Blockbuster Business Model | Business Model Navigator (2024)

FAQs

What was the business model of the Blockbuster? ›

Blockbuster's business model revolved around late fees in their movie and video game rental services. Blockbuster charged a dollar per day in late fees if a customer didn't return their movies on time. Late fees remained a hallmark memory for recurring customers and a primary source of income in the early 2000s.

Blockbuster model is adopted by many big pharmaceutical companies where they spent large amounts of money in research and development to find a blockbuster drug. A drug is said to be blockbuster when its annual sales crosses US$ 1 Billion. The first blockbuster drug was born when Zantac surpassed US$ 1 Billion.

It was founded by David Cook in 1985 as a stand-alone mom-and-pop home video rental shop, but later grew into a national store chain featuring video game rentals, DVD-by-mail, streaming, video on demand, and cinema theater. The company expanded internationally throughout the 1990s.

Business model: Netflix operates on a subscription-based model, while Blockbuster initially relied on rental fees for physical media. Blockbuster later switched to a subscription model but could not compete with Netflix.

Business growth was accelerated by adding a franchising scheme. The aggressive growth was supplemented with acquisitions of other store chains. The same successful formula was copied internationally, with acquisitions and growth in the United Kingdom, Australia, Japan and other countries.

The blockbuster marketing strategy

The theory is that by investing large amounts on a few carefully selected products that are most likely to appeal to the larger audience, a higher number of sales will be made on those specific products and there will be a much greater return on investment.

Expert-Verified Answer. Pricing - Pay for performance: In the blockbuster model, pricing is often based on the performance or success of the product. This means that the price is determined by factors such as demand, market competition, and the perceived value of the product.

Giants Movie Gallery and Blockbuster, driven by physical rental stores, began struggling to compete with streaming and mailing platforms. Both were driven into bankruptcy because they failed to adapt quickly enough.

Blockbuster had a competitive edge as it allowed customers to get DVDs from their local store while they waited for their mail-delivered DVDs—a key value proposition that Netflix could not offer.

In a bid to escape from $1 billion of debt, Blockbuster filed for bankruptcy in 2013, and the company was delisted from the NYSE. The US-based company Dish Network buys Blockbuster's remaining assets for $320 million at an auction to close many of its branches over time.

What was Blockbuster organizational structure? ›

The hierarchical structure of Blockbuster also led to a fragmented and siloed organization. The business ran distinct departments for its many operations, such as supply chain management, marketing, and store operations.

The Mission of Blockbuster was, “To be the global leader in rentable home entertainment by providing outstanding service, selection, convenience, and value.” The mission was ignored or likely not even considered when declining to purchase the Netflix team.

How they do it: Blockbuster leveraged exclusive agreements with publishers in order to pass on cost savings to customers. Customers paid a monthly fee for video rental.

Despite its dominance in the video rental market in the late 1990s and early 2000s, Blockbuster was slow to recognize the potential of online rental and streaming. Its reliance on late fees as a significant revenue source made it hesitant to adopt a no-late-fee model, which was one of the early appeals of Netflix.

David Cook opened the first Blockbuster in 1985.

His company was different from other rental stores because it offered customers a selection of 8,000 VHS tapes with the help of a modern, computerized check-out process, while other, smaller rental stores could only offer a couple hundred movies.

One of the reasons Blockbuster was so successful in its early years was its focus on customer experience. Blockbuster stores were clean, well-organized, and staffed with knowledgeable employees. However, as the company grew, it began to lose sight of its focus on customer experience.

Founded in 1985 by David Cook in Dallas, Texas, Blockbuster quickly rose to become a dominant force in the entertainment industry. The first video-rental store opened in Dallas, Texas, in 1985, offering 8,000 VHS tapes compared to the typical 200-300 at rivals.