threat faced from Substitute services and products
The threat is low as consumers are only availing similar type of products such as
movies and games. However, similar services are offered by Prime, Hulu and Netflix which
can turn into a serious threat if Blockbuster does not innovate (O’Reilly, 2018).
Barraging power of suppliers
Due to the low switching costs of the products, the suppliers have low bargaining
power in this aspect. Moreover, the products are not well differentiated and the innovative
products such as Blue ray disks have low demands.
Competitive rivalry intensity
As the prices of starting a rental company is relatively low and with rising
digitization, the threats from competitive rivalry is high. With companies like Netflix taking
over the market with their digitized services and well differentiated products, Blockbuster can
face serious issues in this aspect.
MCKINSEY’S 7S FRAMEWORK
Structure- The organisational structure of Blockbuster implemented on a broad scale.
The employees were separated in teams to focus on target customers and the process

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management was also involved in the business processes (Blockbuster still exists in a couple
of places, but they ..., 2018).
Systems- The method of operation in Blockbuster was informal in approach. The
communication flow and organisational procedures were although formal in nature.
Style- The style element of Blockbuster is about leadership and management. The
leadership of Blockbuster was pretty weak and adamant to change in testing times. When
Netflix was acquiring all the market shares and prospective customers, the CEO and the
management team did not deviate from their business processes which was a big mistake
(Vena, 2018).
Staff- Blockbuster employed around 83000 employees in its peak time. More than
53000 people were hired from US and the other 23000 was hired from foreign countries.
Skill- Blockbuster had enough strategies to stay above the competition but due to the
few mistakes of the upper management it failed to defeat Netflix (Contact Us - Blockbuster
LLC, 2018). The rise of Blockbuster from a single store to a global store was only possible
because of its hard working employees.
Strategy- Blockbuster used a strategy of opening as much store as possible to lure
customers. But this strategy ultimately led to its demise. The high cost that was involved in
setting up so many stores as well as not availing classic movies in its marketing strategy
proved ineffective (Blockbuster Inc. - The New York Times, 2018).
Shared values- Blockbuster inculcated the value of treating their colleagues as well
as their customers as their family. Valuing differences was collectively called as diversity in
Blockbuster (Blockbuster has survived in the most curious of places ..., 2018). The company
treated corporate value as a continuously evolving thread that needs to be embraced for
running the business.

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TR TECHNOLOGY CYCLE
Figure 1: Technology cycle of Blockbuster
(Source: Baker, 2014)
The four broad phases of the cycle have been show namely, start up, growth, maturity
and decline. The TR technology cycle of Blockbuster shows a general model for the strategy
of the organization. In the given figure, the four broad phases of the technology cycle has
been mentioned which corresponds the effect caused by the initiatives taken due to the
original strategic positioning (with the help of extension and acquisition). The other one
shows a revision of that same position when the conditions become unsustainable and shows
a downward trend.
The company was introduced in 1985. The first store was opened in Dallas, Texas.
From 1987 to 1994, the growth cycle continued. At the beginning the store had just eight
stores. By the end of 1991, the store has already made more than 1600 stores. The maturity
phase continued from 1994 to 2002. The management and corporation propelled the company
towards success in this phase. The company began charging inflated prices as it was the one
and only competitor in the scenario. Late fees were also applied in some cases. From 2002 to
2014, the decline stage started (Blockbuster to close U.S. retail stores, mail DVD operation,
2018). Netflix came in the market in 2002 and the online strategy adopted by it completely

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changed the market scenario with the dawn of advanced IT technology. The last store closed
in 2014.
3 PHASES OF INNOVATION MODEL
Fluid phase
The technological and marketing uncertainties of Blockbuster are included in this
phase. The manufacturing process of Blockbuster required high labour and dispatching the
products needed additional labour. The company had no effort for innovation and had no idea
how fierce the competition will turn out in the later phases. Blockbuster could have followed
two strategies. First it could have outmanoeuvred Netflix, its competitor by designing an
innovative product or a dominant design. This needed agreement form marketing investors
and distributors. The second strategy involved taking control of complementary assets.
Transitional phase
As the market starts to appreciate the products of Blockbuster, they start accepting the
product and the market started to grow. Blockbuster managed to dominate the market in this
phase bringing a new concept of renting movies and games all around the world whenever
they needed (Blockbuster CEO passed up chance to buy Netflix for $50 ..., 2018). Back then,
Blockbuster was the only name for movie watching due to their transition of following
leading technology.
Specific phase
The specific phase includes the product costs and performance assessment of
Blockbuster. After the transitional phase, Blockbuster had understood the market segments
and their potential customer groups. They specifically employed labour and invested in
making more shops to bring in a commodity like structure where the customers as well as

