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Case Study of New Blockbuster Image

This document summarizes a case study on Blockbuster's diversification efforts under Chairman H. Wayne Huizenga in the 1990s. It discusses how Blockbuster expanded rapidly as a video rental company but then faced challenges from new technologies. The case study analyzes Huizenga's acquisitions of music and movie companies and proposes concentrating future diversification efforts in entertainment markets that complement Blockbuster's existing business.

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2K views5 pages

Case Study of New Blockbuster Image

This document summarizes a case study on Blockbuster's diversification efforts under Chairman H. Wayne Huizenga in the 1990s. It discusses how Blockbuster expanded rapidly as a video rental company but then faced challenges from new technologies. The case study analyzes Huizenga's acquisitions of music and movie companies and proposes concentrating future diversification efforts in entertainment markets that complement Blockbuster's existing business.

Uploaded by

SayantanKandar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MFOB(DPC) CLASS PARTICIPATION FOR SEMESTER I

CASE STUDY ON “A NEW BLOCK BUSTER IMAGE”


GROUP 7:
1. PRITAM ROY 4. SAYANTAN KANDAR
2. RAKTIM GANGULY 5. SHOLANKI GANGULY
3. SAYANI CHAKRABORTY 6. SIDDHARTHA GOSWAMI

SYNOPSIS
1. Blockbuster a video rental company began in the year 1985 with one store and quickly
expanded to 3200 stores across 10 countries by 1993.
2. The company’s main strength lied in fast service, convenient locations, family orientation
and kid appeal.
3. In the fall of 1993 Chairman H Wayne Huizenga faced difficult situations regarding the
future of his company and diversification of his company from a video rental company to
full-fledged entertainment company.
4. In November-1992 Huizenga entered music retailing by acquiring Sound Warehouse and
Music Plus Chains.
5. In 1993
 February- Bought Republic Pictures
 April- Bought majority interest in Spelling Entertainment Group.
Bought 21% Discovery Zone
 September- Invested $600 million in Viacom in support of its bid for
Paramount Pictures.
6. Recently revealed plans for Blockbuster Entertainment Village a 2600-acre entertainment
and sports complex in South Florida.

PROBLEM IDENTIFICATION
1) Scattered diversification of the company invited criticism.
2) Emergence of interactive technologies including 500-channel cable TV and video-on
demand.

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ALTERNATE SOLUTION
SWOT MATRIX

1) Concentric Diversification
Pros:
• Market Control
• Inheritance of assets of the acquired companies
• Increased buying power
• Removal of redundant jobs or positions
Cons:
• Inheritance of liabilities of the acquired companies
• Initial market for entry has risk of failure
• Different company cultures and management styles may result in poor cooperation

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2) Acquire majority stock with profitable entertainment companies instead of acquiring
them
Pros:
 Reduction of cost in purchasing media for rent or sale in retail stores (such as Viacom and
Paramount)
• Dividends from stock
• “Putting the eggs in multiple baskets” reducing risk of large loss.
• Low administrative cost than creating their own company
• High control over the direction of the company in which Blockbuster acquired majority
stock
Cons:
• Value of acquired stock has risk of going down
• Blockbuster may not know all that there is to know about the company which Blockbuster
acquired majority stocks with
• As shareholder, we do not enjoy all the rights and privileges as that of the owners of the
company
3. Horizontal diversification
Pros:
• Pave the way to enter a new business
• New geographic markets
• Gain new technical knowledge
• Non-competing product or service which would provide movement away from declining
product(s) / service(s)
Cons:
• Companies which Blockbuster have invested on has a risk of failure
• Different company cultures and management styles may result in poor cooperation
• Lack of technical knowledge of the new product(s) or service(s)
• May result in slow growth of core business.

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MOST IDEAL OR APPROPRITE SOLUTION

1) Concentric Diversification rationale – Although Diversification is only one of the four


strategies for growth, it is the riskiest one according to the Ansoff Matrix. And since
Chairman H. Wayne Huizenga already started diversifying in an exponential rate without
any direction, this group recommends the strategy of Concentric Diversification so that
Blockbuster could seek new products in untapped markets that have similar technological
or marketing synergies with their existing products (video rental) that may appeal to a
new group of customers.

2) Implementation
 Blockbuster will stop sponsoring concerts and retain existing acquisitions and
investments.
 The Chairman will advise top management to meet and assess the current markets in
which Blockbuster can perform Concentric Diversification with.
 Top management will hire a team to conduct deeper research (i.e.: Feasibility studies) to
have a good foundational knowledge about the trends, key players, and key success
factors in that new market.
 Hired team will report to top management the results of their research.
 Top management will compare these new market success requirements against the
organizational strengths and weaknesses to determine gaps and fill those gaps.

CONCLUSION

QUESTIONS
1) Which Huizenga’s decision alternatives appear particularly feasible and
particularly unfeasible, given what you know about these markets?
2) Where does it make sense for Huizenga to satisfice (pursue a course of action
which satisfy minimum requirements to achieve a particular goal)?
3) Who else is making decisions that it is crucial for Huizenga to factor into his
analysis?

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ANSWERS

1) Feasible decision alternatives:


 Bought Republic Pictures
 Bought majority interest in Spelling Entertainment Group.
 Invested $600 million in Viacom in support of its bid for Paramount Pictures.
All of these are feasible because they are all film producing companies and films bring in
revenue when they are shown in the theatre (as people visit theatre to experience the
movie) , when streamed online and also when shown in TV.
Unfeasible decision alternatives:
 Acquiring Music Plus Chains to enter music retailing.
 Buyout of two largest video store franchise.
 Bought 21% Discovery Zone.
These are unfeasible because Huizenga willing to move away from form an evaporating
market of brick & mortar stores to full-fledged entertainment company.
He also knew few of the upcoming technologies which could revolutionise the
entertainment industry i.e. VR Googles and G Edge hardware but still he invested in
Discovery Zone which was a children’s indoor park.
2) For Huizenga investing in film making companies makes sense. It is because he was
already in video-rental business so he knew this market well so foraying into film making
would be in line with his own business. He could give valuable customer feedback which
would have helped in making customer centric films. Also, he would have got the
distribution rights and shares from profits which would have come anyway either from
theatres and online streaming. In this process he could have also transformed his existing
business by investing those profits in making better films and investing heavily in
augmented reality device designing companies as it was the future of entertainment
industry.
3) Tom Gruber, chief marketing officer at Blockbuster in 1990 is the other person whose
decision is crucial for Huizenga to factor into his analysis as he knew the marketing
strength based on which the company is working i.e. Mc Marketing principles.

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