Blockbuster Leadership Failure Case Study 

Long before the invention of online video streaming platforms, people used to visit Blockbuster’s rental stores and rent out their favorite movies in the form of DVDs and VHS tapes. Movies on rental DVDs and VCR cassettes were a great source of entertainment. In fact, Blockbuster was highly popular among the public in the 1990s and early 2000s. Its reputation started declining because the failed to accept the change of digital transformation. Today, we’ll discuss the top reasons for Blockbuster leadership failure; Blockbuster change management failure case study.

Historical Background 

David Cook laid the foundation of movie rental company Blockbuster on 19 October 1985. The company expanded its business operations in various other areas in the 1990s;

  • Cinema Theater
  • Video on Demand
  • Streaming
  • DVD by mail
  • Video games rental

Blockbuster had a network of 9094 at its peak year in 2004; approximately 84300 people were working for the company. Advancements in technology and growth in online video streaming platforms decreased the growth and popularity of Blockbuster. Finally, the company filed for bankruptcy in 2010; Dish Network purchased the company’s 1700 stores, and the remaining kept on closing up over the years. Now, there is one franchised store left in Bend, Oregon, USA.

Blockbuster Leadership Failure Case Study – Top Reasons 

There are various rumors and fuss about the fall of Blockbuster like leadership’s failure to accept the change; the rise of Netflix, advancement in technology, and many others. Some of the top reasons for Blockbuster leadership failure or Blockbuster change management failure case study are as follows;

Rejecting Netflix’s Deal

Netflix made an offer to Blockbuster of selling its platform for 50 million dollars in the 2000s; because Netflix was in its early stage of business. Blockbuster had the resources to buy the platform, but they rejected the Netflix deal by claiming that it was way too expensive.

However, Blockbuster rejected another offer from Netflix three years later when the platform had one million subscribers. Netflix subscribers kept on increasing and they reached 6 million by the end of 2006. After that Netflix wasn’t up for sale anymore, and it started establishing a loyal database of customers.

Critical of Netflix Mode of Service

Blockbuster had a network of Brick and Mortar stores that required customers to go there and rent it out. On the other hand, Netflix was offering customers to buy DVDs online and the company would mail it to their address within a few days. Customers loved the service offered by Netflix because it was very simple and easy. However, Blockbuster launched the same service six years later in 2004.

Netflix again changed its business model in 2007 by launching an online video streaming platform. It was small-scale in the beginning, but it replaced the company’s DVD mailing service completely later. But Blockbuster’s leadership couldn’t take the same step of going online.

Implementing Poorly

Late fee was the main source of Blockbuster’s revenue every time when customers were late to return the rented DVDs, and it was one dollar a day. It contributed roundabout 800 million dollars in 2000, roundabout 16% of the company’s revenue. On the other hand, Netflix finished the late rental and made it only a one-time flat fee.

When Blockbuster realized its mistake and they also canceled the late fee charges, then customers kept holding the DVDs for a longer period of time. It was difficult for the company’s stores to manage the DVD stock and rent it out to other customers.

Rise of Competitors

Netflix wasn’t the only competitor of Blockbuster, there were many other retailers that played a significant role in the fall of the company like Best Buy, Target, and Walmart. However, they were offering DVDs at a lower price, and it decreased the desire of customers for rental DVDs.

Outdated Business Model

Blockbuster had always been struggling financially throughout its business operational years. For instance, if we look at the company’s record from 1996 to 2010, the rental company only remained profitable for two years. It raises serious questions about Blockbuster’s business model; when other competitors entered the market with a better model, they won the market share.

Denying to Go Online

Some of Blockbuster’s investors like Carl Ichan were against the company’s decision of going online, and their focus was sticking to the brick-and-mortar stores. In fact, Carl Ichan kicked out the company’s CEO, John Antioco that wanted to bring the company online. Carl Ichan brought another likeminded Jim Keys who focused on the brick-and-mortar rental stores. Their denial of moving forward with new business brought the company to the point of bankruptcy.

Heavy Debt

Blockbuster was taking huge loans in order to pay dividends to its investors. For instance, the company took a loan of 905 million dollars in order to pay 5 dollars per share dividend. When Blockbuster filed for bankruptcy, it was carrying a loan of 1 billion dollars in 2010. If it wasn’t for the heavy debt, the company could have defeated all of its competitors.

Late Fees

Blockbuster was following the outdated business of imposing penalties on its customers for late delivery of DVDs as its main source of revenue. By the time company realized its mistake and canceled the late delivery charges, it was very late and caused a huge debt to the company.

High Cost

There were many costs attached to the rental DVDs that customers had always wanted to avoid. For instance, Blockbuster’s stores were at a distance of 10 drives which would make customers get out of their houses. There was the fixed cost of running and maintenance of hundreds of stores across the country that the company had to pay for it. On the other hand, Netflix’s business model didn’t have all of these costs.

Late Response To change

The leadership and management of Blockbuster had always been postponing the idea of change and rejecting the growing online trends. If they have taken the decision on time, they would have saved the company, but they stick to the outdated business model that wasn’t working.

Conclusion: Blockbuster Leadership Failure Case Study 

After an in-depth study of Blockbuster leadership failure or Blockbuster change management failure case study; we have realized that Blockbuster’s denial of accepting the digital technology caused its failure. If you are learning about the wrong decisions Blockbusters management made, then you should keep in mind the abovementioned factors.

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