Movie Rental Business Supply Chain Management Group - 9

SUPPLY CHAIN MANAGEMENT

Movie Rental Business:

Blockbuster, Netflix and
Redbox
CASE ANALYSIS

Group-9

Ankit Agarwal 1311285

Ankur Bansal 1311151
Anup C. Unnithan 1311134
Gireesh Gera 1311088
Samir Jain 1311325
Vivek Vineet 1311138
 Movie Rental Business Supply Chain Management Group - 9

Q.1 What are the key success factors in the movie rental business? How do the three players
in the case compare on these dimensions?

The case mentions following factors which govern the success of a movie rental business.
The three players are compared on these parameters in the following table:

Factor Explanation
3 Players
Blockbluster Netflix Redbox
The higher the variety of ~3000 titles were Variety was limited
~100,000 DVD titles
titles, the higher the available in store, and only block-
were available to be
incentive for customers which was very less buster movies
delivered to
to come and choose in comparison to the which were mass
customer’s homes.
from among the titles. other 2 players. Only market were stored.
Variety of titles Foreign (Bollywood)
Higher variety also in 2009 did it launch Each machine had
& independent films
caters to more customer the Blockbuster only 630 disks
were also available
segments and also leads Direct Access service comprising 200 of
which attracted
to cross selling of other which gave access to the newest movie
customers
varieties ~95,000 titles titles
Customers would want
It had a sophisticated
to know about the
recommendation
Recommendation ratings of several Recommendation
engine which gave
of movies by movies and also would - option was not
recommendations to
software want the website to give there
customers basis past
them recommendations
history
about movies to watch
The delivery time
For the in store was quick and it was The delivery was
The faster the delivery
business delivery was prime focus of this immediate. Even
time, the better it is as
immediate. For mail company. There the returns could be
customers would
Delivery Time order, delivery were automated made to the
gravitate to companies
happened from one of distribution centres vending machine
offering better delivery
the distribution for rapid processing without any
times
centres and situated close to registration
US postal service
Channels like online Customers could put This company
offer the maximum new titles into their offered instant
convenience to queues. This convenience of
Online service and
Ease of access & customers. Customers company offered vending to fulfil an
stores combined
convenience always have time crunch high convenience as underserved
offered convenience
and thus ease of access compared to customer need.
and convenience are Blockbuster. There were 23000
very important and Customer could also kiosks nation wide

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 Movie Rental Business Supply Chain Management Group - 9

define a company’s download movies

success and watch
straightaway
Introduced a Flat
Introduced in store fee, unlimited rentals
exchanges in 2004, concept with free Introduced
but charged late fees delivery and no late Kiosks in
Flexibility in the number initially. fee. Allowing restaurants that
of movies, exchange of It also allowed customers to keep as provided the
DVDs and schedules unlimited in-store long as they wanted convenience of
Flexibility
positively impacts the exchanges. However is attracted more vending and
number of people asking in 2007, it placed a customers. Cheaper returning DVD at
for DVDs limit on number of DVD rentals and the kiosks without
videos that could be convenient delivery even membership.
exchanged at no cost. through mail service
started price wars in
2004.
As the industry
progressed, in store Monthly rentals of
Mail-to-order format
rentals declined as $19.99 for online
allowed cheaper and
people got accustomed rental with unlimited
larger selection of
of using on demand exchange at store. This company
movies at costs
services, cable, DVR Pay-per-rental model. followed the Kiosk
lower than in store
Movie Rentals and internet as medium $2-$4/24 hours for approach- Low cost
rentals. Prices were
Prices which provided more streaming movies. rental ($1 per
low and no late fee
options to consumers. Retail locations night).
policy made it easier
Hence, the price that is became less
for customers to
charged for renting the profitable so
afford.
movie is very important introduced kiosk
as this market is price delivery method.
sensitive.
This company
partnered with In 2007 it introduced
Delivering content
Samsung Electronics streaming of movies
through analog/digital
and TiVo to allow and tv episodes over
medium through various
owners of these the internet.
Streaming medium like cable, It did not enter into
devices to rent or buy It launched set-top
content to TVs internet or set top boxes streaming services.
by simply clicking a boxes that allowed
offers a lot of
button. subscribers to view
convenience to the
In 2008, set-top box streaming videos in
consumers
was launched to cater their TV.
on-demand service.

