Gary's Blog

Sajid Farooq writing for the Bay Area NBC affiliate predicts dire times ahead for Blockbuster as they struggle to recover sales and profit which has been relentlessly chipped away by NetFlix and Redbox.  The task facing Blockbuster is not an easy one. Blockbuster planned to close up to 960 unprofitable stores by the end of 2010 to stem the flow of red ink and refocus its business strategy.  The company has decided that since it can’t beat them it may as well join them, and is taking aim at Redbox through a plan to offer their own rental kiosk machines.  Since the Motion Picture Association of America is unhappy with the low prices charged by Redbox this may provide an opportunity for Blockbuster to enter the market with the backing of the movie industry.  Time and strategy will tell the story.

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Palm Computing is in a death spiral as the struggle to stay aloft and stave off the unrelenting pressures from Google, Apple, and Research In Motion. Palm was late to adapt to the smartphone game as their corporate strategy assumed that handheld computers would continue to have a segment of the market.  The advent of the smartphone which is one device that performs multiple communication and organization functions has literally driven the final nail in the coffin of Palm. In the last year Palm’s shares have dropped by over 80% which makes them an ideal target for buyout by companies such as Motorola or HP. Palm’s only hope for survival is to be bought out by a more profitable company.

The rational for change at Blockbuster is the changing market space.  Consumers have more choices for finding their entertainment needs. From high speed internet access which can stream live high definition movies directly to televisions, to convenient and affordable rentals from Redbox , the external pressures and reduced expenditures of those operations are vastly superior to the brick and mortar stored of Bockbuster. At Palm the rational for change was out of the company’s hands. Their only hope was to be purchased. They were too far behind in technology and too deep in debt to recover.

In both cases the common theme is that the market space changed and the companies did not or could not change fast enough to remain competitive.   Blockbuster has capital assets that can be sold to increase cash flow but Palm did not.  High debt loads and mounting losses were common to both companies where Palm has to swap equity for cash Blockbuster sold off over 900 stores.  Unfortunately they had to sell at a time when real estate is a bargain. Blockbusters case was presented as more legitimate since they are more visible and had many assets to liquidate.

In both cases there was no single rationale that facilitated the need for change of the companies.  They had to change because of multiple rationales.  Common to both was the ever present need to service their mounting debt and change their corporate strategy at the same time.  In both these cases the financial pressures and market revolution proved a difficult challenge.

I conclude that business leaders must focus on events that are over the horizon and not become complacent with their current situation. The market, technology, and consumer behavior is always changing and business must adapt to meet these new realities or fail.

NBC Bay Area - Sadiq Farooq (2009). Blockbuster Struggles to Keep Up with Netflix, Redbox. Retrieved January  5, 2011 from http://www.nbcbayarea.com/around-town/shopping/Blockbuster-Struggles-to-Keep-Up-With-Netflix-Redbox--59348152.html

Yahoo Finance – Mark Riddix (2010). Businesses on the Brink: change or Fail? Retrieved January 6, 2011 from http://finance.yahoo.com/career-work/article/109251/businesses-on-the-brink-change-or-fail??mod=career-leadership

Note: Palm stocks are no longer traded on the NASDAQ and a query for PALM ticker refers to HPQ.  It seems they were indeed bought by HP.