Blockbuster is going back to basics to reassert itself as the leader in the home video retail business.

After a disappointing year of sluggish sales and less than expected earnings, coupled with management upheaval, Viacom-owned Blockbuster has abandoned a branding strategy of turning its nearly 6,000 stores into full-service entertainment centers and is refocusing on its core rental business.

Viacom has hired John Antioco, former head of Taco Bell, to replace Bill Fields, who departed from the top post at Blockbuster in April after differences with Viacom chairman Sumner Redstone over the direction of the company. Antioco, who took over during the summer, brings a reputation of restoring health to flagging companies such as Taco Bell and Circle K. Viacom purchased Blockbuster in 1994 for US$8.4 billion, at a time when the home video business was just beginning to show signs of stagnating.

Blockbuster hopes to improve its bottom line through several means, including: marketing and promotion based on its once and current tag line, ‘Make it a Blockbuster night;’ developing a state-of-the-art distribution system that will deliver product to retail shelves more efficiently; using its customer database to determine store sites and inventory based on consumer preferences; and continuing to offer more choices for families and children.

The company has been coping with numerous problems that have caused lower than projected earnings, including a soft video market further dragged down by weak films, price-busting sell-through by discount retailers, grocery stores and other mass merchandisers, and the growing popularity of movie-rich satellite services, which are siphoning off former home video renters.

Internally, its relocation from Fort Lauderdale, Florida, to Dallas, Texas, the construction of a self-distribution system, the negative impact of its ‘One World. One Word’ advertising campaign, and excess inventory have all caused Viacom to estimate that if the negative trends of the first half of 1997 continue throughout the year, revenue shortfalls could result in the range of US$400 million to US$500 million.

Despite such a gloomy scenario, the attitude at the company’s new Dallas headquarters has turned optimistic. The company believes that it has weathered the worst of the storm and is poised to bounce back over the next year, as John Antioco and his management team set out to make Blockbuster a more responsive retailer that meets the specific needs of its customers from market to market on a store-by-store basis.

The centerpiece of returning Blockbuster to health is the emphasis on its core rental business.

‘Blockbuster’s past and future lie in the rental of videos. All operational decisions must reflect this truth,’ Sumner Redstone, chairman of Viacom Inc., said during a conference call as he announced first quarter earnings last May.

His comments came shortly after former CEO Bill Fields left the company. Fields, who came from Wal-Mart, had sought to position Blockbuster as a diverse entertainment center, selling soft drinks, snacks, magazines and other merchandise, with equal emphasis on the buying and renting of videos. ‘When one walks into a Blockbuster store, one should not be immediately confronted by a vast amount of sell-through merchandise,’ Redstone said. ‘The driving of the rental revenues of Blockbuster should, at all times, be the prevailing strategy.’ Ancillary merchandise will remain in stores, but not be displayed as prominently as in the past.

Blockbuster calls the former retail strategy an ‘experiment’ designed to determine whether there was an opportunity to grow other incremental sources of revenue for the company.

‘We learned that the creative energy that we spent on those incremental opportunities could be put to better use and could produce a better return if we focused on the core video business, because that is what people know us for and what people depend on us for,’ says Jonathan Baskin, senior vice president of corporate relations at Blockbuster.

‘Focusing on driving rental revenue is a smart short-term strategy, especially when you are bringing in a new executive [because] you put the focus on what’s key today,’ says Tom Adams, president of Adams Media Research, a media research consulting firm.

He suggests that in a market that has been flat and will most likely continue to stay that way or even decline as technology for video on demand eventually comes on line within the next decade, the company will have to devise a new strategy to avoid becoming obsolete over the long haul.

‘[In the] long term, Blockbuster has to go back to its roots, which is being the neighborhood new technology center, the place where people can lay their hands on the newest, coolest technology,’ he says.

Trying to be like mom and pop, not Big Brother

Blockbuster controls 25 percent of the US$16-billion-a-year home video market, a much greater share than its nearest competitor, Hollywood Video, which has two percent. Blockbuster also claims to have stores within three miles of 65 percent of the American population and 65 million members.

Despite dwarfing the rest of the industry, Baskin says that the company’s main competition in each market is mom and pop video stores, which still comprise the majority of the video rental business. The company’s goal is not to drive these shops out of business, but to make its individual storesÑmany of which were small video stores it bought outÑreflect the customer service that people come to rely on at the smaller shops.

‘Mom and pop stores deserve a great deal of credit and it’s up to us to learn from that,’ says Baskin. ‘If there’s an opportunity for us to match or exceed the level of choice, service and warmth that a mom and pop shop has, that’s an opportunity for us to grow the business. There’s room for both of us.’

