blockbuster videos - failure case study v4.0

INFS 774: Enterprise Architecture

2016

Blockbuster Videos Inc Failure Case Study

Devika Ashok, Puneeth Reddy Challa, Raghu Vamsi Sirasala, Sravan Ghanta, Varsha Gorrepati

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Contents

Introduction ............................................................................................................................................ 3

Failure Analysis using Zachman Framework ............................................................................................. 6

What ................................................................................................................................................... 6

Executive Perspective ...................................................................................................................... 6

Business Mgmt Perspective............................................................................................................. 7

How ..................................................................................................................................................... 7


Business Mgmt Perspective............................................................................................................. 8

Who .................................................................................................................................................... 9


Business Mgmt Perspective........................................................................................................... 10

When ................................................................................................................................................ 11

Executive Perspective .................................................................................................................... 11


Why ................................................................................................................................................... 11

Executive Perspective .................................................................................................................... 11


Evaluation of Blockbuster Videos during its peak and decline using Zachman Framework ...................... 14

Summary ............................................................................................................................................... 19

List of Figures ........................................................................................................................................ 20

References ............................................................................................................................................ 20

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Introduction

Blockbuster was one of the most significant global provider of in-home rental, retail movie and game entertainment, which had approximately 9,100 stores in United States and 24 other countries as of December 31, 2004. Their goal was to extend the mission of providing their customers with easy access to media entertainment along with movie and game entertainment, which was delivered in many methods of distribution like in-store, by-email, vending kiosks and digital devices. It was founded by David Cook in 1985 and was available in the market a year later. The first store was opened in Dallas in 1985. In 1987, founder David Cook left the company by selling one-third of it to the former associates of Waste Management, Inc. In 1994, it became a complete subsidiary of Viacom Inc. After 1994, blockbuster faced many challenges in the market by new ownership, competition and soft market for videos[1][2]. Looking at the journey of Blockbuster Videos , it is evident that even a giant like Blockbuster can fail without an ever-evolving, holistic strategic direction and business practices. Discussing the growth and fall of Blockbuster, will help determine the reasons for its failure.

Rise of Blockbuster Videos : An Immediate Hit in Mid-1980s

David cook first founded a company called Cook Data Services, Inc., in 1982. This company was a supplier of computer services to Texas’s oil and Gas Industry. The company didn’t work well because of the lack of strong customer base. This is when Cook wanted to enter into the video rental business. [3] After several months of research into the video rental industry, David Cook opened his first Blockbuster outlet in Dallas. It had a very large inventory with 8000 tapes, covering almost 6,500 titles, which was a massive undertaking at that time for any competitor. Computers were used to track inventory and a laser scanning system for theft detection in stores, which reduced the time for transactions. Blockbuster became a huge success the same year. He discovered that there was much demand for renting video movies in the market. In 1986, he expanded Blockbuster to three additional stores. But, when it was all set for further expansion, a financial columnist wrote an article about Cook’s history in oil industry and the company’s lack of practical knowledge in the video field. This led to the cancellation of the equity offer. Ultimately, Blockbuster was left with no moneyand was closed with a loss of $3.2 billion.[3] In February 1987, Cook sold one-third of Blockbuster to three investors, who were partners in another company called Waste Management Inc. At the time, Wayne Huizenga was the co-founder of the Waste Management Inc. Later, John Melk, the president of Waste Management’s international division, invested in the Blockbuster franchise, followed byits chief financial officer. Together, they invested $18.6 million in Blockbuster’s stock. [3]

Expansion of Blockbuster Inc under the New Management

After the huge investment, Wayne Huizenga had major control over Blockbuster. Cook, then completely surrendered the company to Huizenga and Blockbuster's head quarters was moved to Fort Lauderdale, Florida shortly. While Cook's business approach was growth through franchising, selling Blockbuster's name and computer system to individual entrepreneurs, Huizenga foresaw company ownership of stores.At this point of time, Blockbuster had 15 stores and had franchised 20 others. Huizenga included some of Cook's policies for the company, like store hours to be run from morning 10 a.m. to midnight and 3- day rental policy which made blockbuster always available to the customers. The company also bought 60 percent of the franchised outlets for expansion. In addition, they had 70 percent revenue from non-hit movies, which were bought at lower prices

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from the distributers.Thereby, breaking the myth that rental business was running on hit movies. Huizenga, to further expand the company, bought other dominated video markets like Southern Video Partnership and Movies to Go, Inc. of St Louis for $14.5 million. By the end of 1987, Blockbuster had 133 stores and was fifth largest video chain in revenue perspective. The sales showed a sudden leap from $7.4 million to $43.2 million. [3] In November 1989, The United Artists Entertainment Company, sold 12 percent of the holdings of the company and 28 franchised Blockbuster stores to make their own company efficient. By then, the video rental business had already hit the saturation point, which affected Blockbuster to a great deal.

