netrashetty
Netra Shetty
Financial Analysis of Blockbuster Inc. is an American-based chain of VHS, DVD, Blu-ray, and video game rental stores currently under Chapter 11 bankruptcy. At its peak in 2009, Blockbuster had up to 60,000 employees.[1] As of January 3, 2010, there were over 5,000 Blockbuster stores in the U.S. and 17 countries worldwide. It is headquartered in the Renaissance Tower in Downtown Dallas, Texas.[2] Because of competition from other video rental companies like Netflix, Blockbuster has seen significant revenue losses. The company filed for bankruptcy on September 23, 2010.[3] Some Blockbuster Video stores in the nation have been taken over by Houston, TX based mattress firm, Grapevine, also Texas based GameStop, and others.
Blockbuster Inc. (NYSE:BBI) is an American chain of rental stores headquartered in Dallas, Texas, that offers movies, video games, and other forms media entertainment on a subscription basis. Traditionally a brick-and-mortar business model, it has expanded into out-of-home DVD rental kiosks as well as an online rental and sale platform that delivers movies digitally and by mail[1]. This expansion away from its core movie rental model has been an effort to compete with fierce online rental service rival Netflix and to capitalize on consumer trends. On September 23, 2010 Blockbuster declared bankruptcy, entering a recapitalization plan through which it hopes to reduce its debt from $1 billion to $100 million via a debt-for-equity exchange[2]. The company will continue to operate in the ordinary course of business but "debtors in possession"[3].
Blockbuster has also sought strategic partnerships in an attempt to fully take advantage of its changing business model. In January 2009, it struck a deal with CinemaNow to distribute its movie content through Cinema's Internet platform[4]. Two months later, it partnered with TiVo and Samsung to offer Blockbuster On Demand's digital movie library directly to the TiVo digital video recorders of consumers' Samsung HDTVs, in return selling TiVos in many of its 4,000 retail stores[5]. It also announced in August 2009 a deal with Motorola to integrate its library into mobile phones, potentially tapping into an entirely new revenue stream[6].
Contents
1 Company Overview
1.1 Business and Financial Metrics
1.2 Business Segments
1.2.1 In Store
1.2.2 By Mail
1.2.3 Vending
1.2.4 Download to PC
2 Trends and Forces
2.1 Cyclicality of Retail Sector
2.2 The Future of Media And BBI's Brick-and-Mortar Model
2.3 Saturation in Kiosk Distribution Market
3 Competition
3.1 In-Store Rentals and Sales
3.2 Online Rentals
3.3 Online Viewing
4 References
As of late, the structural changes have been difficult for Blockbuster, ending FY2009 with $963 million in debt and only $189 million in cash[7]. In the first nine months of FY2009 alone, Blockbuster closed 635 company-run retail stores, and in February 2010 it announced plans to close another 500 retail stores, in an effort to save $200 million[8]. Its strategy to muscle its way into the kiosk rental space has been deterred by Coinstar's Redbox, which has already established 15,000 kiosks in retail outlets nationwide[9].
Company Overview
In the last couple of years, Blockbuster has aggressively expanded geographically and into different product offerings. In August 2007, Blockbuster entered the market for online rental and purchase of digital video, acquiring Movielink.com, an online library of over 1,700 movies for online rental and 3,000 for online purchase and enabling consumers to download entertainment content via their PCs, portable devices, television-connected home networks and approved set-top boxes[10]. It also partnered with NCR, a kiosk-based media distributor, who as of May 2010 has over 5,000 kiosks distributed across the United States[11][12].
International expansion has been fueled by franchisees, who operate 867 (31%) of its 2,773 stores abroad as of July 2009[13]. Its International segment consists of all non-U.S. store operations in Europe, Latin America, Australia, Canada, Mexico and Asia, and makes up 30% of its revenue[13].
Business and Financial Metrics
Blockbuster posted another disappointing quarter in 1Q10, as it continued to recapitalize its business and restructure its more than $900 million in debt. Although it has not missed a single interest obligation, it is not clear whether the company will be able to stay afloat in the n near future. The company has closed 470 stores as of April 2010[14].
Total revenues for 1Q10 were $939.4 million, a 13.8% decrease from 1Q09's total revenues of $1.09 billion[15]. Blockbuster's two main sources of revenue are rental services and merchandise sales. The majority of revenue can be attributed to its rental services, which accounted for 77% ($720 million) of total revenue in 1Q10. Blockbuster also generates most of its revenue domestically, including 69% in 1Q10[15].
