Nancy Brill had ambitiously envisioned that Blockbuster would achieve $5 billion in revenue within three years, capturing half of the video rental market.
In 1991, Blockbuster's revenue was $2.31 billion. For 1992, preliminary estimates put Blockbuster's revenue at $3.36 billion, marking a 45% year-on-year growth rate.
With the completion of Blockbuster's global store expansion this year and the continued rapid growth of the global video market, maintaining a 45% growth rate for 1993 seemed feasible. This means Blockbuster's annual revenue for 1993 is projected to approach $5 billion.
If sustained for three years, this would complete the triple jump plan.
While there are inevitable discrepancies, such as a significant portion of the anticipated $5 billion revenue coming from the equally fast-growing film merchandise sales, Blockbuster's continued expansion makes it just a matter of time before it captures half of the video rental market.
When a company holds over half of the market share in a particular industry, it must consider new avenues for growth.
In the original timeline, Blockbuster, after becoming an industry giant, also attempted diversification. It ventured into music, cable television, and even operated theme parks, but ultimately failed.
The current Blockbuster is vastly different from the bloated, inefficient video rental giant Simon remembers.
However, with the impending ceiling on its existing business expansion, finding new growth areas remains imperative.
Entering film production and distribution is Simon's chosen path for Blockbuster's next phase of expansion.
Simultaneously, providing a new distribution channel for small and medium-sized film producers also helps Daenerys Entertainment strengthen its control over Hollywood's film distribution.
"In-house film production and distribution will not only boost Blockbuster's revenue but also significantly enhance its brand recognition and customer loyalty, reducing churn rates. It's a win-win situation," Simon explained the benefits of Blockbuster's move into production and distribution to Nancy Brill over lunch.
Nancy, after listening, pointed out a crucial risk: "But Simon, independent film production carries very high risks. Many second and third-tier studios have gone bankrupt because they misjudged their position and blindly ventured into production."
"Then why do they do it?" Simon smiled at Nancy. "Because the potential rewards are enormous. Take New Line, for example. One self-produced hit, 'A Nightmare on Elm Street,' catapulted this small, workshop-like company to a new level."
"But from what I know, New Line is now on the brink of bankruptcy."
"That's because New Line lacked the foundation and, perhaps, was also unlucky," Simon said patiently. "These are not issues for Blockbuster. Blockbuster's current overall strength surpasses even some of Hollywood's Big Seven, like Columbia and MGM, and it has ample funding."
Nancy then raised another critical issue: "Exclusive video rental channels limit a film's exposure since there's no theatrical release or TV broadcast. This significantly restricts the scale of Blockbuster's film productions. We can't afford to produce blockbuster films."
Simon had considered this and responded, "That's why, initially, Blockbuster will focus on 'distribution' by acquiring rights to completed films from other studios, thereby expanding exclusive content while experimenting with low-budget independent films. Once Blockbuster strengthens its foothold globally, we can then consider investing in big productions. Also, participating in film production doesn't mean we have to limit distribution exclusively to video rentals. We can still go for theatrical and TV releases while retaining exclusive rental rights."
Nancy pondered this and suggested, "Actually, I've been thinking, Daenerys Entertainment could give Blockbuster exclusive rights to distribute its films on video."
"I've thought about that too," Simon shook his head. "But first, Blockbuster's current capability isn't enough to fully maximize the commercial potential of a Daenerys hit like 'Wonder Woman.' Secondly, Daenerys Entertainment's market share is already very high. If we did this, it might invite antitrust lawsuits from other video rental chains."
Exclusive content deals are common in Hollywood's distribution processes. Major cinema chains often demand exclusive rights to distribute films from certain studios. Similar cases are also abundant in video rentals and television networks.
The problem now is that Daenerys Entertainment is too conspicuous. For instance, if Daenerys had exclusively given last year's blockbuster "Wonder Woman" to Blockbuster for video rental distribution, not only would other rental chains miss out on a lucrative title, but they also couldn't fully exploit the commercial potential of such a blockbuster.
This would undoubtedly trigger resentment among other video rental companies who missed out on "Wonder Woman." Given that Blockbuster is a subsidiary of Daenerys Entertainment, this provides competitors with a strong case to sue for antitrust violations.
In contrast, if a second or third-tier studio sold the rights to a film exclusively to a video rental chain, it would hardly attract attention.
Hollywood produces about 500 films that reach theaters each year, but the actual number of films made is more than double that. These films, unable to secure theatrical releases, are often distributed through video or television. Some studios even forgo theatrical release entirely, targeting the video and TV markets from the start. Many small studios thrive by catering to these markets' strong demand for content.
As the conversation progressed, Nancy Brill began to grasp another layer of Simon's plan. She stopped eating, staring intently at him. "Simon, if I'm not mistaken, you're aiming to make Blockbuster the 'eighth major' in Hollywood?"
Before acquiring MCA, Daenerys Entertainment had already risen to be on par with Hollywood's traditional Big Seven studios.
With the merger of MCA, Hollywood reverted to a seven-major studio system: Daenerys, Warner, Disney, Paramount, Fox, MGM, and Columbia.
