Blockbuster facing Shutdown?
In class today, we discussed some very interesting issues about profits, loss and perfect competition. When I stumbled on this article about Blockbuster closing over 250 stores soon, I thought about the shutdown point of a company.
Struggling video-rental chain Blockbuster posted another dismal earnings report for the fourth quarter--a period that is usually its strongest because of the holidays. The company long under assault from Netflix, rental kiosks and online video offerings, shut down 253 of its U.S. stores in January. It now plans to shutdown another 150 or so in April. Additional closures are planned for about 500 and 545 stores in 2010. The latest moves follow blockbuster closing 374 U.S. stores last year entering with 3525 in 2010.
The beleagured chain posted a wider quarterly loss following after Wednesday's closing bell, hurt by massive charges relating to the diminshing value of its assets. For the most recent quarter, the Dallas based company reported a loss of $435 million, or $2.24 a share, versus a loss of $359.8 million, or $1.89 a year ago.
Revenue decreased to $1.o8 billion from $1.31 billion in the prior-year period.
"Indeed the revenue erosion despite bolstered inventories and higher advertisement spending affirms our stance that the competitive landscape has changed permanently and Blockbuster is at a severe competitive disadvantage," wrote BMO Capital market analysts Jeffrey Logsdon.
Competition is hitting Blockbuster from all fronts: Netflix, online video offering from Apple among others. Blockbuster's dying by mail business, its half-measured entrance into the kiosk business and its huge sums of debt.
Do you think that this represents a perfectly competitive market? With this increase competition, will Blockbuster eventually reach shut down point or will they recover? Why did Blockbuster suddently plunged in the sea of losses? If you were the CEO of Blockbusters what would your response to this situation be?
Thursday, February 25, 2010
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ReplyDeleteBased on our class lecture today, I would say that this is a pretty close representation of a perfectly competitive market. There are identical products, many firms, many customers, free entry into the market, free exit of the market, and perfect information. It seems as if there are more firms entering the video world because it can be a very profitable industry. The more firms that enter the industry, the more customer profits are dispersed around the market. Plus, more people these days are ordering more movies on demand and not taking a leisurely stroll over to their local Blockbuster video store (especially when it is freezing out). (A, T)
ReplyDeleteIts no surprise to me that Blockbuster is struggling and now dying. With netflix, gamefly, satelite, and the capability to get movies off of the internet Blockbuster just cant compete. These other forms of getting movies is not only easier and more convenient, but it is more affordable most times as well. Pretty soon im sure most movie rental stores will be driven out. This is a case where technology and new idea leave old ways unable to compete.
ReplyDeleteI don't believe that Blockbuster is representative of a perfect competetive market. To be such, it is required to have identical products. It does not. Most of Blockbuster's competition is coming from online movies such as Netflix or iTunes. This si not what Blockbuster offers. Blockbuster offers tangible, hard copies of mvoies, whether rented in the store or by mail. This is their problem. The movie rental market has changed with new technology, wants, and needs. Movies online are more convenient and fitting with our society, and Blockbuster hasn't changed to keep up. That is why they are not opperating a perfect competetive market.
ReplyDeleteA,T
I dont think that the video rental market is a competitive market. Right now there are only a few firms that control the market. Netflix has a large share of the market and has almost come synonymous with movie viewing as itunes has become with music downloads. i think that in an age where people are most interested in instant gratification the idea of driving to a blockbuster to pick out a movie seems outdated. I think that demand in the next few years for in person movie rentals will reduce more and more. Looks like Blockbuster, like crocs will have to rethink their marketing scheme.
ReplyDeleteET
There will be those who go to blockbuster for movies still, it will just be less of them, the company will stay around aslong as it can make some sort of profit, albeit a significantly reduced one. With proper downsizing, and renewed vigor in the sectors of video rental that are eating away at the companies traditional buisness a turn around, or atleast a stop loss could be found.
ReplyDeleteThis sounds exactly like the Crocs example that we discussed in class today. It really makes a lot of sense that blockbuster is suffering though. I am subscribed to Netflix and it is much more convient, not to mention cheaper then blockbuster. In order to get back on its feet blockbuster would definitely have to make some serious changes to even hope to be a contender in the movie renting market.
ReplyDeleteI think the need for Blockbuster goes down every day, especially with the advancement of technology. Blockbuster is part of a very competitive market, with competition every where you look: netflix, the internet streaming sites, itunes, on demand, etc. I am not certain wether blockbuster will stay open for a long period of time or not, but i would not be surprised to see its departure.