International Expansion of Blockbuster Inc in 1990s

Blockbuster now wanted to expand its market outside the United states. For this, John Melk started a British subsidiary with the intention of opening the first foreign store in South London called The Ritz. They, then started a concept of video “superstore” which was an option to copy the video in order to increase the customer base and hence the market share. Additionally, Blockbuster opened 1000 stores and expanded its market outside the country like Australia and Western Europe. Then, the firm had a phenomenal growth of approximately one store per day. In October 1990, it decided to cooperate with Den Fujita, who ran franchises for McDonald’s in Japan, to franchise video rental stores in that country. It had a rapid growth in that year but thereafter saw adecline in video rental market. Its earnings had a decline from 114 percent in 1988 to 93 percent in 1989 and a strong decline to 48 percent in 1990. Facing all these, it started to sell gaming consoles and video games in stores. They also started selling audio cassettes and CDs. It kept expanding its markets outside United States by buying other companies like Music plus, Sound Warehouse from Shamrock holdings for $185 million. In 1992, it set up megastores in United States which not only rented videos but also sold, rented music and computer games. By 1993, it had 3,400 video stores worldwide. [3]

Decline of Blockbuster Inc

In September 1993, Huizenga's Blockbuster transformation of the products with new formats, video-on-demand and satellite TV, and the revision from rentals to lower-priced tapes, hit the peak when the company proposed a $4.7 billion merger with the media giant Viacom Inc. Blockbuster invested to a great extent in Viacom for its acquisition of Paramount Communications against rival QVC Network Inc. By April 1994, Blockbuster's and Viacom's stock had tumbled dramatically because of shareholders lost confidence in regaining the investment drained into Viacom. This was the first step to Blockbuster's fall in addition to internal confusion, poor leadership and industry changes. Soon, Wayne Huizenga was replaced by Steven Berrard followed by Bill Fields. Leadership at Blockbuster changed continually, which led to multiple company re-structuring. For a while, Blockbuster's main purpose was side-tracked and stores were converted to whole entertainment centers, selling t-shirts, toys, snacks, books, magazines, and CDs as well as selling and renting videos. Also, the company's head quarters was again moved to Dallas. This was a big hit to the firm. By 1996, Blockbuster and Viacom saw a stock price decrease of 50 ($4.6 billion) and 60 percent respectively from 1993. In 1997, again the leadership changed and this time John Antioco took over the struggling Blockbuster Inc. With its cash flow down to 70 percent, Blockbuster curtailed its expansion and came back to its core business which was video rentals. The firm concentrated on improving its

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state-of-the-art distribution system, using the customer database to determine store sites and inventory based on consumer preferences. At this point, the company still dominated 25 percent of the $16 billion a year home video market. After they signed 'revenue sharing' agreements with the major Hollywood studios, making them financial partners, the firm saw a brief period of revenue stability by orderly downsizing of the store based rental business while developing the online business. But, the FCC quashed the deal because they believed it would give Blockbuster monopolistic power [4]. They started expanding the business overseas again with some acquisitions and saw an increased share of 31 percent in early 1999. The firm soon went into losses, around $336.6 million in 1998, because video market was shrinking, dropping to 2.6 percent in 1998 and 8.4 percent in the first half of 1999. Later that year in 1999, Viacom held an initial public offering of Blockbuster shares on the New York stock exchange which raised only $465 million.Following this, the company changed their business model to increase its market share by moving to VHA/DVD tape, disk rental and new distribution channels like e-commerce options.[3] In 2000, Netflix made an offer to manage Blockbuster's online business, which was rejected by Blockbuster management[5].In 2001, Blockbuster had accumulated tremendous amount of debt from Viacom. In 2004, Carl Icahn invested in Blockbuster buying 5.8% of the company’s Class A shares for $83.8 million. From 2003 to 2005, Blockbuster lost 75% of its market value and annual late fees(compared to $500 million earlier)due to the competition.The competitor, Netflix created a better business model with no-late-fee policy, and then Redbox kiosks and the whole digital phenomenon eliminated the need for consumers to go to a separate DVD store, ending the era of Video cassettes.[4][6] In late 2007, Chairman and CEO John Antioco left Blockbuster and Jim Keyes took his place which led to an increase in share of $4.46 apiece. The following events finally led to the bankruptcy of the firm:

• "By 2010, competition from Netflix haddestroyed Blockbuster and a heavy debt burden left the company struggling to reorganize.

• In a March 10-K filing, Blockbuster warned that it could be forced into Chapter 11 bankruptcy protection if restructuring efforts fall short of increased liquidity needs. Icahn resigned from the board on Jan. 28, 2010, which brought the Blockbuster shares down to 91% since Keyes took over.

• A March 31 SEC filing indicated that the fund manager slashed his holdings in the company’s Class A shares to 5.1%, down from 16.9% at the end of January.

• The stock exchange notified Blockbuster in late March it is not in compliance with listing requirements that call for a company to have a market capitalization of at least $75 million over 30 trading days. With Blockbuster shares floundering around 25 cents apiece, the company’s market cap was just $55 million.

• Blockbuster posted its fourth consecutive quarterly loss in early May as the likes of Netflix continued to eat away at its revenue.

• In May,Icahnsold off all of his 10.5 million Class A shares, worth $7.1 million, but retains 3.3 million Class B shares, worth just $619,000. Even George Soros cut off his major stake. After slashing his equity stake for much of 2010, the billionaire bought a sizable chunk of Blockbuster’s debt in a bid to exert greater control over its looming bankruptcy.

