Blockbuster gets a makeover

Blockbuster isn't content to dominate the video rental market. It wants to leverage its 65 million card-carrying members into becoming consumers of all entertainment goods and services. The recent change in ad slogans says it all: 'One world. One word. Blockbuster'...
May 1, 1997

Blockbuster isn’t content to dominate the video rental market. It wants to leverage its 65 million card-carrying members into becoming consumers of all entertainment goods and services. The recent change in ad slogans says it all: ‘One world. One word. Blockbuster’ has replaced the video-focused ‘Make it a Blockbuster Night.’

It seems that change has become a way of life for Blockbuster. With the makeover barely in place, the company recently learned of the departure of CEO Bill Fields. It’s unclear how this top-level change fits into Blockbuster’s current agenda.

The new ad campaign is part of a restructuring at Blockbuster that includes relocating to Dallas from Fort Lauderdale, Florida, to be closer to its new distribution center which is under construction in McKinney, Texas. The new facility will centralize distribution of all Blockbuster entertainment products and double the company’s distribution capacity, according to Jonathan Baskin, senior vice president of corporate relations.

The move also makes Blockbuster more accessible to the rest of the country, and gives it proximity to high-tech companies in the Southwest and on the West Coast. Staying abreast of high-tech developments is important to Blockbuster in two major ways, says Baskin. ‘A lot of technology is invisible at the store level,’ he says, explaining that buying patterns, for instance, can be tracked to improve store inventory. It’s also a way for the company to become more involved in digital media. Blockbuster expects to start selling music, and eventually, videos and books over its Web site. Customers will soon be able to download samples from CD and movie selections off the Web. And while it d’esn’t have plans to begin selling video game systems anytime soon, says Baskin, Blockbuster is trying to make video games more accessible to its customers by rolling out demo stations in its stores.

Most critical for Blockbuster, though, is preparing itself for the potential onset of video-on-demand and satellite TV. While the company won’t disclose any specifics of deals in the works with particular satellite TV or cable companies, Fields had made some broad predictions in a discussion with The Dallas Morning News. ‘We may not operate stores, but we may operate distribution systems for direct-to-home delivery,’ he said. ‘We would be involved in digital delivery of any form of entertainment, able to customize it and be part of the marketing of those elements.’

The restructuring is part of a plan to revitalize this 10-year-old company, which has recently experienced flat sales from a mature video rental market. To save costs, Blockbuster has announced that it will open 600 stores this year, rather than the expected 800 it launched last year. It’s also under pressure from stockholders of parent company Viacom to improve its performance; Viacom’s stock has been depressed since it acquired Blockbuster in 1994.

But Blockbuster’s weak business performance is nothing to be overly concerned about, believes Tom Adams, president of Adams Media Research of Carmel Valley, California. ‘It’s to be expected of a company that’s 10 years old,’ says Adams. ‘The most important thing was grabbing market share, not controlling cost.’

At the same time, Adams isn’t very impressed by the changes that Blockbuster is implementing, in particular the move to Dallas. ‘I don’t think they’ll be doing anything dramatically different in Dallas than in Fort Lauderdale.’

And because, according to Blockbuster, only about a third of employees are relocating to Dallas ‘[the move] gives them a polite way to clean house,’ adds Adams.

Baskin points out that roughly 70 percent of management is making the move. And while Blockbuster is in the process of hiring 500 to 600 people for its Dallas headquarters, some management posts will remain vacant, part of a new ‘team approach’ to excise some executive layers, which, Baskin explains, was ‘consistent with Bill Fields’ management philosophy.’

Video analyst Fred Moran, managing director at Furman Selz of New York, is more upbeat about the changes. ‘It’s the beginning of the refurbishing of Blockbuster,’ says Moran. For instance, stores that have undergone renovations to add 20 percent more shelf space and improve aisle floor plans, he notes, have seen 10 percent boosts in revenue. ‘I think by the second half of the year, this entity won’t be a drag on Viacom’s stock price. We’d hope by 1998, after it’s been revitalized, it will get spun off.’

Whether Blockbuster gets spun off or not, the company has a potent brand that’s apt to thrive, no matter how technology reshapes the video rental market, Adams believes. ‘I think the worry about the company is so overwrought,’ he says. ‘It’s been a decade of people saying their stores are too big [and] video-on-demand is going to kill them. None of these things have come true, nor need come true.’

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