BLOCKBUSTER'S DATABASE TO FUEL FUTURE EXPANSION

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When executives at Blockbuster Entertainment Corp. wanted to put rental videogames into the machines that kids across America had received during the 1993 holiday season, they tapped their expansive database.

Of its 40 million customers, the company took aim at those with children and sent a direct mail promotion in January and February.

The hope was to outperform the industry standard 2%-4% draw, said Robert L. Carberry, VP-technology. It worked even better than they expected, drawing a 30% redemption rate.

By going to the database to determine what titles and product features appealed to youngsters, Blockbuster was able to structure the promotion to meet existing user preferences.

Blockbuster also learned more about packaging, videogame preferences and how to perfect target mailings to tap what some industry experts estimate is a $1.5 billion-a-year videogame rental business-one that represents upward of 10% of Blockbuster's business.

"That is a tremendous marketing tool," Mr. Carberry said of the company's database.

It's an emerging tool that's growing daily. It currently stores information from some 2 billion transactions, he said, and grows by 1 million customer transactions each day.

The list of 40 million names is a rich and current resource Blockbuster has said it will share with no one. Information gathered each day is fed from every store into the company's Fort Lauderdale, Fla., mainframe computer, which then tabulates member preferences.

The system will become especially potent for "just in time" electronic creation of videogames for rental. The company's NewLeaf Entertainment system, which in May signed an agreement with Sega of America to produce games on demand, will allow individual stores to create product to meet orders. NewLeaf Entertainment is to start testing the system in 10 to 15 Southeast stores in August.

"Being able to have information on the buying or renting habits of 40 million customers is a phenomenal asset that they should be able to exploit in a lot of different ways," said David Davis, a film industry analyst with Paul Kagan Associates, Los Angeles.

Blockbuster isn't relying upon customer visits alone to generate new data. Events and retailing features found nowhere else also help add names.

For example, this summer's World Videogame Championship will bring thousands of kids to 2,600 select stores in the U.S., Puerto Rico, Chile, the U.K. and Australia, further building the database of game preferences. As a result, Blockbuster will then be able to market to them "quite aggressively" once the games are over, Mr. Carberry said.

However, building such a database can be difficult for other of the company's venues, like its 529 retail music stores. Membership cards aren't needed for a purchase. But customers who do first show their cards or fill out a membership form at the stores' listening bars, where they can preview music, will strengthen its stock of information, Mr. Carberry said. That will allow Blockbuster to cross-promote merchandise between divisions.

Last year, Blockbuster entered into a joint venture with Sony Music Corp. and Pace Entertainment Corp. to build and manage amphitheaters across the nation. The result could be a promotion that would allow customers to rent a movie and get a discount on a concert or CD, or vice versa-all the while providing the company with information on customer preferences.

Tapping the database to determine a given market's taste for artists or styles would allow Blockbuster to tailor promotions.

Database marketing could become essential to Blockbuster's core video rental and emerging production business. Already, some stores have video preview kiosks that, once members enter their names, dip into the database and retrieve a listing of titles the person may enjoy based on past preferences.

Production, though, may be the most lucrative application of all.

With a 71% stake in Spelling Entertainment Group, which recently merged with Republic Pictures, Blockbuster has a vested interest in putting out films-or helping other movie studios develop or finance projects-that will be winners.

"What Blockbuster is accumulating is a great deal of information to help them plan product," Mr. Carberry said. "It's ultimately in our best interest to have [studios] have successful products. So we think it can help up and down the food chain."

Still under consideration is cross-promotional and database involvement by Chairman H. Wayne Huizenga's personally held professional sports franchises. Currently, the thinking doesn't call for intertwining the entities.

One concern raised is the extent of information held by the company, said Kagan's Mr. Davis. Along with personal data like name, address and even credit cards held for security against theft, the information learned about tastes and spending patterns raises red flags regarding privacy issues, he said.

The depth of data on each customer is a "phenomenal asset" that few other companies in any industry possess. How they use it and guard it is key to their future as a database marketer in an "information savvy age," he said.

"It is an asset that should enable Blockbuster to survive and prosper despite how the video pay-per-view war ends up."

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