• Blockbuster filed for Chapter 11 bankruptcy protection on Sept. 23., declaring $930 million in secured and unsecured debt. The plan was for the chain to shed even more retail locations to refocus on its digital presence and move away from brick-and-mortar stores, historically a major advantage, but ultimately turned to a burden.

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• Dish Network, run by billionaire Charles Ergen, won the bankruptcy auction for Blockbuster with a bid of $320 million ($228 million in cash) in April 2011. The satellite TV company planned to continue operating at least some of the movie rental chain’s locations. Dish’s bid beat out others from liquidators, bondholders and a group led by Icahn.Foile Dish Network offered Blockbuster on Demand, but eventually renamed Blockbuster@Home to "Dish Movie Pack" [6]

Blockbuster failed miserably because of too much debt, too many stores, competition and changes in the industry.

Failure Analysis using Zachman Framework Blockbuster Inc can be analyzed through Zachman framework enterprise Ontology to study the multiple areas of its failure. The different vertical components are analyzed below.

What

Executive Perspective

Blockbuster failed because of boardroom infighting, lack of clarity and one of the most disastrous CEO changes in American business history. Some CEOs insisted Blockbuster was an entertainment company and others insisted it was a retail company. In the beginning, the main inventory of Blockbuster video was the Video Cassettes of all the rental movies managed by the state of the art database, IT processes, distribution and inventory management, which was hugely profitable. This is what brought the firm to its peak success phase. Then they lost sight of the purpose of the company that made it great in the first place and included add-on retail [7][8]. In 1995, after the financial loss incurred by the firm because of loss of customer traffic in the stores," transaction basket” concept was introduced. This was the process similar to Walmart where the stores were filled with lots of candy, throw-away toys, and other “impulse” purchase items, displayed at little kid's height so parents would be forced to buy it. Then the CEO was replaced with 7-Eleven former CEO and they transformed the Blockbuster video Inc to a convenient store[9]. They lost sight of the main purpose of Blockbuster Inc. Their inventory focus moved from Video Cassettes to Add-on Retail goods. Blockbuster should have stayed in entertainment distribution business with video cassettes and embraced new technological changes (like digital videos, DVDs and video streaming) suggested by market research. Instead of taking the new technological revolution as an opportunity, they saw it as a problem and fought it for years. This was one of the main reasons for the failure of Blockbuster Inc . Although many changes were made to the firm during each of the CEO's management, the necessary changes in-line with the technological changes and market direction, were not implemented. For example, Blockbuster's competitors like Netflix had already moved to DVDs and online streaming which were more profitable and manageable strategies.By the time Blockbuster implemented it, their customer base had already moved to their competitors' service. It would have been profitable and a strategic advantage if Blockbuster Inc had re-invented their inventory in-time, had added more DVD's for mailing and data centers to support steaming services[9].

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Business Mgmt Perspective

Business teams (Finance and marketing teams included) responsible for Business Process Re-engineering (BRP) and Business Process improvement(BPI) should have suggested moving from Video Cassettes to DVDs and online and data streaming options to maximize profit and make the existing processes like mailing to customers easier. It was already existing technology which was tested and proved by the competitors. If BPI was continuously updated with technological , market and inside organizational research, then these inventory shortcomings could have been rectified before it was too late.

How


In 1995, Blockbuster noticed that customers were leaving the stores empty-handed if the hit movies weren't available. To lure them back to the stores, Blockbuster had to sharply increase its spending on multiple copies of the movies. Also, to increase their profits, Blockbuster implemented a late fee policy, which became majority of its income source. Meanwhile, Hollywood studios had started slashing prices to encourage tape sales and in-turn, Blockbuster lost business as customers bought cheap videos at discount stores such as Walmart [10]. Blockbuster was lacking in terms of a management program, analysis and design method. As a management program, they failed to strategically align the activities and processes to their goals. During its life cycle, at multiple periods, Blockbuster lost focus and moved to retail and entertainment instead of focusing on their primary objective of video cassettes distribution. Blockbuster videos also failed in decision support after the merger with Viacom. Financial control over the enterprise had failed to a great extent and the fact that Blockbuster went into debts soon after Viacom merger proves the same. Even the fact that Video Cassettes proved costly to mail than CDs (a major reason to move to CDs financially) was ignored for almost four years. Blockbuster's Enterprise architecture as an analysis and design method also fell short in its future views and EA management plan. Blockbuster Inc's views of to-be strategies, processes and resources were flawed because they were not able to assess the potential of accepting the newer technologies and dealing with the competitors. They fell behind in researching and incorporating the newer technologies (like CDs , online streaming) and newer business ideas (like subscription models and no late fee model) into the to-be strategies and planning the gradual move to newer technologies and business options. The company which was once the leader of the movie rental industry failed miserably due to the lack of a solid Enterprise architecture and the unwillingness to make the necessary move to newer, better technologies. Transformation is very essential and a company has to transform itself successfully before it can compete to win at a next business level or in a new business landscape. Blockbuster’s transformation failure lead to its downfall and made it bankrupt. A solid enterprise architecture and strong EA practices are required for the transformation of the company [11]. Lack of a concrete methodology to measure and monitor the EA artifacts combined with a lack of clear future state assessment and unclear analysis of the business, technological and EA advancements in the market, lead to the failure of Blockbuster. [11] It was a different story when Blockbuster Inc was founded by Cook. Then the firm was built on a strong EA structure with the state-of-the art technology, a clear vision of current and future states , forming a well-integrated strategy, business and technological perspectives. The firm has a solid expansion strategy even after the Waste management executives take it over. It is a number of