Annual Financial Data, in millions[16] FY2006 FY2007 FY2008 FY2009
Revenue $5,523.5 $5,542.4 $5,287.9 $4,062.4
Gross Profit $3,407.8 $2,864.6 $2,722.5 $2,178.2
Operating Income $79.1 $39.1 $(293.3) $(355.2)
Net Income $43.4 $(85.1) $(385.4) $(569.3)
Business Segments
In Store
Blockbuster's stores offer new and traded movie and game rentals to their customers, including the addition of Blu-ray DVDs into their product mix in 2007. Additionally, over 400 of those locations include a game store-in-store concept operating under the GAME RUSH brand[17].
By Mail
Blockbuster offers an Internet-based subscription service with a DVD library of over 90,000 movie titles and video games through Blockbuster.com that can reach customers who are not within Blockbuster movie rental outlets[18].
Vending
Blockbuster is a growing player in the nascent vending channel and looks to expand its physical distribution of media entertainment. It has signed a contract with NCR to establish machines in over 2,500 locations by the end of 2009[11].
Download to PC
Blockbuster integrated its online rental services with Movielink, LLC, an online movie downloading business with one of the largest libraries of digital content for both rental and sale, which it purchased in 2007. This has allowed it to take advantage of the trend away from the brick-and-mortar industry business model and match the unique services of competitor Netflix.
Trends and Forces
Cyclicality of Retail Sector
The retail sector is highly volatile, with contraction and expansion closely pegged to the business cycle. When the economy is growing rapidly, demand for discretionary products like DVDs and video games increases, whereas in a downturn demand plummets. Because of structural weaknesses in the U.S. economy, Blockbuster suffered from lower store traffic and witnessed a 14% drop in same-store revenues in 3Q09[8].
The Future of Media And BBI's Brick-and-Mortar Model
The technological developments in the in-home entertainment industry have increased the amount of competition for companies like Blockbuster. In recent years the rise of online rental services, online viewing, video on demand services and other such new-media fields have brought new competitors into their market. In order to remain a significant player in the in-home entertainment industry Blockbuster has to remain at the cutting edge by providing their products in the newest ways. Their Total Access program, the acquisition of Movielink, and the re-shelfing of their merchandise with HD and Blue-Ray discs are examples of attempts to take advantage of the growth in non-conventional rental services.
Saturation in Kiosk Distribution Market
Through a partnership with NCR to deploy over 2,500 kiosks by the end of 2009 and a total of 10,000 kiosks by mid-2010, Blockbuster is trying to expand into more consumer-convenient distribution channels[19]. However, the current market leader and kiosk movie rental pioneer, Redbox, has established machines in over 15,000 locations across the United States[9]. The fortune of pioneering kiosk rentals has allowed Redbox to select the most accessible locations possible, posing substantial barriers to entry for firms like Blockbuster, who must resort to relatively inaccessible locations for their kiosk business. Additionally, Redbox delivers additional value to consumers via its revenue-sharing partnership with Viacom's Paramount Home Entertainment, which offers Paramount DVD and Blu-ray discs for rental the same day they become available for sale[20].
Competition
Blockbuster distributes its product to customers in three ways: In-store rentals and sales, online rentals, and online viewing. As such there are three areas of competition for the company.
In-Store Rentals and Sales
Blockbuster competes directly with regional or small-scale movie rental chains, though none compare in size or market share to Blockbuster as well as with major retailers which provide stiff competition in the same products that Blockbuster rents and sells to its customers. These retailers include Best Buy, Wal-Mart Stores, and Amazon. Coinstar does not follow the brick-and-mortar model but competes through the Redbox DVD rental kiosks it operates in over 15,000 locations in the U.S[9].
Online Rentals
Netflix: Blockbuster's main competitor, Netflix, is an online rental service with over 7 million subscribers and 90,000 titles in its library.[21] Netflix offers comparable plans to its subscribers, but also the capability to view movies directly on their PCs for no additional fee. Blockbuster has been gaining some market share from Netflix over the past few years, but rather slowly. Netflix has a very well-established subscriber-base and provides excellent customer service.
Amazon & TiVo : Amazon launched its "Unbox" service in 2006, which provides customers the ability to rent movies through their PCs for download. Amazon teamed up with TiVo on this project so that TiVo owners can download movies directly to their DVRs for viewing at home.