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 Movie Rental Business Supply Chain Management Group - 9

Increasing the number

Channels in of channels increases
Mail, Store, Online,
which company is convenience and Mail, Online Kiosks
Kiosks
present flexibility for the
customer
The original model
was inadequate with
fewer tapes available Long tail selection;
In case a customer per title and focus on Older titles higher Newest titles
demanded a title, ‘newer’ titles; compared to newer available; 630 disks
Availability of
providing them on time increased by Direct ones; unable titles of 200 titles; 28-
titles
will ensure repeat Access model with can be queued up; days waiting for
purchase. channel to procure 28-days waiting for renting newer titles
from DC; Streaming renting newer titles
offered easy access to
all subscribers
Operating expense
Decline from 2005 to nearly 10% of
2009 (~1bn USD) Operating expense Blockbuster by end
The sustainability of the
owing to close down nearly 15% of of 2009 but higher
industry is in lower
of several stores, Blockbuster by end sales; Revenue
Operating costs operating costs and
renegotiation of lease of 2009. Steady sharing with
adapting as per changing
and migrating to low- increase balanced by retailers allowed
consumer preferences
cost DVD vending growth in income lower lease rent;
kiosks Relatively cheaper
cost of kiosk/8*9
Suggested Users
titles based on Pretty low as only
The movie rental The Direct Access
search history. 95% kiosk model; The
business is model increased
titles delivered in assurance was
Responsiveness to commoditized as all responsiveness to
one day, option to ready availability of
Customer players have same cater to out-of-
queue titles; newer titles so low
offering and switching stock/unavailable
Streaming expectations for the
costs are low. title.
compatible to consumer
multiple devices

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Movie Rental Business Supply Chain Management Group - 9

Q.2 How would you advise these companies to modify their strategies and structures going
forward?

Blockbuster-

 Divest unprofitable channels – Blockbuster is able to serve customers through

multiple channels – store, mail, online and kiosk. However, they have not been able
to differentiate their service to consumers in any of the channels. They should divest
their stores as there is dwindling revenue from this format. Also, the movie rental
industry has seen a shift from in-store purchase to VOD and mail (Exhibit 4)

 Increase content- Netflix offered more than 10 times the collection that Blockbuster
had in any of its retail stores. Customers preferred the long tail that Netflix maintained
as it gave them access to obscure and niche titles. Variety is critical in servicing
customer demand.

Netflix-

 Invest in the next big technologies – Internet streaming is a low cost channel, Apple
has already started dominating the movie downloading business with its Apple iTunes
service. Netflix needs to leverage its big tail, grow the present customer base and lock
in customers by increasing switching costs with Cinematch by reaching customers
through this channel. This will ensure that postage fees will be done away with such
that it can offer greater profits to its studio suppliers.

 Price – Price signals quality. Reduction in the price, makes Netflix a commodity brand
rather than a brand which delivers value for money. Netflix has been the pioneer in
the category and should command a premium over its next closest competitor. They
should make improvements in key areas of technology and customer service and
command a higher price after doing so.

 Increase customer base – Partner with music studios, distribute more obscure and
niche films – increase the long tail which will also increase the loyalty of audiences like
eBay. This will increase the customer base and hence revenue.

Redbox –

 Enter Digital Service with a partner: Given that DVD industry is gradually dying and
major players like Amazon and Google will ramp up the online video segment, Redbox
should expand into the online space while continue to milk the DVD industry with its
low cost low price model. Redbox should continue to develop strategic initiatives to
expand its distribution, increase its market share, and become a leader in this industry.
Redbox should continually invest in Research and Development to remain a
competitive driving force in the video industry and find alternative innovative means

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Movie Rental Business Supply Chain Management Group - 9

of delivering movies to its customers. One way to do this is to launch a digital service
with a partner. Consumers are increasingly choosing to watch movies via the Web and
not DVD. In Coinstar's last fiscal quarter, Redbox revenue came in below expectations
because of the impact of three studios not offering new releases to the company until
28 days after they went on sale. By having content partnerships and relationships
already in place, pay-TV operators can eliminate much of the complexity and cost
associated with populating a movie-streaming service.

 Expand Internationally: There's an upper limit to the number of subscribers here in

the States, so to keep growing, Redbox should expand outside the borders to boost its
top-line and earnings growth. In the existing low cost positioning where retailers
install kiosks for free to ensure store traffic, Rebox is in a win-win position where it
quickly expands operations without incurring major costs. The same strategy can be
used to expand internationally. This will benefit Redbox, providing the necessary
platform for raising its profitability on a global basis, as the company significantly
diversifies the risk of customer concentration in a particular region.

 Evaluate pricing strategy: The final recommendation relates to the recent increase in
wholesale prices on new-release from studios as well as the concern of the major
studios not offering new releases to the Redbox until 28 days after they went on sale.
Redbox should evaluate their current pricing structure which has already increased
slightly over this past year by offering some new releases for $2.00 - $3.00 the day the
new release goes on sale in stores. The higher price should enable Netflix to avoid a
28-day delay in the availability of many titles that three studios, Warner Brothers,
Universal Pictures and Twentieth Century Fox, impose on Redbox