Report on Video Concepts Inc. as Part of the Course "managerial Written Communication"

Report On

Video Concepts Inc.

As part of the Course "Managerial written Communication"

Submitted By:

Deepesh Vaishanava

July 1, 1993

To Mr. Rowan

Owner of Video Concept Inc.

Lexington

United States

From Mr. Deepesh Vaishanava

Consultant

Contact No. --------

Subject:-Report on the future of Video Concepts Inc.

Dear Mr. Rowan,

Please find the attached report on what should be the right decision for the Video Concepts Inc. given the difficult business environment

I hope you will find this report satisfactory.

In case if you need any further clarification please feel free to contact me on the given contact information. I will be glad to help you.

Yours Faithfully

Deepesh Vaishanava

Consultant

Executive Summary

Since inception the growth of VCI* had been extraordinary till 1991 .Mr. Rowan invested as much as he could in this business.

In August 1991 BE**, largest video rental chain in US opened a store in Lexington.

Stiff competition and slow growth rate of video rental business has made it difficult to earn expected ROI***.

Now Mr. Rowan has options of selling the business, increasing the rental to $2.49/tape/night, bringing in partners and hiring a manager and doing another job.

On the basis of increase in profit and potential to repay obligations, bringing in partners and continue, is recommended.

Word Count: 99

*Video Concept Inc. **Blockbuster Entertainment *** Return on Investment

Table of Contents

Serial Number Content Page Number

1 Situation Analysis 5

2 Problem Statement 6

3 Options 6

4 Criteria For Evaluation 6

5 Evaluation Of Options 6

6 Recommendation 7

7 Action Plan 8

Situation Analysis

Mr.Rowan a business graduate, who already had some experience of running business, started his dream video rental business after graduating (majored in business) in 1987. After transforming his startup into a profitable business.in the short span of six years, he has been trapped in a dilemma of what should he do given the current adverse business environment?

He started with one small store named Video Concepts with 200 square feet of retail space and 500 tape rental library in Lexington. With the implementation of innovative marketing strategies such as home delivery on demand, a free rental offers after ten rentals the first year revenue of the business was $64000.

Inspired by successful first year, he decided to expand his business and opened another retail store in a small shopping center that served a major neighborhood area, by borrowing $80000 from his banker on a seven year note. Business continued to grow very rapidly.

To continue with his expansion plan in this rapidly growing business, he opened his third video rental store, in Lexington's busiest shopping district in the fall of 1990; by borrowing $200,000.This new store had a capacity of 12000 tapes on display. By the implementation of new technologies this store was being operated in more efficient manner. In just one year this new store became the main profit center of VCI. Aggressive pricing strategy, high quality service & good selection of new releases were the driver force for phenomenal growth of company and demise of many smaller competitors from the market. By the summer of 1991 out of 17 competitors only 6 remained in the market.

In the fall of 1991 BE built a new store almost across the street from the main VCI store. BE is the largest video rental chain store in the U.S., with total revenues over $1.2 billion in 1992.

Despite slow growth rate in consumer spending on video rentals in U.S. & stiff competition from much bigger competitor, VCI managed to maintain current revenue level and market share in financial year 1992-93, by increased spending in promotions and making operation more efficient. But increased spending on promotions reduced the profits and expected ROI is not coming. Current ratio of 0.986 (see Exhibit 1) for VCI in financial year 1992-1993 also indicates that VCI is not in a good position to repay even its current liabilities.

Advances in cable TV technology (Pay-Per view services) is also emerging as a threat to the video rental business

But on the other side, two years after the arrival of block buster it was found that market has grown from $600000 to $1300000.This indicates that this market still has potential.

.

Problem Statement

A decision is to be made about selling or continuing the business in current business environment.

Options

1. Raise the rental per tape from $1.99 to $2.49 per night

2. Hire