blockbuster video

Blockbuster Inc. (NYSE: BBI) is one of the largest chains of video tape, video game and DVD rental shops in the world. It is headquartered at Renaissance Tower in downtown Dallas, Texas, and has locations in twenty-nine countries, including the United States, Canada, Mexico, Argentina, Ireland, Puerto Rico, Australia, the UK, New Zealand, Israel, Brazil, Chile, Taiwan, Italy, and formerly, Spain.

History

Blockbuster opened its first store on October 19, 1985, and its CEO, Wayne Huizenga grew the business, took it public via reverse merger, and quickly grew it into a multi-billion dollar corporation. It was sold to Viacom in 1994, at a price of $8.4 billion. During the 1990s Blockbuster bought out their major UK rival Ritz Video and changed the name of all the stores to their own, which made them the number-one video rental store in the country by a wide margin. In 1999, Viacom spun off Blockbuster as a separate company with the issuance of a new IPO.[1][2]

Blockbuster has lost significant amounts of money in recent years: $1.6 billion in 2002, almost $1.0 billion in 2003, and $1.2 billion in 2004.

In December 2004, Blockbuster announced it wanted to do a hostile takeover of Hollywood Video, its major U.S. competitor.[3]. In response, Hollywood Video agreed to a buyout on Monday, January 10, 2005 by its smaller competitor, the Dothan, Alabama-based Movie Gallery. (It is unclear if the proposed takeover by Blockbuster would have received anti-trust approval from the Department of Justice).

As of February 2006, the company had a market value of under $500 million.

In March 2006, the company announced the closure of all its stores in Spain. The reason that Blockbuster gave was that they had lost about 5,5 million euros in 2004, 65 percent more than the previous year - allegedly due to movie piracy. [4][5]

Retail operations

At the end of 2004, Blockbuster's annual report put the number of U.S. stores at 5,803 (4,708 company-operated and 1,095 franchised). International stores (operating under Blockbuster and other brands) totalled 3,291, including 426 in Canada, 897 in Britain, and 408 in Australia. It has been claimed that there are more than 43 million U.S. households with Blockbuster memberships.

The company has a large Irish subsidiary, Xtravision, which does not operate under the Blockbuster brand name. Blockbuster also owns Rhino Video Games.

Blockbuster opened 24 outlets in Hong Kong, but announced in January 2004 that it would shut down all of its outlets over an 18 month period [6]. An alleged factor in this closing was the widespread sale of pirated tapes and DVDs by illegal street vendors.

Business model

The standard business model for video rental stores was that they would pay a large flat fee per video, approximately US$65, and have unlimited rentals for the lifetime of the cassette itself. It was Sumner Redstone, whose Viacom conglomerate then owned Blockbuster, who personally pioneered a new revenue-sharing arrangement for video, in the mid-1990s. Blockbuster obtained videos for little or no cost and kept 60 percent rental fee, paying the other 40 percent to the studio, and reporting rental information through Rentrak. What Blockbuster got out of the deal, besides a lower initial price, was that movies were not available for sale during an initial release period, at least at an affordable price point - customers either had to rent, wait, or buy the film on tape at the much higher MSRP price targeted at other rental chains and film enthusiasts, at that time then between $70-$100 before the end of the initial release period.

In 1998, Blockbuster refused to use the same model for DVDs, which was just starting as an alternative format. The studios then decided to price DVDs low enough so that it could be sold to the public in direct competition with video rentals, and to provide no rental-only release period. As a result, the amount of DVD sales increased while rentals of the same titles did not. By 2003, the studios were taking in three times as much money from DVDs sales as they were from VHS videos.

Special Programs and Offers - Guaranteed in Stock

Blockbuster stocks a larger-than-average number of copies for certain new release films, allowing them to promise that the title will be "Guaranteed in Stock." If all copies of that particular title are rented, the customer receives a rain check coupon to rent it for free on his next visit to that location. The goals of the "Guaranteed in Stock" promotion are to appease customers when a particular title is unavailable, to assure customers that Blockbuster carries a large number of copies, and to retain business by encouraging the customer to rent another, different movie during his same visit.