Online Viewing
Blockbuster's acquisition of Movielink brought them into the online viewing market after a few established players already had a solid hold. Amazon is one such example with their Unbox service. Netflix already offers all of its subscribers a way to view videos on their PCs and at no additional charge. Blockbuster has not made any move to give away Movielink privileges to its Total Access subscribers. The entire online viewing market is also very susceptible to piracy and intellectual property violations. Websites providing pirated television shows and movies, while illegal, are widespread.
Blockbuster Inc. (NYSE:BBI) is an American chain of rental stores headquartered in Dallas, Texas, that offers movies, video games, and other forms media entertainment on a subscription basis. Traditionally a brick-and-mortar business model, it has expanded into out-of-home DVD rental kiosks as well as an online rental and sale platform that delivers movies digitally and by mail[1]. This expansion away from its core movie rental model has been an effort to compete with fierce online rental service rival Netflix and to capitalize on consumer trends. On September 23, 2010 Blockbuster declared bankruptcy, entering a recapitalization plan through which it hopes to reduce its debt from $1 billion to $100 million via a debt-for-equity exchange[2]. The company will continue to operate in the ordinary course of business but "debtors in possession"[3].
Blockbuster has also sought strategic partnerships in an attempt to fully take advantage of its changing business model. In January 2009, it struck a deal with CinemaNow to distribute its movie content through Cinema's Internet platform[4]. Two months later, it partnered with TiVo and Samsung to offer Blockbuster On Demand's digital movie library directly to the TiVo digital video recorders of consumers' Samsung HDTVs, in return selling TiVos in many of its 4,000 retail stores[5]. It also announced in August 2009 a deal with Motorola to integrate its library into mobile phones, potentially tapping into an entirely new revenue stream[6].
Contents
1 Company Overview
1.1 Business and Financial Metrics
1.2 Business Segments
1.2.1 In Store
1.2.2 By Mail
1.2.3 Vending
1.2.4 Download to PC
2 Trends and Forces
2.1 Cyclicality of Retail Sector
2.2 The Future of Media And BBI's Brick-and-Mortar Model
2.3 Saturation in Kiosk Distribution Market
3 Competition
3.1 In-Store Rentals and Sales
3.2 Online Rentals
3.3 Online Viewing
4 References
As of late, the structural changes have been difficult for Blockbuster, ending FY2009 with $963 million in debt and only $189 million in cash[7]. In the first nine months of FY2009 alone, Blockbuster closed 635 company-run retail stores, and in February 2010 it announced plans to close another 500 retail stores, in an effort to save $200 million[8]. Its strategy to muscle its way into the kiosk rental space has been deterred by Coinstar's Redbox, which has already established 15,000 kiosks in retail outlets nationwide[9].
Company Overview
In the last couple of years, Blockbuster has aggressively expanded geographically and into different product offerings. In August 2007, Blockbuster entered the market for online rental and purchase of digital video, acquiring Movielink.com, an online library of over 1,700 movies for online rental and 3,000 for online purchase and enabling consumers to download entertainment content via their PCs, portable devices, television-connected home networks and approved set-top boxes[10]. It also partnered with NCR, a kiosk-based media distributor, who as of May 2010 has over 5,000 kiosks distributed across the United States[11][12].
International expansion has been fueled by franchisees, who operate 867 (31%) of its 2,773 stores abroad as of July 2009[13]. Its International segment consists of all non-U.S. store operations in Europe, Latin America, Australia, Canada, Mexico and Asia, and makes up 30% of its revenue[13].
Business and Financial Metrics
Blockbuster posted another disappointing quarter in 1Q10, as it continued to recapitalize its business and restructure its more than $900 million in debt. Although it has not missed a single interest obligation, it is not clear whether the company will be able to stay afloat in the n near future. The company has closed 470 stores as of April 2010[14].
Total revenues for 1Q10 were $939.4 million, a 13.8% decrease from 1Q09's total revenues of $1.09 billion[15]. Blockbuster's two main sources of revenue are rental services and merchandise sales. The majority of revenue can be attributed to its rental services, which accounted for 77% ($720 million) of total revenue in 1Q10. Blockbuster also generates most of its revenue domestically, including 69% in 1Q10[15].
Annual Financial Data, in millions[16] FY2006 FY2007 FY2008 FY2009
Revenue $5,523.5 $5,542.4 $5,287.9 $4,062.4
Gross Profit $3,407.8 $2,864.6 $2,722.5 $2,178.2
Operating Income $79.1 $39.1 $(293.3) $(355.2)
Net Income $43.4 $(85.1) $(385.4) $(569.3)
Business Segments
In Store
Blockbuster's stores offer new and traded movie and game rentals to their customers, including the addition of Blu-ray DVDs into their product mix in 2007. Additionally, over 400 of those locations include a game store-in-store concept operating under the GAME RUSH brand[17].
