Blockbuster Blocked By China Challenges
Blockbuster, the largest video rental chain in the US,
has decided to give up on entering the China market. In
addition, it will also fold its current operations in
Hong Kong, where it has had a presence since 1999.
In China, the main impediment is easy availability of
pirated DVDs. These include the latest US movies, which
are freely available on the streets of any Chinese city
for nine yuan (about US$1.10) per copy. These are sales
prices, not rentals. Although the US government has repeatedly
pressured the Chinese authorities to crack down on the
industry, sellers of pirated DVDs spring up again as soon
as the Chinese government officials and/or the foreign
visitors disappear.
The low sales prices of pirated DVDs have pushed the
sales and swift adoption in the Chinese market of DVD
players, which are now more prevalent, in market share
percentage, in Chinese households than they are in the
US. It is now almost impossible to find videotapes for
rent or sale in China.
Blockbuster is owned by Viacom, which is headed by Sumner
Redstone. Viacom's MTV and Nickolodeon channels are also
popular and profitable in Asia. MTV China has done especially
well, winning over the youth audience.
Blockbuster has also failed to gain traction in Hong
Kong, where it has 24 outlets. Sales and rentals in Hong
Kong are heavily dependent on the Hong Kong film industry,
which has recently been hit hard by the recession in Hong
Kong. Lately, Hong Kong has been showing signs of revival,
but it appears that Blockbuster did not want to wait any
longer for profits to show.
The company will allow its leases at its 24 stores expire,
and will lay off its 200 employees in the Hong Kong SAR
over the next 18 months.
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