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wrong turns like merger with Viacom, rejecting the Netflix offer, takeover by Icahn and multiple CEO changes that drove the firm to large debts. There was no clear link between Business Strategic Planning and Budget process which is clearly visible in Blockbuster’s investment in Viacom to purchase Paramount Communications [3]. This lead to the fall of Viacom stocks in 1994[3]. Second practice was the lack of analysis and decision-making capability that gave birth to its competitors like Netflix. The late fee system in Blockbuster left behind disgruntled customers. Even after many complaints from customers and the employees at lower level, Blockbuster executives didn't take any step in removing that policy until 2005. Due to this, one of the Blockbuster’s customer Reed Hastings started a video rental by mail service without late fees and captured most of the blockbuster’s customer base by 2005 when Blockbuster finally removed its late fee policy [12]. Apart from these issues, the continuous change in the CEO's and the different ideas they brought along coupled with a weak EA, led to the negative change in Blockbuster over time. Blockbuster filed Chapter 11 in 2010 after $1.46 billion debt. Then, the main challenge of Blockbuster was to come out of the financial crisis. In 2011, Dish Network took over Blockbuster and started its efforts in paying back the debt of Blockbuster [13]. In 2012, Dish Network started its plans to make Blockbuster a tough competitor to Netflix [14]. If Blockbuster had identified the flaws in its EA structure, realized the importance of an EA and had taken steps to implement a solid EA program, then the firm could have come out of debts and gained back the position which it enjoyed a couple of decades ago. The competitors, technological and business process lags in the EA(the future challenges of the organization) were too strong and ultimately lead to the demise of the firm. Dish network tried to keep the brand name alive for a while by offering "blockbuster on-demand video package" and "Blockbuster@Home television package" but finally changed the name to "Dish Movie Pack". The future of Blockbuster faded when in November 2015, Blockbuster On Demand was shut down and all customers were redirected to Sling TV.


Blockbuster had late-fee payment policy which generated enormous amount of money and it was also vital part of Blockbuster’s revenue model [15]. In 2000, Blockbuster collected nearly $800 million from the late-fee payment system, accounting for 16 percent of its revenue [16].Customers hated the late fees charged by Blockbuster, but it did not change its practice even after numerous customer complaints[12]. In 2008, global economy faced recession and struggled a lot. In response to these challenges, Blockbuster executed a number of steps:(i) reduced general and administrative expenses, resulting in a $333 million decrease of administrative expenses in 2009; (ii) closed unprofitable and underperforming domestic stores; (iii) evaluated the divestiture of certain of its international assets; (iv) completed two refinancing transactions in 2009 to extend debt maturities and amortizations schedules; (v) negotiated the release of significant restricted cash associated with letters of credit relating to historical lease guarantees; and (vi) granted certain studios a security interest in the assets of its Canadian operation in exchange for enhanced credit terms. Consequently, from 2009 to 2010, Blockbuster closed 1,061 domestic company-operated stores [17].

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Who


The organizational units present in Blockbuster video were [18]:

• Media Development and Studios

• Merchandise, Logistics and distribution

• Human Resources Division

• Store Operations Division: This division deals with managing the stores and related staff functions.

• Game Rush: In order to increase its customer base, Blockbuster opened Game Rush stores which adapted store-within-store concept. Here video games and related accessories would be rented and sold. Instead of implementing business model which would enable it to compete with video rental competitors, Blockbuster focused on video game rental business.

• Digital media Division

Blockbuster was successful at the early days because of its profound inventories consisting of new movie releases. Its executive management followed “heads-down” management approach. In this approach, the future consequences of the decisions would not be taken into consideration and only delivery of current services are required. This approach lacks innovative decision making skills. Example of such kind of decisions is late fee payment which made the enterprise lose its customer base and ended up in dealing with lawsuits [19]. From 1997 to 2007 John F. Antioco was CEO and from 2007 to 2011 James W. Keyes was CEO of the enterprise. Lack of coordination between Keyes and other management team and board room altercations showcased the problems in executive team which effected the business decisions of the enterprise [19].