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their suppliers can benefit mutually (The Internet Didn't Kill Blockbuster, The Company Did
It ..., 2018).
HOW CAN BLOCKBUSTER REMERGE IN THE MARKET
Blockbuster has to get rid of the late fees business structure. The $40 late fees was too
much for some customers to handle. Blockbuster can remerge in the market through
innovation. The way Netflix has controlled the market with online streaming service,
Blockbuster needs to take the same business model of innovation. To become competitive,
they need to embrace the change that comes with it. They can reintroduce the $1 dollar a day
all rental pack along with online services (How Blockbuster Failed at Failing, 2018). They
can train their staff better to introduce new marketing strategies to attract more customers.
They can also introduce faster delivery dates.
Conclusion
To conclude the report, it can be stated that Blockbuster needs to embrace the change
that comes with new innovative products in the market. Netflix had an innovative idea and
they have delivered well in executing it. The CEO of Blockbuster once refused an offer to
sell Blockbuster to Netflix which would have been the right move considering their market
share at that point of time. Their arrogance cost them their entire business.
Through PESTEL analysis, the external market environment of Blockbuster has been
assessed. The SWOT analysis revealed the internal and external aspects that the company
may be facing. The Mc Kinsey’s model revealed the importance of critical role of
coordination that Blockbuster needed. The Porter’s five forces analysis revealed the
competitive forces that Blockbuster was facing and help to determine the weakness as well as

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the strengths. With TR technology cycle and 3 phases of innovation model, a thorough
analysis was performed that helped to understand the current condition of the market for
Blockbuster. The assignment has been designed to propose solutions to Blockbuster to stay
ahead of the competition in the coming years. The analysis frameworks that has been taken in
this assignment has helped to deduce why Netflix excelled over Blockbuster and where it
went wrong.

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References
A Look Back At Why Blockbuster Really Failed And Why It .... Retrieved 2018, from
https://www.forbes.com/sites/gregsatell/2014/09/05/a-look-back-at-why-blockbuster-really-
failed-and-why-it-didnt-have-to/
Baker, M. J. (2014). Marketing strategy and management. Palgrave Macmillan.
Blockbuster (@blockbuster) | Twitter. Retrieved 2018, from https://twitter.com/blockbuster
Blockbuster | Netflix Official Site. Retrieved 2018, from
https://www.netflix.com/title/80194737
Blockbuster CEO passed up chance to buy Netflix for $50 .... Retrieved 2018, from
http://www.businessinsider.com/blockbuster-ceo-passed-up-chance-to-buy-netflix-for-50-
million-2015-7
Blockbuster has survived in the most curious of places .... Retrieved 2018, from
https://www.washingtonpost.com/news/morning-mix/wp/2017/04/26/blockbuster-has-
survived-in-the-most-surprising-of-places-alaska/
Blockbuster Inc. - The New York Times. Retrieved 2018, from
https://www.nytimes.com/topic/company/blockbuster-inc
Blockbuster still exists in a couple of places, but they .... Retrieved 2018, from
http://www.businessinsider.com/blockbuster-still-exists-in-a-couple-of-places-2017-4
Blockbuster to close U.S. retail stores, mail DVD operation. Retrieved 2018, from
https://www.usatoday.com/story/money/2013/11/06/blockbuster-closing/3456271/
Blockbuster Video Stores & On Demand Movies. Retrieved 2018, from
http://www.blockbuster.com/

13INNOVATION AND NEW TECHNOLOGY
Contact Us - Blockbuster LLC. Retrieved 2018, from
http://www.blockbuster.com/contactus.html
How Blockbuster Failed at Failing. Retrieved 2018, from
http://content.time.com/time/magazine/article/0,9171,2022624,00.html
Jr., B., & Schacknow, P. (2018). Wall Street is set to open higher after blockbuster
earnings. CNBC. Retrieved 18 April 2018, from https://www.cnbc.com/2018/04/18/wall-
street-is-set-to-open-higher-after-blockbuster-earnings.html
O’Reilly, L. (2018). CMO Today: Roberto Quarta and WPP’s Future; Netflix’s Blockbuster
Earnings; Facebook Explains Non-User Tracking. WSJ. Retrieved 18 April 2018, from
https://www.wsj.com/articles/cmo-today-roberto-quarta-and-wpps-future-netflixs-
blockbuster-earnings-facebook-explains-non-user-tracking-1523964971
The Internet Didn't Kill Blockbuster, The Company Did It .... Retrieved 2018, from
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blockbuster-the-company-did-it-to-itself/
Vena, D. (2018). Netflix Earnings Shine on Blockbuster Growth. The Motley Fool. Retrieved
18 April 2018, from https://www.fool.com/investing/2018/04/18/netflix-earnings-shine-on-
blockbuster-growth.aspx