Typically, a voucher is given for the movie that was not in stock - which must be used within 30 days.

Special Programs and Offers - Blockbuster Rewards

Blockbuster Rewards is an optional, paid membership program that began in 1998 to offer Blockbuster members additional benefits. For a yearly fee (usually $9.95 tax-free), members can obtain free rentals through their Rewards membership by the following means:

1. Once a month, the customer receives a coupon for a non-New Release movie. This coupon is printed on a receipt after a transaction prior to the next month. Technically, customers are entitled to request their monthly coupons without purchasing anything, but some stores will give you a hassle about this. Originally, they would mail you several months of coupons at a time. Now, you must receive them in the stores or by e-mail. Providing an e-mail address is optional. Upon sign up, you get a free New Release coupon, and may receive other deals. This service doesn't spam customers; e-mails are every 2 weeks, and can be canceled any time.

2. For every five paid New Release rentals within one calendar month, the customer receives one New Release rental free. The rent 5, get 1 rental may include New Release movies or games. Only two free rentals can be accumulated each calendar month using the rent 5, get 1 method. A member does not need to keep track of anything to use this free rental. Rentals stack from visit to visit and reset each new month. A member may rent 3 New Releases one weekend and 3 the next, and one of the last 3 would be free. Employees will usually ask a member if he or she wishes to use the free rental for this transaction. Doing so is considered in good nature, as this free rental is applied to the highest priced item automatically. Thus, some customers prefer to save this free rental for game rentals.

Rewards customers who accumulate more than 125 paid rentals within a year are upgraded to a Gold Rewards status. All Rewards customers start at a Blue status. The Gold Rewards Card means you don't pay the yearly renewal fee of $9.95 as long as you maintain at least 100 rentals per year. You also get a free Favourite (non-New Release) rental for every New Release rental from Sunday to Thursday. Gold Rewards cards are no longer sent to these customers. Other benefits for being a Gold rewards member are on a per-store basis. For instance, most Gold Rewards customers may have movies put on hold for them for an extended period of time, where as any other customer typically may only have a movie set aside for 1 hour, at which point the movie is then returned to the shelf if not picked up. Gold rewards members may also be called if a movie is not available at the time of visit or if it arrives later. Unfortunately, Gold Rewards was discontinued (but current members may keep their status if they maintain to follow the requirements of being a Gold Member).

The Rewards program is designed to provide a discount to high-volume customers, mostly those who watch the latest releases. Because the cost is relatively low (about the cost of 2 rentals) and its effective time is so long (1 year), it also caters to those with sporadic rental patterns. Moreover, unlike the Movie Pass program or an online program, no credit card is required to purchase Rewards, so it can serve as a volume discount to those without credit cards.

Special Programs and Offers - Movie Pass and Game Pass

Blockbuster also started a Movie Pass program, which operates similarly to NetFlix or its own mail-in rental service. Blockbuster members pay a flat fee to rent as many movies as the member would like. There are currently three different plans: 1, 2 and 3 Movies at a time. The customer rents 1-3 movies at no additional cost, watches the movies, and then returns them to the store in order to swap them for 1-3 more movies. The in-store Movie Pass has the advantages of both speed and volume. A customer may swap movies twice a day or more, if he/she so desires. Moreover, the Movie Pass allows a customer to obtain a movie on-demand, rather than waiting the 1-2 days for an online rental. On the other hand, the selection is limited compared to mail-in programs, and the in-store Movie Pass is typically more expensive. When Extended Viewing Fees were still charged, the Movie Pass program enabled a customer to keep their movies for whatever period they wished without having to pay Extended Viewing Feees.

