HISTORY CERTAINLY REPEATS itself and this time around, you have to look back only four years.
When the world's largest video-rental company, Blockbuster, bought KPS, many people wondered how the company planned to turn it around.
After all, KPS was not known to have been plagued by serious management problems, it just had trouble finding customers. In the same year, Hongkong Telecom's video-on-demand service, which also failed, was having difficulty finding customers to rent films, as opposed to buying them.
Blockbuster's demise in Hong Kong is the result of a flawed strategy and a poor understanding of the market. The company says that it opened up shop here to tap into the mainland and that four years down the road, it is still facing serious piracy issues.
If Blockbuster's ultimate prize was the mainland, what benefits did it expect from operating in Hong Kong? Costing an industry average of only HK$2 million to open a new store, Blockbuster could certainly have afforded to open a few trial shops across the border.
Even if Blockbuster had legitimate reasons to use Hong Kong as the site for a trial run, that trial was still destined to fail. Blockbuster's business model hinges on consumers making trade-offs between inconvenience (the returning of movies and a limited viewing duration) and savings. In Hong Kong, the inconvenience factor works against the company, as a short stroll to most of its outlets will take you past a handful of video shops.
Meanwhile, the savings that it could offer customers were not that great due to the existence of cheap VCDs. Blockbuster itself conducted a study concluding that consumers would start to purchase rather than rent when the price of videos dropped below US$8 - a price below which most VCDs are selling.