By Mail
Blockbuster offers an Internet-based subscription service with a DVD library of over 90,000 movie titles and video games through Blockbuster.com that can reach customers who are not within Blockbuster movie rental outlets[18].
Vending
Blockbuster is a growing player in the nascent vending channel and looks to expand its physical distribution of media entertainment. It has signed a contract with NCR to establish machines in over 2,500 locations by the end of 2009[11].
Download to PC
Blockbuster integrated its online rental services with Movielink, LLC, an online movie downloading business with one of the largest libraries of digital content for both rental and sale, which it purchased in 2007. This has allowed it to take advantage of the trend away from the brick-and-mortar industry business model and match the unique services of competitor Netflix.
Trends and Forces
Cyclicality of Retail Sector
The retail sector is highly volatile, with contraction and expansion closely pegged to the business cycle. When the economy is growing rapidly, demand for discretionary products like DVDs and video games increases, whereas in a downturn demand plummets. Because of structural weaknesses in the U.S. economy, Blockbuster suffered from lower store traffic and witnessed a 14% drop in same-store revenues in 3Q09[8].
The Future of Media And BBI's Brick-and-Mortar Model
The technological developments in the in-home entertainment industry have increased the amount of competition for companies like Blockbuster. In recent years the rise of online rental services, online viewing, video on demand services and other such new-media fields have brought new competitors into their market. In order to remain a significant player in the in-home entertainment industry Blockbuster has to remain at the cutting edge by providing their products in the newest ways. Their Total Access program, the acquisition of Movielink, and the re-shelfing of their merchandise with HD and Blue-Ray discs are examples of attempts to take advantage of the growth in non-conventional rental services.
Saturation in Kiosk Distribution Market
Through a partnership with NCR to deploy over 2,500 kiosks by the end of 2009 and a total of 10,000 kiosks by mid-2010, Blockbuster is trying to expand into more consumer-convenient distribution channels[19]. However, the current market leader and kiosk movie rental pioneer, Redbox, has established machines in over 15,000 locations across the United States[9]. The fortune of pioneering kiosk rentals has allowed Redbox to select the most accessible locations possible, posing substantial barriers to entry for firms like Blockbuster, who must resort to relatively inaccessible locations for their kiosk business. Additionally, Redbox delivers additional value to consumers via its revenue-sharing partnership with Viacom's Paramount Home Entertainment, which offers Paramount DVD and Blu-ray discs for rental the same day they become available for sale[20].
Competition
Blockbuster distributes its product to customers in three ways: In-store rentals and sales, online rentals, and online viewing. As such there are three areas of competition for the company.
In-Store Rentals and Sales
Blockbuster competes directly with regional or small-scale movie rental chains, though none compare in size or market share to Blockbuster as well as with major retailers which provide stiff competition in the same products that Blockbuster rents and sells to its customers. These retailers include Best Buy, Wal-Mart Stores, and Amazon. Coinstar does not follow the brick-and-mortar model but competes through the Redbox DVD rental kiosks it operates in over 15,000 locations in the U.S[9].
Online Rentals
Netflix: Blockbuster's main competitor, Netflix, is an online rental service with over 7 million subscribers and 90,000 titles in its library.[21] Netflix offers comparable plans to its subscribers, but also the capability to view movies directly on their PCs for no additional fee. Blockbuster has been gaining some market share from Netflix over the past few years, but rather slowly. Netflix has a very well-established subscriber-base and provides excellent customer service.
Amazon & TiVo : Amazon launched its "Unbox" service in 2006, which provides customers the ability to rent movies through their PCs for download. Amazon teamed up with TiVo on this project so that TiVo owners can download movies directly to their DVRs for viewing at home.
Online Viewing
Blockbuster's acquisition of Movielink brought them into the online viewing market after a few established players already had a solid hold. Amazon is one such example with their Unbox service. Netflix already offers all of its subscribers a way to view videos on their PCs and at no additional charge. Blockbuster has not made any move to give away Movielink privileges to its Total Access subscribers. The entire online viewing market is also very susceptible to piracy and intellectual property violations. Websites providing pirated television shows and movies, while illegal, are widespread.
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