Blockbuster also offers a Game Pass, which works like the newer movie pass, except that it allows customers to swap games instead of movies.

Quantity and Selection of Titles

Blockbuster (like most other rental stores) tends to stock more new movies than older releases, in order to capitalize on heavy consumer demand for new release titles. Titles that are more than one year past their initial release date are stored as "Blockbuster Favorite" (non-new release) titles. Typically only 1-4 rental copies are retained past the first year of release. The large volume of new release copies are typically sold after the initial renting rush. These copies are usually sold "previously viewed" for around $10-15, sometimes as low as $5. Some Blockbuster locations also accept trade-ins of used DVDs, which are sold alongside the existing stock of previously rented movies in order to create a more robust selection of titles for sale.

Obviously, not every video rental location can hold every title ever made. Increasingly, Blockbuster, movie companies, and other rental stores are adopting online or other methodologies [7] to deliver movie content to their customers. Those customers who are interested in a large catalog of older movies are best suited to online rental programs, such as Blockbuster Online (see infra) or Netflix, both of which offer a larger variety than any brick-and-mortar video store can provide.

Special Programs and Offers - GameRush Stores

In Summer 2003, Blockbuster started converting select stores in select regions to GameRush stores. These stores sell and buy consumers DVDs, games, gaming systems, and accessories. It is offered as a direct competition to stores such as EB Games, GameStop and Game Crazy. Blockbuster used their location status to get instant converage; it also promotes these stores by hosting video game tournaments, special trade-on offers, and a more "hip" look to the section and staff.

Elimination of late fees

On January 1, 2005 Blockbuster introduced[8] their "End of Late Fees" program.[9] Instead of late fees, which Blockbuster called Extended Viewing Fees (see infra), Blockbuster allows a seven day window after the due date, wherein the item may be returned without charge. After this point, Blockbuster automatically converts the rental to a sale and charges the customer the sale price (usually the Previously-Viewed item price) of the unreturned item. (As of August 22, 2006, Blockbuster discontinued the rental-to-sale policy that had customers pay for the price of the movie minus the rental fee. Now, the rental fee will not be deducted from the sale.) Customers may then return the item within 30 days after the automatic sale date to have this charge refunded, less a "restocking fee" of $1.25. The initial due date of the rental item and the automatic sale date are both printed on the receipt beneath the title of the rental item.

The "No Late Fees" policy, as stated above, applies to corporate-owned stores, and some elements of the policy may differ among franchised stores. Exact terms and conditions[10] can be found on Blockbuster's website.

On February 18, 2005 the Attorney General of New Jersey filed suit[11] against Blockbuster, alleging that it had failed to clearly disclose the terms of the new policy, and that some franchised stores were not participating in the program, had shorter grace periods, or charged higher 'restocking' fees. Other states began looking into the program as well. On March 29 Blockbuster signed an "Assurance of Voluntary Compliance"[12] with 46 states and the District of Columbia (not including New Jersey), in which it agreed to more clearly inform customers of the terms and limitations of the program. A refund program was set up for those affected by the purchase charges or restocking fees, and rental coupons offered to compensate for Extended Viewing Fees paid in non-participating stores prior to the agreement. Blockbuster also paid $630,000 to the states involved to cover the costs of the investigation.

In 2002, Blockbuster settled a prior, unrelated suit that claimed that the company's late fees were unfair. Under the old Blockbuster policy, a customer was charged the full rental price for every day a movie was late. For example, if a 5-day movie rental cost $5, and the rental was returned 5 days late, the customer would be charged $25 in late fees. The settlement included coupons distributed to customers who had paid late fees under the old policy. Blockbuster changed their policy and began charging "Extended Viewing Fees," where the customer simply paid as if he had re-rented the movie. [13]

Online operations

United States

In August 2004 [14], Blockbuster introduced an online DVD rental service in the U.S. to compete with the established market leader, Netflix. The initial price of the standard three-disc plan was $19.95, which was below the Netflix price (which had increased from $19.95 to $21.99 in June) [15].