Prior organizational structure of Blockbuster video:

Changed organizational structural chart of Blockbuster video:

Figure

In the early days of its business, Blockbuster manifested its dominance in video profound presence of new movie release and better quality videos. But internet and subscription services emerged to challenge this brickto take aninformed decision to shift

Prior organizational structure of Blockbuster video:

Figure 1 : Prior organizational structure[2]

Changed organizational structural chart of Blockbuster video:

Figure 2 : Changed organizational structural chart[2]

In the early days of its business, Blockbuster manifested its dominance in video profound presence of new movie release and better quality videos. But internet and subscription services emerged to challenge this brick-and-mortar based business. The management was unable

to shift video rental giant to enterprise supporting online on

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In the early days of its business, Blockbuster manifested its dominance in video rental industry with profound presence of new movie release and better quality videos. But internet and subscription

ess. The management was unable ntal giant to enterprise supporting online on-demand

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and streaming business model. Blockbuster had expanded its business over a large span of locations. Its deep and nested organizational structure made operational change difficult to achieve.

When


Blockbuster video was leading video rental industry during 1999-2003. Few bad investment decisions at Executive management level, led by John Antioco(CEO) , affected the company’s revenue. In 2000, Netflix approached Blockbuster for partnership. Executive management failed to assess the innovative online sales opportunity that would have enhanced the firm's revenue. Instead of analyzing current market trends at that time, they invested more in their store-led approach by selling books, toys and introducing video game rental business[20]. Also, Blockbuster invested $1 billion in Circuit City in 2008as part of their Capital planning. The next year,Circuit City was bankrupted and the debts severelyburdened Blockbuster[21].


Video rentals were core business for Blockbuster. Hence its survival depended on monopolizing the industry and business. Blockbuster was late in responding to technological changes occurring in the industry when compared to its competitors like Netflix, Walmart and Redbox. In 1999, Netflix started its first online subscription service and in 2007 introduced video streaming services [3]. In 2004, Redbox entered the video rental industry and started automated kiosk model for renting DVDs. Its low prices and convenience attracted customers [22]. But Blockbuster was still testing online business model in 2008 and could not implement that until the end. This performance gap reflected on their market share and ultimately their business.

Why


The video industry giant's catchy advertisement phrases were "Never be without a movie" and " Make it a Blockbuster Night "[23][24]. And their most recent vision and mission statements were:

Blockbuster Mission Statement:

"Our corporate mission is to provide our customers with the most convenient access to media entertainment, including movie and game entertainment delivered through multiple distribution channels such as our stores, by-mail, vending and kiosks, online and at home. We believe Blockbuster offers customers a value-prices entertainment experience, combining the broad product depth of a specialty retailer with local neighborhood convenience."[25]

Blockbuster Vision Statement:

"Blockbuster global vision is to advertise that they have the most popular movie titles in stock and to provide future direction to deliver home entertainment to consumers directly via a variety of media. Blockbuster is developing a new way of bringing movies directly to people's homes including a range of alternatives from physical home delivery and near video on demand, digital streaming and satellite T.V. Blockbuster focuses on improving its brand and advertising globally that they are better than their competitors by having new movies as soon as they come out and having their prices lower than their competitors."[25] Blockbuster Perspectives:"We help people transform ordinary nights into BLOCKBUSTER nights by being their complete source for movies and games."[26]

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The Enterprise executives did not align their business with these vision and mission statements. The mission statement said that the mission of Blockbuster videos was to "provide our customers with the most convenient access to media entertainment ". In the beginning, Blockbuster videos, with state-of-the-art database management and IT technology, sold video cassettes in multiple locations making it convenient for customers to avail the service easily, but they did not keep themselves updated. By late 1900s and early 2000s, the technological innovations like DVD (in 1998) and online streaming (in 2007) were driving the industry in a different direction[27]. Blockbuster Inc's principal competitors Hastings Entertainment Inc. , Movie Gallery Inc. and Netflix Inc had already embraced and implemented the new technological innovations[1]. Netflix had implemented DVD distribution by 1998(3 years before Blockbuster) and Online Streaming by 2007(years before Blockbuster implemented it). Blockbuster Inc did not adapt to the industry change and was late in implementing the new technology. They stuck with Video Cassettes till 2001, which proved costly(high mailing costs) and less convenient(slower delivery, old technology) than online streaming provided by competitors. Customers no longer needed to go to stores to rent movies. Also, the Blockbuster Video's mission was to offer customers a "value-prices entertainment experience". But their late fee charges were very high(Compared to no late fee charges for the competitors) and so it ultimately turned out to be costly for the customers(proved opposite to value pricing). In its 2004 advertising, Blockbuster had failed to reveal that customers who kept an item more than seven days would be charged the current selling price for the item. If the item was returned within 30 days, the customer would receive a refund, but would be charged a $1.25 restocking fee. Due to this, Blockbuster Inc had to pay $630,000 to settle the litigation. This ultimately turned out to be costly for the firm. The chief Financial and marketing officers could have aligned the company processes to its mission and saved the company a lot of money. The vision statement said "Blockbuster focuses on improving its brand and advertising globally that they are better than their competitors by having new movies as soon as they come out and having their prices lower than their competitors.". This was in contrast to the reality in a way that the competitors were much better in pricing their products. They also did not have the extra late fee amount charged by Blockbuster.


