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
stores in 10 countries
around the world and
reached a $ 1.2 billion
sale.
 Acquisition of companies  Acquisition of competitors.
within the same line of
business can contribute to
profit maximization.

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.