“Supply Chain Close-Up: The Video Vault” case analysis

Essay Info: 184 words.

Question:

1) Is there room for both an independent video rental store such as Video Vault and a large chain such as Blockbuster in this market?

2) If you were managing video Vault, how many copies of Heist, A.I., and Zoolander would you stock?

3) Why does Video Vault differ from Blockbuster in the number of copies of movies it stock? Would a studio that owns the title to the movie be indifferent between the stocking policies of Video Vault and Blockbuster?

4) What is revenue sharing? What impact will it have on the number of copies stocked by Video Vault, its profits, and on the profits of studios?

5) What is the role Rentrak plays in this scenario? Should Video Vault sign

Answer:

1) Is there room for both an independent video rental store such as Video Vault and a large chain such as Blockbuster in this market?

Yes, we think there is room for both an independent video rental store such as Video Vault and a large chain such as Blockbuster in this market. They both have their own advantages and disadvantages and they are both indispensable in the market.

Advantages of a large chain such as Blockbuster:

– They have struck incredible deals with the studios, which provide them with hundreds of new releases. The revenue-sharing contracts with studios provide them much lower product prices and greater ‘copy depth’.

– They have good promotional strategies such as giving away coupon for a free rental.

– They have sufficient funds and abilities to handle the intense competition in the maturing market. Facing to the difficulties with regular distribution channel and pricing change dramatically, they have sufficient sources to control the tough situation.

2) If you were managing video Vault, how many copies of Heist, A.I., and Zoolander would you stock?

3) Why does Video Vault differ from Blockbuster in the number of copies of movies it stock? Would a studio that owns the title to the movie be indifferent between the stocking policies of Video Vault and Blockbuster?

According to the number of copies of movies in stock, Video Vault differs from Blockbuster as in the followings:

– Because Video Vault is a small video retailer (it has only one store compared with Blockbuster which has many chain stores in the US) and it has limited shelf space for holding the tapes, so the quantity of movie tapes that Video Vault stocks is much less than Blockbuster.

– Video Vault carries DVDs as Blockbuster too, but they integrate them in shelves with the VHS product so they aren’t as overwhelming to the customer who hasn’t adopted the technology yet.

– Video Vault values customer service, which means they care about what the customers want and which movies they like, and as described by its manager: ‘it’s our independent nature, our personal touch’.

We think that a studio that owns the title to the movie would not be indifferent between the stocking policies of Video Vault and Blockbuster. Due to the status of the revenue-sharing contracts, the amount of stock Blockbuster has would directly influence how much money the studios themselves could make. This encourages higher inventory in Blockbuster’s store, which could lead to greater customer satisfaction and more rentals. For example, can you imagine that you won’t get the movie you want to see? It is believed that the customers will come less to the store if they couldn’t find what they want, and sometimes the customers will not rent the movies in this store anymore. In conclusion, the successful stocking is an important factor of the business, no matter to studios or stores.

4) What is revenue sharing? What impact will it have on the number of copies stocked by Video Vault, its profits, and on the profits of studios?

Rentrak Corp. started the idea of revenue sharing in the late 1980s. It distributed the titles and took a percentage of the rental revenue from its customer base of smaller chains and independent video dealers, and then sharing that percentage with studios.

In 1997, video stores were struggling with inability to meet demand for new releases and higher competition in a maturing market. Revenue sharing is expected to produce higher levels of inventory, leading to greater customer satisfaction and an overall increase in rentals. Under revenue sharing, distributors sell the tapes to retailers at a much lower price *€“ in return for a percentage of the rental revenue and eventual used-tape sale to customers. By 2000, Blockbuster reported that 90% of its revenue was derived from revenue-sharing contracts, while a typical independent retailer relied on revenue sharing for only 25%.

On the other hand, some independent retailers like Video Vault do not like the revenue sharing system, because, firstly, those retailers found it to be way too controlling (for instance, distributors say how

In 1997, video stores were struggling with inability to meet demand for new releases and higher competition in a maturing market. Revenue sharing is expected to produce higher levels of inventory, leading to greater customer satisfaction and an overall increase in rentals. Under revenue sharing, distributors sell the tapes to retailers at a much lower price *€“ in return for a percentage of the rental revenue and eventual used-tape sale to customers. By 2000, Blockbuster reported that 90% of its revenue was derived from revenue-sharing contracts, while a typical independent retailer relied on revenue sharing for only 25%.

On the other hand, some independent retailers like Video Vault do not like the revenue sharing system, because, firstly, those retailers found it to be way too controlling (for instance, distributors say how many tapes the retailers need and which tapes to buy, they have their numbers and they get to tell the retailers what to do). And the other reason was that revenue sharing entailed distributor oversight of the stores own transactions.

5) What is the role Rentrak plays in this scenario? Should Video Vault sign up with Rentrak?

Rentrak is a distributor of home videocassettes to small independent video retailers and such as a middleman between studios and stores. It distributed the titles and took a percentage of the rental revenue from its customer base of smaller chains and independent video dealers, sharing that percentage with the studios.

We would recommend Video Vault not to sign up with Rentrak. There are several reasons presented as followed. Firstly, it is risky that Rentrak doesn’t allow the store to sign with any other revenue-sharing distributors or pay-per-transaction system. The Video Vault might lose other chances to increase their profit by cooperating with other companies. Although antitrust laws prevented distributors from offering different-prices-to different retailers, it is so complicated to do a lawsuit. Besides, pretty high signing-up fee is also a reason what we thought why Video Vault should not sign up with Rentrak. Secondly, Rentrak is too controlling that it will require the stores to buy what the Rentrak ask for. But, Video Vault knows what their customers like and want, and sometimes the movies they buy might not be the needs of the customers. And lastly, Video Vault needs to use Rentrak’s software if they sign up with Rentrak. It might spend a lot of time to adapt to the new systems of Rentrak. To conclude, we suggest Video Vault not to make a partnership with Rentrak at the moment, but the company might consider to sign up with Rentrak in the future in case of significant changes in the video rental market.