E-Business

I selected Blockbuster as the organization in which I would analyze the advantages, limitations, and risks of using or not using the internet to conduct business. I use to frequent Blockbuster for quite a few years and discovered from reading articles in research of this paper that my reason to stop renting movies from this organization is quite common among people who rent movies. Blockbusters decision to start renting movies and games to customers over the internet has created new revenue for Blockbuster; however, this decision may not be enough to salvage an organization which once dominated the movie and video game renting industry.

Blockbuster began as a brick and mortar store in 1982 and over the next 20 years amassed over 5,000 stores worldwide. Prior to 1998 Blockbuster had experienced many profitable years, however, in 1998 DVD’s were introduced to the public where Blockbuster made a poor decision not to accept Warner Bros. and Sony Corporations revenue distribution (40 percent of rental revenue) on DVD’s which was virtually the same revenue distribution currently in place with movies on VHS. The proposal by Warner Bros. and Sony Corporation also included a stipulation that the movie studios would release DVD’s to Blockbuster before they would be sold to the public. Therefore, Warner Bros. and Sony Corporation decided release DVD’s to the public the same time as they would be released to Blockbuster and to make manners worse for Blockbuster, price DVD’s “low enough so that it could be sold to the public in direct competition with video rentals” (Epstein, 2006).

Over the next couple of years the demand for DVD rentals quickly out-paced the demand for VHS tapes, therefore, Blockbuster’s net income started to suffer dramatically since customers could purchase a DVD at a reasonable price from a mass retailer rather than renting one. Blockbuster, a once highly profitable company was now losing hundreds of millions of dollars each year and in serious jeopardy of going bankrupt unless they introduced a new way to attract customers and reduce overhead costs at brick and mortar stores.

In 2004 Blockbuster started offering movie rentals online, however, their entry in to the e-business of renting movies was 5 years behind another company (Netflix) which “pioneered the online ordering and mail delivery of rental movies in 1999” (New York Times, 2007). Even though Netflix was well established I believe that Blockbuster’s decision to enter in to the e-business of renting movies was a risk that had to be taken since Blockbuster had to increase their customer base and increase revenue. One advantage that Blockbuster had over Netflix was that Blockbuster had a reputable name in the movie renting industry; therefore, customers who were probably leery of renting movies online now felt more comfortable renting movies online with a well-known movie renting company. A major advantage for Blockbuster to rent movies online versus renting through their brick and mortar stores is that the cost of overhead is significantly lower when renting movies and games online compared to renting movies over the counter at traditional stores. Blockbuster seems to have embraced the mindset of expanding their e-business and reduce the