The business team of Blockbuster Videos did not research about the upcoming , latest technologies being implemented by competitors. They were unable to visualize and suggest a compelling case to bring these changes to the executives of the firm. Monthly subscription is one example. Monthly subscription made it easy for customers to view unlimited number of movies with a limited monthly charge. Blockbuster's main competitor, Netflix implemented it in 1999. The business team of Blockbuster Videos took four more years to implement the concept of monthly subscription (implemented in 2003). This again is in contrast with their mission of " provide our customers with most convenient access to media entertainment". Another example is Late Fees. Customers could avail services from Blockbuster's competitors with no late fees. Blockbuster's management team did not analyze and align the business practices with the mission to provide customers with the best experience. Management did not cancel the Late Fees till December 2005, which is one of the main reasons for the failure of the business.

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Blockbuster Inc was unable to adapt to changing technologies and market dynamics due to incompetent business leaders and policy managers. This ultimately led to decrease in business value and customer dissatisfactions and finally its end. Even though they brought the latest movies first to their customers, Blockbuster's main execution plan was based on late fee charges, stagnant technology(they stuck to Video cassettes even with the new DVD and streaming options in the market) and more growth(through overseas expansion and acquisitions) than internal improvements. When the business was going down, they based their profits on Game Rush and add-ons in retail, moving away from their original vision and mission targets.Additionally, the dissimilar and in-effective operational management of the different CEO's did not keep in line with the strategic goals of the firm. In all the above mentioned cases, Blockbuster Inc steered away from its organizational mission and vision.Their actual execution plans were not appropriate and relevant to the organization's published mission and vision plans.

Evaluation of Blockbuster Videosduring

Zachman Framework

Evaluating Blockbuster Inc's successes and failures in executing tperiods especially at its peak and decline can be analyzed using Zachman Framework Enterprise Ontology.

Being the first mover in the videomarket with its impressive collection of movies and distribution centers. Thefounder, David Cook was able to incorporate a very successful businesslead the company towards its successincreasing the product distribution vastly. They never faltered with their main mission i.e. the video rental business. At the time Blockbuster wacomputers to track their inventory.

But, even at its peak, the business strategy of Blockbuster haconcept of late fees(contributed to

Blockbuster Videosduring its peak and decline

Evaluating Blockbuster Inc's successes and failures in executing their plans at different time periods especially at its peak and decline can be analyzed using Zachman Framework

Figure 3 : Blockbuster during its peak until 2005

Being the first mover in the video-rental industry, Blockbuster was able to monopolize the market with its impressive collection of movies and distribution centers. Thefounder, David Cook was able to incorporate a very successful business. Even their next CEO

rds its success, with about 9,100 stores in 24 different countriesdistribution vastly. They never faltered with their main mission i.e. the

the time Blockbuster was one of the few organizations which was ucomputers to track their inventory.

But, even at its peak, the business strategy of Blockbuster had a fatal flaw in contributed to 16% of their entire revenue).

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decline using

heir plans at different time periods especially at its peak and decline can be analyzed using Zachman Framework

industry, Blockbuster was able to monopolize the market with its impressive collection of movies and distribution centers. Thefounder, David

ven their next CEO, Wayne Huizenga, with about 9,100 stores in 24 different countries,

distribution vastly. They never faltered with their main mission i.e. the s one of the few organizations which was using

a fatal flaw in it, which is the

But when Mr. Huizenga sold Blockbuster to Viacom,which resulted in an instability in the management. Eonhow theorganization should Blockbuster(Video distribution)which increased their investmentwasa failed investment decision.This, furtherBlockbuster. In 2002, instead of focusing on video rental competitors Netflix and Redbox, Blockbuster spent the turn of the century expanding into the videogame rental market. Blockbuster purchased competitors in this market, like game stationchange their flaw of late fees , instead tried to portray an illusion that they eliminated the late fees , but just changed them as additional result, which is an additional expense.

Figure 4: Blockbuster during its decline from 2005

But when Mr. Huizenga sold Blockbuster to Viacom, theCEOs of Blockbuster were changed, which resulted in an instability in the management. Each of them had different view

organization should work. They trailed away from the actual product and (Video distribution),changing the merchandise to a whole new

which increased their investment. Viacom also invested in Paramount Communicationdecision.This, further did not improve the sale of actual merchandise of instead of focusing on video rental competitors Netflix and Redbox,

Blockbuster spent the turn of the century expanding into the videogame rental market. uster purchased competitors in this market, like game station[28]

change their flaw of late fees , instead tried to portray an illusion that they eliminated the late fees , but just changed them as additional day fees. So, a law suit was filed against them as a result, which is an additional expense.

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theCEOs of Blockbuster were changed, different views and ideas

product and mission of new entertainment model

Viacom also invested in Paramount Communications which did not improve the sale of actual merchandise of

instead of focusing on video rental competitors Netflix and Redbox, Blockbuster spent the turn of the century expanding into the videogame rental market.

[28]. They also did not change their flaw of late fees , instead tried to portray an illusion that they eliminated the late

day fees. So, a law suit was filed against them as a

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The competitors, Netflix and Redbox, introduced subscription model without late fee policy. Blockbuster just couldn’t keep up with them because even when they changed into subscription model, they stuck with the concept of late fee.[29]

But Blockbuster still had few advantages. They were still the first ones to get thelatest movies. They got it on the day of the release while their competitors like Netflix and Redbox got the copies after a period of 28 days[28][30].

