A NEW BLOCKBUSTER IMAGE
I. Point of View : Chairman Wayne Huizenga
II. Problem : How should Blockbuster improve their diversification strategies in
transforming its image as a global entertainment company?
What strategies should Blockbuster do in order to maintain its success
in the industry?
What strategies should Blockbuster take in order to survive the
innovation of entertainment industry?
III. Case Facts
Internal
Strength
Blockbuster has more than 3,200 stores in 10 countries around
the world.
The video chain has $ 1.2 billion in sales and potential soaring of
revenue to 75% in 1993
Acquisition of Sound Warehouse and Music plus chains, which
result to Blockbuster being the No. 3 music retailer in the United
States.
Joint ventures formed with Virgin Retail Group to open
megastores in the United States, Europe and Australia.
Buying Republic Pictures and acquisition of majority interest in
Spelling Entertainment Group and acquiring 21 per cent of
Discovery Zone and rights to open 50 new Discovery Centers.
Buyout of two largest store franchises, $600 million investment
in Viacom in support for its bid for the Paramount
Communication.
Weakness
Video rental chain is stuck in market promising little or no
growth and the advent of interactive technologies including a
500-channel TV and video on demand calls
Diversification can lessen their focus and can increase
bureaucratic inertia
Numerous store in different countries has a large cost to
maintain
External
Opportunities
New markets can arise in the acquisition of companies in
multimedia industry
Collaboration with different companies can lead to profit
increase
Threats
Appearance of interactive technologies including a 500-channel TV and
video on demand
The stagnant position of the video rental industry in the market
Competition with other performing video rental stores
SWOT MATRIX
Opportunities Threats
New markets can arise in the Appearance of interactive
acquisition of companies in technologies including a 500-channel TV
multimedia industry and video on demand
Competition with other performing
video rental stores
Strengths
Blockbuster has 3,200 Acquisition of companies Acquisition of competitors.
stores in 10 countries within the same line of
around the world and business can contribute to
reached a $ 1.2 billion profit maximization.
sale.
Weaknesses
Numerous store in Acquire some stock in Cut cost by closing the non-
different countries companies within the music or performing stores.
has a large cost to video industry to reduce the
maintain cost in obtaining materials
used in operating.
Merging with music or
television and video industry to
maximize profit while reducing
the cost.
IV. Alternative Course of Action:
1. Use the Concentric Diversification for market expansion
Pros
There is a technological similarity and a company may leverage in one
industry to enhance operations in another
It enables companies to use their existing resources to develop new
service or products related to the industry
It can achieve economies of scale through transferring skills between its
current business and the new business it creates, acquires or partners
to build with
Cons
Shared liabilities in case of profit loss
Difference in company culture and policies may lead to conflict and
may result in poor cooperation.
2. Use Horizontal diversification
Pros
It can result to higher efficiency since the companies work together,
they yield more products or services
Economies of scale give expense-playing point to the companies
through extension of their product yield
Removes cost redundancy
It diminishes the expenses of international trade by permitting
company to both handle and offer the product in foreign market
Cons
Risk of failures for the company acquired and merged with
Wrong synergies because sometimes it may fail to materialize the
anticipated gain for not focusing adequately on creating corporate
synergy before diversification
3. Buy majority shares from profitable television, film and music companies to
reduce administrative cost than creating a new company
Pros
Dividends from the acquired shares
V. Recommendation/ Decision
Concentric Diversification
a. Rationale – Since Chairman Huizenga is already diversifying Blockbuster,
concentric diversification where it acquires or create new product or
services to reach more customers would be the most appropriate to solve
the case. By acquiring companies or merging within the same industry this
would give Blockbuster an advantage in competing with the innovation of
entertainment industry without sacrificing the resources they already have.
b. How to Implement it
a. Chairman Huizenga, will advised the management to perform a
team in assessing the companies present condition and conduct
thorough studies in acquiring or merging with companies that have
a potential for expansion or a potential competitor.
b. Hire competitive people that will run research and feasibility studies
of profitability in acquiring stocks or partnership with companies
with the same line of business, also monitor the present acquisition
Blockbuster already acquire.
c. Execute the plan, once there is enough evidence of the future profit
maximization.
Contingency Plan
If Concentric Diversification fails to prove its profitability, Blockbuster can
retain the market share it has acquired and proceed to Horizontal diversification
where it will acquire new product that are different from its core business but may
still appeal to its current consumers.
