Blockbuster Inc.

Franchising

In Australia the company has pursued a franchising model whereby its once corporate store base, which peaked at 133 stores in 1998, is now progressively being whittled down to single digits.

Metropolitan Victoria (Melbourne) is the last remaining significant corporate store base with newspaper advertisements recently placed for the sale of many of the remaining corporate stores.

This model follows the approach of Australia's leading video rental chain "Video Ezy" which has been a largely franchise-based operation for many years.

Business model

The standard business model for video rental stores was that they would pay a large flat fee per video, approximately US$65, and have unlimited rentals for the lifetime of the cassette itself. It was Sumner Redstone, whose Viacom conglomerate then owned Blockbuster, who personally pioneered a new revenue-sharing arrangement for video, in the mid-1990s.

Blockbuster obtained videos for little or no cost and kept 60 percent rental fee, paying the other 40 percent to the studio, and reporting rental information through Rentrak. What Blockbuster got out of the deal, besides a lower initial price, was that movies were not available for sale during an initial release period, at least at an affordable price point - customers either had to rent, wait, or buy the film on tape at the much higher MSRP price targeted at other rental chains and film enthusiasts, at that time then between $70-$100 before the end of the initial release period.

In 1998, Blockbuster refused to use the same model for DVDs, which was just starting as an alternative format. The studios then decided to price DVDs low enough so that it could be sold to the public in direct competition with video rentals, and to provide no rental-only release period. As a result, the amount of DVD sales increased while rentals of the same titles did not. By 2003, the studios were taking in three times as much money from DVDs sales as they were from VHS videos.

Retail operations

At the end of 2004, Blockbuster's annual report put the number of U.S. stores at 5,803 (4,708 company-operated and 1,095 franchised). International stores (operating under Blockbuster and other brands) totalled 3,291, including 426 in Canada, 897 in Britain, and 408 in Australia. It has been claimed that there are more than 43 million U.S. households with Blockbuster memberships.

The company has a large Irish subsidiary, Xtravision, which does not operate under the Blockbuster brand name. Blockbuster also owns Rhino Video Games.

Blockbuster opened 24 outlets in Hong Kong, but announced in January 2004 that it would shut down all of its outlets over an 18 month period. An alleged factor in this closing was the widespread sale of pirated tapes and DVDs by illegal street vendors.

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