Movie Rental Business.pdf

Movie Rental Business

Supply Chain Management

SUPPLY CHAIN MANAGEMENT

Movie Rental Business: Blockbuster, Netflix and Redbox CASE ANALYSIS Group-9 Ankit Agarwal Ankur Bansal Anup C. Unnithan Gireesh Gera Samir Jain Vivek Vineet

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Movie Rental Business

Supply Chain Management

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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

Variety of titles

Recommendation of movies by software

Delivery Time

Ease of access & convenience

Explanation 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 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

3 Players Blockbluster Netflix Redbox ~3000 titles were Variety was limited ~100,000 DVD titles available in store, and only blockwere available to be which was very less buster movies delivered to in comparison to the which were mass customer’s homes. other 2 players. Only market were stored. Foreign (Bollywood) in 2009 did it launch Each machine had & independent films the Blockbuster only 630 disks were also available Direct Access service comprising 200 of which attracted which gave access to the newest movie customers ~95,000 titles titles

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It had a sophisticated recommendation engine which gave recommendations to customers basis past history

The delivery time For the in store was quick and it was The faster the delivery business delivery was prime focus of this time, the better it is as immediate. For mail company. There customers would order, delivery were automated gravitate to companies happened from one of distribution centres offering better delivery the distribution for rapid processing times centres and situated close to US postal service Channels like online Customers could put offer the maximum new titles into their convenience to queues. This Online service and customers. Customers company offered stores combined always have time crunch high convenience as offered convenience and thus ease of access compared to and convenience are Blockbuster. very important and Customer could also

Recommendation option was not there

The delivery was immediate. Even the returns could be made to the vending machine without any registration This company offered instant convenience of vending to fulfil an underserved customer need. There were 23000 kiosks nation wide 2

Movie Rental Business

Supply Chain Management

define a company’s success

Flexibility

Movie Rentals Prices

Streaming content to TVs

Introduced in store exchanges in 2004, but charged late fees Flexibility in the number initially. of movies, exchange of It also allowed DVDs and schedules unlimited in-store positively impacts the exchanges. However number of people asking in 2007, it placed a for DVDs limit on number of videos that could be exchanged at no cost.

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.

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.

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download movies and watch straightaway 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. 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.

Introduced Kiosks in restaurants that provided the convenience of vending and returning DVD at the kiosks without even membership.

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

In 2007 it introduced streaming of movies and tv episodes over the internet. It did not enter into It launched set-top streaming services. boxes that allowed subscribers to view streaming videos in their TV.

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Movie Rental Business

Increasing the number of channels increases Channels in which company is convenience and flexibility for the present customer

Availability of titles

Operating costs

In case a customer demanded a title, providing them on time will ensure repeat purchase.

Supply Chain Management

Mail, Store, Online, Kiosks

Mail, Online

Kiosks

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; 28days waiting for renting newer titles

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

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

Decline from 2005 to 2009 (~1bn USD) The sustainability of the owing to close down industry is in lower of several stores, operating costs and renegotiation of lease adapting as per changing and migrating to lowconsumer preferences cost DVD vending kiosks

The movie rental business is Responsiveness to commoditized as all players have same Customer offering and switching costs are low.

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The Direct Access model increased responsiveness to cater to out-ofstock/unavailable title.

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Movie Rental Business

Supply Chain Management

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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)

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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.

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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.

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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 5

Movie Rental Business

Supply Chain Management

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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.

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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

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