Movie Rental Business Supply Chain Management Group - 9

SUPPLY CHAIN MANAGEMENT

Movie Rental Business:
Blockbuster, Netflix and
Redbox
CASE ANALYSIS

Group-9

Ankit Agarwal 1311285
Ankur Bansal 1311151
Anup C. Unnithan 1311134
Gireesh Gera 1311088
Samir Jain 1311325
Vivek Vineet 1311138







Movie Rental Business Supply Chain Management Group - 9
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Q.1 What are the key success factors in the movie rental business? How do the three players
in the case compare on these dimensions?
The case mentions following factors which govern the success of a movie rental business.
The three players are compared on these parameters in the following table:
Factor Explanation
3 Players
Blockbluster Netflix Redbox
Variety of titles
The higher the variety of
titles, the higher the
incentive for customers
to come and choose
from among the titles.
Higher variety also
caters to more customer
segments and also leads
to cross selling of other
varieties
~3000 titles were
available in store,
which was very less
in comparison to the
other 2 players. Only
in 2009 did it launch
the Blockbuster
Direct Access service
which gave access to
~95,000 titles
~100,000 DVD titles
were available to be
delivered to
customers homes.
Foreign (Bollywood)
& independent films
were also available
which attracted
customers
Variety was limited
and only block-
buster movies
which were mass
market were stored.
Each machine had
only 630 disks
comprising 200 of
the newest movie
titles
Recommendation
of movies by
software
Customers would want
to know about the
ratings of several
movies and also would
want the website to give
them recommendations
about movies to watch
-
It had a sophisticated
recommendation
engine which gave
recommendations to
customers basis past
history
Recommendation
option was not
there
Delivery Time
The faster the delivery
time, the better it is as
customers would
gravitate to companies
offering better delivery
times
For the in store
business delivery was
immediate. For mail
order, delivery
happened from one of
the distribution
centres
The delivery time
was quick and it was
prime focus of this
company. There
were automated
distribution centres
for rapid processing
and situated close to
US postal service
The delivery was
immediate. Even
the returns could be
made to the
vending machine
without any
registration
Ease of access &
convenience
Channels like online
offer the maximum
convenience to
customers. Customers
always have time crunch
and thus ease of access
and convenience are
very important and
Online service and
stores combined
offered convenience
Customers could put
new titles into their
queues. This
company offered
high convenience as
compared to
Blockbuster.
Customer could also
This company
offered instant
convenience of
vending to fulfil an
underserved
customer need.
There were 23000
kiosks nation wide
Movie Rental Business Supply Chain Management Group - 9
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define a companys
success
download movies
and watch
straightaway
Flexibility
Flexibility in the number
of movies, exchange of
DVDs and schedules
positively impacts the
number of people asking
for DVDs
Introduced in store
exchanges in 2004,
but charged late fees
initially.
It also allowed
unlimited in-store
exchanges. However
in 2007, it placed a
limit on number of
videos that could be
exchanged at no cost.

Introduced a Flat
fee, unlimited rentals
concept with free
delivery and no late
fee. Allowing
customers to keep as
long as they wanted
is attracted more
customers. Cheaper
DVD rentals and
convenient delivery
through mail service
started price wars in
2004.
Introduced
Kiosks in
restaurants that
provided the
convenience of
vending and
returning DVD at
the kiosks without
even membership.

Movie Rentals
Prices
As the industry
progressed, in store
rentals declined as
people got accustomed
of using on demand
services, cable, DVR
and internet as medium
which provided more
options to consumers.
Hence, the price that is
charged for renting the
movie is very important
as this market is price
sensitive.
Monthly rentals of
$19.99 for online
rental with unlimited
exchange at store.
Pay-per-rental model.
$2-$4/24 hours for
streaming movies.
Retail locations
became less
profitable so
introduced kiosk
delivery method.
Mail-to-order format
allowed cheaper and
larger selection of
movies at costs
lower than in store
rentals. Prices were
low and no late fee
policy made it easier
for customers to
afford.

This company
followed the Kiosk
approach- Low cost
rental ($1 per
night).

