Blockbuster Case Study

Blockbuster started in 1985 as a video rental chain company. The company had presence in more than a dozen countries around the world, all of which operated as different business holdings. Blockbuster reached its peak in 2004, as it dominated the movie rental market with 9000 stores, 60,000 employees worldwide, and a market value of $5 billion (Lewis, 2013). The company was launched by David Cook in 1985 with a single store in Dallas Texas, followed shortly after with the opening of a $6 million warehouse (also in Texas). That same year, Blockbuster won a court case against Nintendo that paved the way for the rental of video games. In 1992, the company started running 24-hour store operations and acquired the British video rental chain Ritz

For instance, one of the company’s shareholders Jasbir Sandhu claimed that the CEO Jim Keyes and another investor – Carl Icahn who happens to be a billionaire – conspired together to stymie the company’s recapitalization efforts in order to boost the return on investment for Icahn and some other shareholders. Such allegations are somewhat understandable given the questionable nature of some of Ichan’s action during Blockbuster’s financial crisis. Icahn stepped down from the company’s board of directors and sold off close to 80% of his stake in the company. Another action that could possible suggests an element of fraud was that shortly before the bankruptcy filling Icahn bought $100 million of the company’s debt. And he continued selling off its shares, thus technically dragging down the prices of the bond. In addition, there were other claims that the CEO Jim Keyes kept Blockbuster Express Kiosks operations, Blockbuster Canada and other international assets from bankruptcy in order to downplay the portfolio value of Blockbuster. However, there is really no evidence to the fact connecting any of the parties to the bankruptcy of Blockbuster, but I have a strong opinion that it could be possible. Looking at the breakdown of the company’s financials from the 10k of 2005 below, I can surmise that there was no fraud, but a huge mismanagement of the business.
Return on Assets
The ROA increased from -15.36% in 2005 to -1.54% in 2007 and the management’s effectiveness is questionable since the ousting of CEO John Antioco.
Gross Profit Margin They acquire Movie link to better increase the hope that sales would increase their Gross profits without scorching the bottom line. The gross profit margin went up from 50.92 in 2005 to 51.4 in