Analyzing the successes and failures of Blockbuster based on the timeline,Zachman frameworks indicating the peak and fall of the firm were developed and portrayed in figures 3 and 4 respectively. The timeline analysis is explained in detail below.

1985 — In the midst of a sharp downturn in the oil and gas industry, David Cook developed a

software to manage their database. He then, re-used this model for the video industry and

started Blockbuster Inc. This is a good example of a sucessful Executive-How perspective

(depicted as Green in the Figure3, Blockbuster during its peak)because David Cook was able to

identify a successful business strategy and use it to improve the video-rental business by

including the concept of computers and databases.

1987 — Blockbuster was sold to a trio of investors, including Waste Management Inc. founder

Wayne Huizenga, for $18.5 million.This is a good example of a successful Executive-Who

perspective (depicted in Green in the Figure3, Blockbuster during its peak) because the three

investors from Waste Management Inc. took Blockbuster to its peak by expanding the stores and

strong management.

1992 — Blockbuster was the undisputed video rental leader, with over 2,800 stores worldwide.

The company’s growth was driven by acquisitions of other retailers such as Britain’s Ritz, US

chains Major Video and Erol’s Video.This was a good example ofsuccessful Where-perspectives

(depicted in Green in the Figure 3, Blockbuster during its peak)because they improved the firm's

reach and hence improved accessibility to its customers.

17

1994 — Viacom buys Blockbuster for $8.4 billion.This is an example of a bad Executive-Who

perspective(depicted as Red in the Figure 3, Blockbuster during its decline) since the business

idea of selling Blockbuster to Viacom marked the start of its decline.

1997 — Silicon Valley veteran Reed Hastings found Netflix, partly out of frustration after being

fined $40 by Blockbuster for being late in returning “Apollo 13.”This is an example of a bad

Executive-Who perspective(depicted in Red in the Figure3, Blockbuster during its decline) since

declining the offer from Netflix wasa bad decision taken by the executives. Blockbuster

executives and business management teams were unable to assess the potential of online video

streaming. Also, Netflix soon rose to big heights and became a major competitor to Blockbuster.

1999 — Viacom takes Blockbuster public, retaining its stake in the firm in order to take

advantage of its steady cash flow through other than video distribution channels.This is an

example of a bad Executive-Why perspective(depicted as Red in Figure3, Blockbuster during its

declin)e since they were going away from their actual mission and loosing focus.

2000 — Blockbuster collect almost $800 million in late fees, which accounts for roughly 16% of

its revenue, according to the Associated Press.This is an example of a bad Business

Management-How perspective(depicted as Red in the Figure 3, Blockbuster during its

decline).They were so dependent on the concept of late fees, that they did not forsee it to become

one of the major reasons for its demise.

2002 — Netflix goes public.This marked the upcoming of a major rival with whom they could not

keep up.

2004 — Blockbuster was at the peak of its powers, with about 9,000 stores globally. Carl

Icahn invested in the stakes of Blockbuster.This is a good example of Where, in all the

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perspectives (depicted as Green in the Figure 3, Blockbuster during its peak). It is because of its

multiple locations and distribution channels that attracted investors.

2007 — Blockbuster CEO John Antioco steps down after a conflict with Icahn.This is an example

of a bad Executive-Who perspective(depicted in Red in the Figure 4, Blockbuster during its

decline) since instability in management and boardroom infighting lead to disarray in the

organization. This further led to confusion and poor management.

2010 — Blockbuster filed for bankruptcy protections in September, trying to clear around $1

billion in debt. As a senior bondholder, Icahn received a large equity stake. This is an example of

a bad Executive-Who perspective (depicted in Red in the Figure 4, Blockbuster during its

decline). This shows that the financial management of the firm was weak because they had

transformed a successful firm with strong customer base to one holding a debt of $1 billion.

2011 — DISH Network bought the assets of Blockbuster for $234 million in cash at an

auction. The deal included more than 1,700 retail locations, which it had expected to close over

a period of time.This marked a new beginning for Blockbuster, but it was too late because its

competitors, Netflix and Redbox, had become a strong competition pulling customers away from

Blockbuster.

2012 — Dish announced plans to close some of Blockbuster stores, withroumors about using

the real estate as a place to sell mobile phones.

2013 — Blockbuster announced plans to close its remaining US stores.[31]

In 2004, online business was flourishing. But traditional store-based rental model. Its competitor,Netflix, availed the advantage of online streaming and subscription services. While Netflix’s U.S. revenues grew from $682 million in 2005 to $3122 million in 2011, Blockbusters’ U.S. revenues declined from $2400 million to just $970 million during the same period.