ReplyDeleteBlockbuster's problem reminds me of newspapers: everything is going electronic and they are trying to keep up but like the major newspapers they are unable to compete with the convenience of the internet and home delivery. This is definitely not a perfectly competitive market because clearly the cheaper, easier Netflix flicks are superior. I also wonder whether the Blockbuster "no late fees" thing caused them problems. It's an appealing idea but seems like they're bound to lose money over it.
ReplyDeleteThe fact of the matter is, Blockbuster is in a competitive market that has company's that are more appealing to consumers than that of itself. Netflix for example, is a rising power in the renting movies business because you can rent movies with one click of the button. With Blockbuster, it takes more effort from the consumer, because you have to make the trip to store, and there is also the uncertainty that they will even have the movie you are looking for. Also, Netflix has a program on XBOX Live where you can rent a movie right from your video game system. Blockbuster isn't catching up with the times, and for this reason, I see them shutting down in the future. Also, Blockbuster has always been known to have high prices compared to other movie stores. Why would I go to Blockbuster and rent a movie for five bucks when I can go to a Family Video where I can rent the same movie for almost half the price. Another thing I feel that has hurt Blockbuster is the lack of advertising. Over the past couple of weeks I have seen plenty Netflix commercials, but no Blockbuster commercials. Also, every time I play XBOX Live, Netflix is right there to greet me, and Blockbuster is no where to be found. Blockbuster has fallen out of the loop, and being in such a competitive market now with online movie stores with cheaper prices, I just cannot see Blockbuster recovering. (A)
ReplyDeleteI think that Blockbuster's shutdown is due not only to an increase in suppliers but rather to a lack of technological advancement. I think they are just lagging behind which isn't allowing them to be competitive anymore. Once Blockbuster creates a new and creative way of serving their customers they will be able to "catch" in the perfect competitive market. (A,T)
ReplyDeleteI'm not sure if this is a perfect example but it definitely shows a highly competitve market. This provides benefit for consumers, since the loss might probably stimulate Blockbuster to make some adjustment to its current situation (like price). But as the internet becomes dominant I doubt if Blockbuster can stay long. （A）
ReplyDeleteI think Blockbuster will be able to remain in business so long as it is willing to adapt to the times. Blockbuster is going to have to lower prices in order to make it worth going to the store instead of buying online, or else it will have to create an online service which will be able to compete with Netflix.
ReplyDeleteI wouldn't say that the market is perfectly competative at this point in time because of the shift in marketing of the product. Netflix currently offers movies in a manner and at a scale few others are currently able to compete with.
I think Blockbuster is still in the video world, however they need to adjust to the current times as well. They should do something like netflix and make a deal with microsoft or apple to stream movies for a small fee per month. The majority of people still have dvd players, however the future is waiting on the next big idea for the film industry. If Blockbuster were to think of it first, they would definitely have the upperhand, like movies on usb's or simply streaming like netflix. However, as of now they are in need of a plan, but for a company that big, I imagine they have a plan for revolution already.
ReplyDeleteI think this is similar to how newspapers are being shut down/limited. The Detroit Free Press I believe is only delivering on weekends (don't quote me on that) rather than their every day delivery. Many news papers are shutting down and eventually there may not be any news papers because of the the internet. I feel these two correlate.
ReplyDeleteEven with all of the new technology, there will still be a demand for people who want to go to a store and pick out a movie. There will be some people who aren't going to adjust to the technology of downloading iTunes and videos. I am aware of and can understand the technology of Netflix, downloading from iTunes, and searching online for illegally distributed movies. However, I think the simplicity of Blockbuster for some people, including the older generations before me, will keep the company afloat. E, T
ReplyDeleteI think the blockbuster goes down because the supply is increasing nowadays faster and faster, like what we talked about the Crocs in the class, when the supply went up over the demand, the company will face recession in a short time period. Due to the developing of technology on video games, and the video games became more affordable, people would rather buy their own video games than rent one.
ReplyDeleteI think the best way for Blockbuster is to have more choice for the consumers, in other words, become more creative.
I believe that the end is fast approaching for Blockbuster as it is currently operating. However, I do think that the "video rental" market is fairly competitive. It is not, as Mankiw would describe, a "perfectly competitive market", in which the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price. There are, still, a fair amount of "sellers," from iTunes, to Netflix, to cable companies' "On Demand" features.
ReplyDeleteFor Blockbuster to stay alive as a company, it needs to totally transform the way it does business. This will probably mean closing down most of its stores and operating mainly as Netflix does. Blockbuster already has the power of the company name. If it can manage to jump start a netflix-type operation, and tap into the video game rental market more as well, I think it has a good chance, as a company, of surviving.
T, E, A