In October, Netflix reduced its own 3-disc price to $17.99; Blockbuster responded by reducing its price to $17.49 [16]. Blockbuster made a further reduction to $14.99 in December, and apparently guaranteed this price to existing customers until January 2006 [17]. In August 2005, Blockbuster raised their prices for new customers to match the Netflix level of $17.99 [18]. The above prices are for the standard three-disc plan; other plans vary from $9.99 for one disc to $47.99 for the 8-disc plan.

Blockbuster currently offers in-store bonus coupons to all of its online customers. Customers with two-disc or higher plans are given four coupons per month to rent a free DVD from a brick-and-mortar location, while one-disc customers are given two in-store rental coupons each month. In addition, when a customer contacts the online customer service to report a problem that caused a delay, the response usually includes an additional in-store bonus coupon, which is good for 30 days.

Blockbuster also offers a special promotional discount to customers who purchase the online subscription in-store. The first month of online service is free for a three-disc plan. After the initial month, customers have the option to retain, cancel, or modify their subscription packages.

Blockbuster's U.S. online operation started with around 10 warehouses; further expansions [19][20] have brought that number to 35 plus 1000+ stores in the Blockbuster Online network [21]. The company had 1 million customers by August 2005, and has stated a target of 2 million by the end of the first quarter of 2006 [22].

Blockbuster's move to follow the business pattern with its online rentals as was established by Netflix prompted Netflix to sue Blockbuster for infringement of patent. Blockbuster counter sued Netflix with a counterclaim alleging deceptive practices with its patent which it alleges was designed to maintain an illegal monopoly.

United Kingdom

In the UK, Blockbuster has been providing a version of online rentals since October 2002 [23] with its "Pay Per Rent" [24] service. This is more like a postal version of store rentals than the traditional online DVD rental subscription model, with per-rental prices of £3.50-£4.50, with a rental period of 5 nights (usually Monday-to-Friday, not including postal delivery times), and late fees (£0.70-0.90 per disc) [25].

In May 2004, Blockbuster also introduced [26] a conventional online subscription service [27]. The unlimited 3-disc plan is £14.99/month.

Concerns and censorship

Blockbuster's massive international permeation and domination of the video market has placed certain business practices under scrutiny.

Claiming to serve a "family" audience, Blockbuster has always banned pornography, though carrying R-rated films, including a large number of "soft porn" titles and extremely violent action and horror films. Blockbuster claims to check ID and does not allow rental of titles with a rating over PG-13 to children under 17 unless their parents have specifically allowed it through a family account. In practice, some have found these rules inconsistently applied, if at all.^{citation needed]}

On September 27, 1990, the MPAA introduced the NC-17 rating in order to distinguish nonpornographic adult material from pornographic 'X-rated' materials. Subsequently, under pressure from the Christian organization the American Family Association, headed by Rev. Donald Wildmon, Blockbuster decided not to stock NC-17 titles and also to ban certain "unrated" titles from its store shelves, regardless of whether or not these titles constituted "pornography". Originally, the AFA also convinced Blockbuster to ban certain contentious films such as The Last Temptation of Christ, although Blockbuster's online service and some of its stores currently carry that and other controversial films,^{citation needed]} as well as older NC-17-rated films such as Henry and June and Showgirls.

Critics of the chain, including Naomi Klein in her anti-globalization book No Logo (1999), allege that Blockbuster is involved in "censorship," because it not only bans certain titles, but often edits videos for release beyond the standard retail cut, or uses its significant market share to influence studios to do so. Blockbuster's critics claim this editing to secure more "family-friendly" ratings is a necessity for studios if they want their products to reach a wider video market.