Summary This Case study deliberates onThe main purpose of this researchBlockbuster Inc . usingZachman One of the pivotal reasons behind the failure of Blockbustepolicy. None of the competitors of the firm had this policy of penalizing the customers for late return. This posed a threat to their customer base and hence the revenue. Another major reason for failure technological innovations. When the trend was moving towards lightportable DVDs or online streaming with subscription, Blockbuster was hesitant to adapt to the change and update their inventory according to the latest customer demandsreact to technological revolution (like DVDs and online video streaming instead of VCDs in 19992004) for four years.They enforced the new technology after years of their competitors implementing it. This further led to the loss of cust2000's, new and improved business processes like,to a complete EA framework, were implemented by the primary competitors(Netflix and Redbox) of Blockbuster. But Blockbuster, again, was at a disadvantage because they did not keep up with these trends till 2008. Furthermore, sticking with VCDfirm had a deep organizational structure which made it

Figure 5 : Netflix Revenue vs Blockbuster Revenue

In 2004, online business was flourishing. But blockbuster was still primarily operating on based rental model. Its competitor,Netflix, availed the advantage of online

streaming and subscription services. While Netflix’s U.S. revenues grew from $682 million in 2005 2011, Blockbusters’ U.S. revenues declined from $2400 million to just $970

million during the same period.[32]

This Case study deliberates on how Blockbuster was responsible for its own failure at every level. n purpose of this research was to unearth the numerous reasons behind the failure of

Zachman framework as a base line.

One of the pivotal reasons behind the failure of Blockbuster videos was found to be their lf the competitors of the firm had this policy of penalizing the customers for late

return. This posed a threat to their customer base and hence the revenue.

Another major reason for failure was their unresponsiveness to the market trends and current nological innovations. When the trend was moving towards light-weight, easy to use and

Ds or online streaming with subscription, Blockbuster was hesitant to adapt to the and update their inventory according to the latest customer demands

react to technological revolution (like DVDs and online video streaming instead of VCDs in 1999They enforced the new technology after years of their competitors

implementing it. This further led to the loss of customers to competitors. Additionally, around early business processes like,subscriptionmodel and no late fee

were implemented by the primary competitors(Netflix and Redbox) of But Blockbuster, again, was at a disadvantage because they did not keep up with these

ticking with VCDs increased their mailing costs,made it inconvenient and slow.firm had a deep organizational structure which made it very difficult to adapt to change.

19

blockbuster was still primarily operating on based rental model. Its competitor,Netflix, availed the advantage of online

streaming and subscription services. While Netflix’s U.S. revenues grew from $682 million in 2005 2011, Blockbusters’ U.S. revenues declined from $2400 million to just $970

how Blockbuster was responsible for its own failure at every level. to unearth the numerous reasons behind the failure of

r videos was found to be their late fee f the competitors of the firm had this policy of penalizing the customers for late

was their unresponsiveness to the market trends and current weight, easy to use and

Ds or online streaming with subscription, Blockbuster was hesitant to adapt to the and update their inventory according to the latest customer demands.Blockbuster did not

react to technological revolution (like DVDs and online video streaming instead of VCDs in 1999-They enforced the new technology after years of their competitors

Additionally, around early subscriptionmodel and no late fee policy, aligned

were implemented by the primary competitors(Netflix and Redbox) of But Blockbuster, again, was at a disadvantage because they did not keep up with these

made it inconvenient and slow.The very difficult to adapt to change.

20

Apart from the above mentioned executive and business decision flaws, there were multiple cases where the firm could not take the right stand. Two such cases werethe bad investment in Circuit City and merger with Viacom, which led to a substantial amount of loss to the firm. Moreover, the expansion plans during the low demand period led to losses. Another case is rejecting the primary competitor, Netflix's offer to work together, decreasing the competition and increasing the market coverage. This shows failure of the company at executive level in analyzing the requirements and trends of the market. Instead, they chose to invest more in already existing stores with the add-on retail features. Additionally, frequent changes in the management led to constant remodeling of the company structure and business operations. This led to inefficient operations and ineffective employee management. The new CEOs lost focus and were not successful in aligning the business with the main mission of the enterprise. This further led to confusion among stakeholders, reduced trust in the firm and steep drop in stock price. Moreover, the socio-economical changes didnot help the firm.Overtime, the social behavior of customers changed and so did the industry perspective and culture. Instead of one leading firm monopolizing the entire video rental industry, by 1999 many smaller firms ,implementing newer technologies and business processes, started emerging with the demand [3].In replacement to traditional brick-and-mortar structure, the industry competitors started an aggressive battle to provide the best customer satisfaction(to bring the products to customer's doorstep) and quality. Also, the customers preferred watching unlimited movies at the convenience of home and time and many loyal blockbuster video customers started moving to competitor's services. The 2008 recession made things worse for Blockbuster Inc, driving them to their debts and demise. It can be concluded that the above mentioned facts are the major reasons for the decline of Blockbuster videos according to the analysis conducted in this Case study using Zachman framework.

List of Figures

Figure 1 : Prior organizational structure (Marcus & Schaefer, 2011) ....................................................... 10

Figure 2 : Changed organizational structural chart (Marcus & Schaefer, 2011) ....................................... 10

Figure 3 : Blockbuster during its peak until 2005 .................................................................................... 14

Figure 4: Blockbuster during its decline from 2005 ................................................................................ 15

Figure 5 : Netflix Revenue vs Blockbuster Revenue ................................................................................ 19

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