1. What role has Netflix played in the development of Blockbuster’s strategic planning? How important is Netflix to Blockbuster’s future strategic plans?
2. How will new competition from Redbox and digital content providers force Blockbuster to alter its strategy?
3. As an advisor to Keyes, what strategic options would you recommend for Blockbuster as the company moves forward? In particular, how would you approach the technology issues facing the company?
4. What value-added components could Blockbuster offer to the movie studios that might entice them to more closely align with Blockbuster as a distribution channel?
5. In the long term, how can Blockbuster increase the value-added components of its product offering in order to offset the inconveniences associated with its traditional brick-and-mortar movie rental business? Will Blockbuster survive as we know it today? Explain.

Blockbuster has recently been described as a dinosaur—some say a dinosaur on life support. What a dramatic change from the company’s peak only a few years ago. In 2005, Blockbuster, Inc., sat at the top of the global home video rental industry. However, that dominant position has quickly eroded in the face of stiff competition on a number of fronts. Until recently, Blockbuster dealt with a change in competition fueled by changes in technology and consumer preferences. Whether it involves movies delivered via mail, cable on-demand, or online, Blockbuster has struggled to figure out the best way to compete against Netflix, Apple, Amazon, cable providers, and a host of online services. Most recently, Blockbuster has faced a different form of competition from Redbox and its vending-based solution to movie distribution. Blockbuster now finds itself in the unenviable position of having to compete on both price and convenience. As more and more consumers move to these and other types of movie distribution services, Blockbuster has become trapped in its bricks-and-mortar business model of the past.

As Blockbuster looks toward the future, one key challenge on the horizon is that the traditional DVD rental industry is clearly heading into its decline phase. The continued growth of Netflix, Redbox, video on-demand, digital downloads, as well as the coming move to IPTV (Internet Protocol Television), offer dramatic increases in moving-renting convenience for consumers. Given this level of increasing competition, it is not surprising that Blockbuster lost $36.9 million in the second quarter of 2009. As the company looks for ways to compete with advancing technology—especially electronic distribution—Blockbuster has recently unveiled several new strategic initiatives:

• Close approximately 960 unprofitable stores (22% of current stores).
• Expand access to standalone Blockbuster kiosks (up to 10,000).
• Offer movie rentals on Motorola phones.
• Offer streaming movie rentals on TiVo systems and Samsung televisions.
• Reconfigure 250 stores to a smaller format.

Although these decisions are likely to help in the short-term, Blockbuster still finds itself reacting to the competitive environment rather than proactively searching for newer, better alternatives.