Blockbuster, from its beginnings, always has marketed itself as a family-friendly store, and continues a policy today of not stocking NC-17 or X-rated movies. Reaching the kid audience is an essential component to the long-term health of the company.

‘Kids can be a major driver of foot traffic in the store,’ explains Baskin. Blockbuster’s kid strategy involves not only having the most family-oriented titles, but making this selection more attractive by creating exclusive value-added benefits for both parent and child, such as Kidmongous and Play Pak, both of which debuted in 1997.

Kidmongous videos are one-hour compilation tapes with two to three children’s titles offered at a single special price.

Play Paks are to Blockbuster what Happy Meals are to McDonald’s Restaurants. Play Paks offer special toys or movie tie-ins in an activity bag that kids get free when a family title is rented. Blockbuster has partnered with Disney and Nickelodeon for Play Pak tie-ins centering on Hercules and Rugrats, respectively.

The length of the promotions vary based on market conditions as does the scope of the offering. The corporate office also encourages its individual stores to develop creative ways to attract families to become repeat users.

‘Offering a substantive meaningful selection of products that parents can rely on and that kids are attracted to and adding a perk or benefit for the kid and parent just for visiting the store, help to earn long-term loyalty,’ says Baskin.

Responding to

customers’ needs

Where Blockbuster far outperforms mom and pop shops and distances itself from mass-market retailers is in its inventory control. Through an extensive database of customer buying tendencies, the company has become more adept at meeting the viewing preferences of its members at various locations.

The same information also assists the company in site selection for new stores. For example, a store in midtown Manhattan, which may be frequented by young professionals more than families, may have a heavier allocation of action films, whereas, in a more residential neighborhood 20 blocks uptown, inventory may contain a higher level of children’s product because of the demographics of the neighborhood.

‘We can deliver very localized, customized store content into every single store,’ says Baskin.

In the past, the quantity of titles purchased was based on incentive agreements made between the studios and distributors, often resulting in excess inventory that sat on shelves, or not enough of films that found new life on video.

Blockbuster believes that when its new 800,000-square-foot, state-of-the-art distribution center becomes fully operational in January 1998, it will be able to control fluctuations of inventory. Linking store cash registers directly to the distribution center, Blockbuster can be more responsive to delivering product to individual stores, avoiding the middle step of orders being phoned in or processed on paper.

‘We want to be strategic and smart about the number of titles that we order to maximize each tape on the shelf,’ explains Baskin.

Coming attractions

Earlier this year, Blockbuster relocated its corporate headquarters to Dallas. According to a report in the Wall Street Journal, only about 250 of Blockbuster’s staff of 1,000 made the move. However, 70 percent of executives on the vice president level or higher made the transition. To date, several key positions remain open, including chief marketing officer. While Antioco settles into the CEO position, other changes at the senior level may take place, as Blockbuster sets its agenda for the future.

In conjunction with the change in strategy, Blockbuster dropped its ‘One World. One Word’ advertising campaign, which reflected the image the company was trying to create of being an all-encompassing entertainment outlet. Taking a page from its more successful past, Blockbuster brought the ‘Make it a Blockbuster night’ tag line out of retirement when tests indicated that its awareness level proved as great as when it originally ran. The company would not comment on its advertising plans for the fourth quarter.

One of the major areas of interest for future expansion is the international arena. Blockbuster has over 1,900 stores outside of the United States and is formulating a long-term strategic goal to become the best-known global home video rental brand.

The first Blockbuster store opened in Dallas, Texas, on October 19, 1985. Today, nearly 6,000 stores in 28 countries register more than one million transactions per day. As Blockbuster reaches its teen years, it’s struggling to emerge from the awkward growing pains that adolescents feel, as it reaches maturity in the home video marketplace.

‘Blockbuster has some of the best retail locations around the country, and the logical and next step is to expand the franchise into other new technologies,’ says Adams, citing video games and computer software as possible new avenues of business.

‘The video rental business was a once-in-a-lifetime opportunity created by a loophole in the copyright law that allows you to rent movies,’ Adams says. ‘Given that, and the ongoing health of the business, it’s time for them to start transitioning to do something more or something different with all of the real estate that they’ve amassed.’

The strength of Blockbuster’s revival will be based on repairing internal mistakes, but also will be dependent on factors that are out if its control, such as shifting consumer interests. It believes that as McDonald’s is to fast food and Microsoft is to software, Blockbuster is to home video, and that it will continue to be the leader in the industry.