Recent award-winning movies such as Darren Aronofsky's Requiem for a Dream (2000), Michael Haneke's The Piano Teacher (2000) and Pedro Almodovar's Bad Education (2004) have been subject to such editing, and are typically unavailable for rental in their original form in most Blockbuster locations, even though the original uncut, unrated theatrical-version DVDs are widely available for purchase in other retail outlets. Instead, Blockbuster (if it carries such films at all) carries special R-rated versions, issued by the distributors but allegedly designed specifically for Blockbuster's audience, much like the "clean" versions of Parental Advisory music releases found in Wal-Mart stores. Furthermore, Blockbuster does not mark these titles as edited versions so customers are unaware that they are not getting the original version. However, for highly commercial films such as Anchorman or the American Pie series, Blockbuster will often carry an "unrated" DVD release instead of or in addition to the theatrical PG-13 or R-rated cut. In this case, the "unrated" version has often been specifically designed to appeal to the large teen market available through Blockbuster stores, advertising enhanced sexual or other content that supposedly would have secured it an NC-17, had this version ever been submitted to the MPAA for a rating.

Blockbuster has received criticism from filmmakers for these practices,^{citation needed]} which allegedly discriminate against films of greater artistic merit. Some have seen the policy as flaunting the chain's claim to be "family friendly", by in practice allowing only the sort of commercial unrated titles that immature patrons would actually seek out, while censoring notable "art films" with equal or lesser content, which would be unlikely to appeal to most underaged patrons.

Blockbuster policy prohibits Adults Only-rated video games. Recently Blockbuster followed many other retail stores and pulled Grand Theft Auto: San Andreas from store shelves after the game's rating was increased from Mature to Adults Only. Later, Blockbuster began carrying a modified version of the game, from which "pornographic elements" had been removed.

Marketing

Advertising campaigns

One of Blockbuster's most well known advertising campaigns was launched during the 2002 Super Bowl. It starred the voices of Jim Belushi and James Woods, as a rabbit and a guinea pig in a pet shop, located across the road from a Blockbuster store. Blockbuster's contract with Belushi and Woods has since ended and it is unknown if it was the actors' choice or the company's, but Blockbuster has not inked a new contract.

Franchising

In Australia the company has pursued a franchising model whereby its once corporate store base of approximately 120 or so stores is now progressively being whittled down to single digits.

Metropolitan Victoria (Melbourne) is the last remaining significant corporate store base with newspaper advertisements recently placed for the sale of many of the remaining corporate stores.

This model follows the approach of Australia's leading video rental chain "Video Ezy" which has been a largely franchise-based operation for many years.

Slogans

• "Wow! What a difference!" (Australia, Canada, UK and U.S.)
• "Make it a Blockbuster Night." (All Countries, 2001-2003)
• "Let the good times roll!"
• "Go home happy." (U.S., 1997; and Australia, 2004)
• "One word...one world" (related to combining Blockbuster Video & Music, 1996)
• "Bringing entertainment home." (U.S., UK, and Canada, 1999)
• "The end of late fees. The start of more."
• "Feel The Rush" (Note: Only applies to special "Game Rush" stores)
• "Renting is BETTER Than Ever."
• "Feel the FREE." (used in Canada for the Blockbuster REWARDS)
• "MORE from BLOCKBUSTER." (used in Canada and Australia)
• "Don't rely on anyone else to entertain you!" (UK, 2005)
• "More movies, more choice, more value." (UK, 2005)
• "JOIN OUR CAST & CREW... FROM LEADING ROLES TO STARRING ROLES." (help wanted ads in Canada, 2006)

Competitors

• Movie Gallery/Hollywood Video
• Netflix
• Rogers Video
• Family Video

External links

• Blockbuster Video Corporate website
• Mexican Blockbuster video website
• Canadian Blockbuster video website
• Australian Blockbuster video website
• Argentinian Blockbuster video website
• Chilean Blockbuster video website
• Hollywood's New Zombie: The last days of Blockbuster, by Edward Jay Epstein; Slate, January 9, 2006
• The Blockbuster hate and complaint site.