Streaming
content to TVs
Delivering content
through analog/digital
medium through various
medium like cable,
internet or set top boxes
offers a lot of
convenience to the
consumers
This company
partnered with
Samsung Electronics
and TiVo to allow
owners of these
devices to rent or buy
by simply clicking a
button.
In 2008, set-top box
was launched to cater
on-demand service.
In 2007 it introduced
streaming of movies
and tv episodes over
the internet.
It launched set-top
boxes that allowed
subscribers to view
streaming videos in
their TV.
It did not enter into
streaming services.
Movie Rental Business Supply Chain Management Group - 9
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Channels in
which company is
present
Increasing the number
of channels increases
convenience and
flexibility for the
customer
Mail, Store, Online,
Kiosks
Mail, Online Kiosks
Availability of
titles
In case a customer
demanded a title,
providing them on time
will ensure repeat
purchase.
The original model
was inadequate with
fewer tapes available
per title and focus on
newer titles;
increased by Direct
Access model with
channel to procure
from DC; Streaming
offered easy access to
all subscribers
Long tail selection;
Older titles higher
compared to newer
ones; unable titles
can be queued up;
28-days waiting for
renting newer titles
Newest titles
available; 630 disks
of 200 titles; 28-
days waiting for
renting newer titles
Operating costs
The sustainability of the
industry is in lower
operating costs and
adapting as per changing
consumer preferences
Decline from 2005 to
2009 (~1bn USD)
owing to close down
of several stores,
renegotiation of lease
and migrating to low-
cost DVD vending
kiosks
Operating expense
nearly 15% of
Blockbuster by end
of 2009. Steady
increase balanced by
growth in income
Operating expense
nearly 10% of
Blockbuster by end
of 2009 but higher
sales; Revenue
sharing with
retailers allowed
lower lease rent;
Relatively cheaper
cost of kiosk/8*9
Responsiveness to
Customer
The movie rental
business is
commoditized as all
players have same
offering and switching
costs are low.
The Direct Access
model increased
responsiveness to
cater to out-of-
stock/unavailable
title.
Suggested Users
titles based on
search history. 95%
titles delivered in
one day, option to
queue titles;
Streaming
compatible to
multiple devices
Pretty low as only
kiosk model; The
assurance was
ready availability of
newer titles so low
expectations for the
consumer






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Q.2 How would you advise these companies to modify their strategies and structures going
forward?

Blockbuster-
Divest unprofitable channels Blockbuster is able to serve customers through
multiple channels store, mail, online and kiosk. However, they have not been able
to differentiate their service to consumers in any of the channels. They should divest
their stores as there is dwindling revenue from this format. Also, the movie rental
industry has seen a shift from in-store purchase to VOD and mail (Exhibit 4)

Increase content- Netflix offered more than 10 times the collection that Blockbuster
had in any of its retail stores. Customers preferred the long tail that Netflix maintained
as it gave them access to obscure and niche titles. Variety is critical in servicing
customer demand.

Netflix-
Invest in the next big technologies Internet streaming is a low cost channel, Apple
has already started dominating the movie downloading business with its Apple iTunes
service. Netflix needs to leverage its big tail, grow the present customer base and lock
in customers by increasing switching costs with Cinematch by reaching customers
through this channel. This will ensure that postage fees will be done away with such
that it can offer greater profits to its studio suppliers.

Price Price signals quality. Reduction in the price, makes Netflix a commodity brand
rather than a brand which delivers value for money. Netflix has been the pioneer in
the category and should command a premium over its next closest competitor. They
should make improvements in key areas of technology and customer service and
command a higher price after doing so.

Increase customer base Partner with music studios, distribute more obscure and
niche films increase the long tail which will also increase the loyalty of audiences like
eBay. This will increase the customer base and hence revenue.

Redbox
Enter Digital Service with a partner: Given that DVD industry is gradually dying and
major players like Amazon and Google will ramp up the online video segment, Redbox
should expand into the online space while continue to milk the DVD industry with its
low cost low price model. Redbox should continue to develop strategic initiatives to
expand its distribution, increase its market share, and become a leader in this industry.
Redbox should continually invest in Research and Development to remain a
competitive driving force in the video industry and find alternative innovative means
Movie Rental Business Supply Chain Management Group - 9
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of delivering movies to its customers. One way to do this is to launch a digital service
with a partner. Consumers are increasingly choosing to watch movies via the Web and
not DVD. In Coinstar's last fiscal quarter, Redbox revenue came in below expectations
because of the impact of three studios not offering new releases to the company until
28 days after they went on sale. By having content partnerships and relationships
already in place, pay-TV operators can eliminate much of the complexity and cost
associated with populating a movie-streaming service.

Expand Internationally: There's an upper limit to the number of subscribers here in
the States, so to keep growing, Redbox should expand outside the borders to boost its
top-line and earnings growth. In the existing low cost positioning where retailers
install kiosks for free to ensure store traffic, Rebox is in a win-win position where it
quickly expands operations without incurring major costs. The same strategy can be
used to expand internationally. This will benefit Redbox, providing the necessary
platform for raising its profitability on a global basis, as the company significantly
diversifies the risk of customer concentration in a particular region.

Evaluate pricing strategy: The final recommendation relates to the recent increase in
wholesale prices on new-release from studios as well as the concern of the major
studios not offering new releases to the Redbox until 28 days after they went on sale.
Redbox should evaluate their current pricing structure which has already increased
slightly over this past year by offering some new releases for $2.00 - $3.00 the day the
new release goes on sale in stores. The higher price should enable Netflix to avoid a
28-day delay in the availability of many titles that three studios, Warner Brothers,
Universal Pictures and Twentieth Century Fox, impose on Redbox