Currently, Daenerys Entertainment not only commands nearly 40% of the market share in film but also indirectly controls MGM. Despite MGM's market share being only 7% last year, it remains a significant player in Hollywood.
Given Daenerys Entertainment's dominance and the high market share, expanding further by acquiring other studios is unrealistic. The antitrust barriers are too high, even with the close ties between the Westeros system and the incoming administration of Bill Clinton.
To grow further, a different approach is needed.
Simon's strategy to weaken second and third-tier studios and undermine the other major studios is already in play.
Expanding Blockbuster is another of Simon's plans.
Firstly, Blockbuster's current strength is comparable to some Hollywood studios and has ample room for further expansion. Secondly, as a video rental chain, it doesn't pose an immediate threat that would attract the scrutiny of competitors or federal regulators.
Finally, in the original timeline, Netflix, initially positioned as a video rental service, managed to become a major media giant alongside Disney.
Netflix's rise provides a model for Blockbuster's potential future development.
Even though the internet age for streaming is at least a decade away, even with the current accelerated growth of the internet industry in this timeline, copying the Netflix model exactly isn't feasible. Blockbuster must carve out its unique path.
Given the tough competition the other major studios are already facing from Daenerys, Simon's intention to develop Blockbuster into the 'eighth major' is a thought he prefers to keep under wraps. He hadn't expected Nancy to grasp his broader strategy so quickly from their conversation.
Seeing Simon remain silent, Nancy knew she had hit the mark.
The idea of creating an 'eighth major' was intriguing.
Daenerys Entertainment already holds 40% of the Hollywood market share. With the close collaboration with MGM, Nancy knows that the once-struggling studio is rapidly recovering. Despite shelving its iconic James Bond series, MGM's revival is accelerating. Last year alone, MGM's domestic box office share surpassed Columbia and Paramount, signaling bright prospects ahead.
With control over two major Hollywood studios, the Westeros system's expansion in Hollywood has reached its zenith.
Neither the federal government nor competitors would allow further acquisitions of major studios by the Westeros system.
In this context, the ambition of transforming a powerful video rental chain into a major Hollywood player is an innovative approach.
By developing Blockbuster into a force capable of challenging the established studios, Simon's vision was clear.
As she contemplated Simon's strategy, Nancy Brill was not only without reservations but felt a thrill at the thought.
Still, could a video rental chain truly evolve into Hollywood's eighth major studio?
Choosing not to press further on the topic, Nancy forgot about eating, instead gazing at Simon. "Initially expanding exclusive content through acquiring rights from independent studios and investing in small productions, eventually moving to big-budget films, and reclaiming the theatrical and TV markets—this plan sounds very appealing. But Simon, what then?"
With a smile, Simon replied, "If we can achieve that, it would already be a groundbreaking accomplishment for Blockbuster. The future will take care of itself. Remember, the world is constantly changing. The 1950s brought television, the 1970s brought VCRs, both fundamentally transforming Hollywood. Now it's the 1990s, and I'm sure the next transformative technology will emerge soon."
"The internet?"
"Well, you are quite sharp, aren't you?"
Nancy thought of Blockbuster's online platform. Last year, it generated over $100 million in revenue, though it was only about 3% of Blockbuster's total revenue. Still, it was a growing segment. Simon had once described the future of the internet to her, and if the world indeed moves into an era of universal internet access, the influence of online platforms could rival that of current TV networks.
"I suddenly feel the urge to buy more shares of AOL and Cisco."
Simon laughed, "How much do you have now?"
"Not even $10 million," Nancy shot him a sideways glance. "Your salary package for me isn't as generous as Amy's."
"Amy is practically one of the company's founders; she's getting less than
she deserves," Simon shrugged. "But if you need money, I can lend you some."
Nancy leaned forward, a hint of playfulness in her voice, "Will I need to repay it?"
Simon, admiring her delicate features, responded with a teasing tone, "It's negotiable."
Nancy straightened up and looked at Simon's assistant sitting quietly nearby. She pretended to complain, "Jenny, he's flirting with me."
Jenny, Simon's assistant, rolled her eyes at Nancy, then glared at Simon but didn't say anything. She quickly returned to eating quietly.
Seeing his assistant's non-reaction, Simon gave Nancy a challenging look.
Nancy wasn't fazed. "Lend me $20 million at a 5% annual interest. I won't take your money for free."
Simon nodded, "No problem. Since you insist on terms, it should be secured, right?"
Nancy smirked, "I'm putting myself up as collateral."
"Great, I'll add another $5 million."
"..."
Nancy threw him an exasperated look.
After lunch, Simon handled a few more tasks and then prepared to fly to the East Coast again.
Tomorrow, January 20th, was the inauguration day for the new president, Bill Clinton. Simon planned to attend some post-inauguration parties but not the ceremony itself.
The primary reason for his trip, however, was related to America Online (AOL).
In the new year, AOL was set to push forward a multi-billion-dollar ADSL network construction plan. Simon needed to be at AOL's East Coast headquarters to participate in the final discussions about this ambitious project.
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