Blockbuster Sees Future in In-Store Kiosks, Movie Downloads
Just a couple of weeks ago, CNET's Don Reisinger wrote that Blockbuster was doomed. After posting a quarterly net loss of $35 million, closing 526 stores over the past year, and seeing its stock price tumble, Reisinger predicted that the company would be out of business in 2 years. "The way I see it, Blockbuster has two options: sell off the company as soon as possible or spend huge sums of cash on research and development and strategic partnerships with distribution companies to make downloading movies a viable alternative to Netflix," he wrote. "But unfortunately, I simply don't see this happening. I think Blockbuster will try to stay the course in the hopes it can find a way out. It won't."
But Blockbuster CEO James Keyes doesn't see it that way. While he admits that pursuing Netflix hard with its Total Access service (by giving away free rentals that cost the company $29 million in the third quarter) was a mistake, he doesn't think the end is nigh.
Keyes told the Associated Press that he believes in store rentals will be an important part of Blockbuster's business for at least 5 years (which assumes that Reisingers prediction of impending doom is wrong). Eventually, Keyes says that consumers will come to stores to download and burn movies to DVD at kiosks, or save movies to portable devices like phones or PMPs.
Blockbuster will begin putting kiosks in stores soon, though initially, they will not be able to burn DVDs. The company will also put more emphasis on retail, and begin diversifying its revenue stream beyond rentals by selling electronics, soundtrack CDs, and books. Finally, Keyes plans to make use of Blockbuster's $7.7 million acquisition of the movie download service Movielink.
Movielink, which was a joint venture between Paramount, Sony, Universal, and Warner Bros., reportedly sold to Blockbuster for far below its asking price of $50 million. That the movie studios have such a lack of faith in the movie download model, and that the market is crowded with mammoth competitors, including Amazon, Apple, Netflix, and Microsoft, probably does not bode well for Blockbuster. Further, if the study we reported on earlier today, which predicts a slow down in Internet speeds over the next couple of years, is accurate, it is unlikely that many people would give up discs for bits just yet.
Photo credit: AP.
Though kiosks and movie downloads make sense from a convenience standpoint -- no late fees, no chance a movie is unavailable, potentially infinite selection, etc. -- I'm still not convinced that Blockbuster can compete with Netflix. The major advantage they had over Netflix was the ability to offer free in-store rentals if people returned mailed videos to the store -- a practice that customers loved, but which cost Blockbuster $29 million in a single quarter. Keyes limited the free rentals for the Total Access program that were costing the company so much money, but that prompted 500,000 customers to leave the service.
What do you think? Can Blockbuster ever compete with Netflix, Amazon Unbox, Apple iTunes, and the rest? Or are they doomed?
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"BlockBuster, meet Charles Darwin. Charles, meet BlockBuster."
I can help but laugh ........."BlockBuster, meet Charles Darwin. Charles, meet BlockBuster."
The era of the local video store is far from over! But it must adapt. Rental margins are dropping, lease costs rising, and customers have become used to the instantaneous search of the Internet. Walking down isle after isle of shelving in the barn like shop of the photo above, is both expensive for Blockbuster and uninspiring for customers!!
Here's the shop of the future:
http://applebox.com.au/press/APPLEBOX_inside_2.jpg
http://applebox.com.au/press/APPLEBOX_outside.jpg
No aisles. No shelves. Catalogue online.
I've setup this store in Melbourne, Australia, and the response has been outrageous! The locals love it and all wonder why nobody's done this before? No limitations on stock holding, small engaging space, catalogue online so they can book and reserve from home/work, and have it waiting for them when they pickup!
There will always be a place for the local store - but it won't be a shop from the 80's that Blockbuster and Video Ezy still persist with!
Cheers,
Simon Gilligan
Founder, APPLEBOX
CNET citing digital downloads as Blockbuster's only savior makes it look foolish. The reality is digital downloads make good fodder for misguided CNET analysis, but will do little for the income statement. Forrester, and most other analysts remotely familiar with the digital download market, don't foresee any ROI there for 3-5 years, if at all. The cable/sat/bells will be the only viable competitors in that market since they (along with DVD players) own the living room, so Netflix's and Blockbuster's fledgling forays are at best hedges against a future where 100M households decide to throw away their DVD players.
2nd of all, closing of stores is evidence of a mature retail market, not ultimate demise. That reality has been baked into its Blockbuster's stock for a couple of years now. Any mature retail business needs to take a hard look at which stores are performing and which aren't -- store closures represent a boost to earnings.
On a similar note, the loss of 500K subscribers is misinterpreted here as a failure. The reality is that by FAR the majority of those subscribers are those who were dragging down the profitability of Total Access as a program. Think about it. The only people who care about the limit in store exchanges are those EXCEEDING the limit, which by definition are those who are causing the program to lose money. Blockbuster just gave 500K of it's least profitable customers to Netflix.
I find it amazing that these points are not understood by all the supposedly savvy outlets such as CNET, Motley Fool, etc. That Blockbuster has challenges is no news to anyone, but the market insight here is lacking...
I had Blockbuster Total Access and probably took part in a significant bit of that last quarter lost. I still have it - it was Total Access that attracted me back to Blockbuster (I had jumped ship for a combination of Vongo, Blockbuster, and iTunes). I don't see why Blockbuster doesn't aggressively pursue the download model. Have us sign up for a year and give us an easy streaming wireless dervice with our subscription to move stuff from our computers to the tv. Add to that a wide variety of movies and you are set. Use a P2P model like Joost to offset bandwidth costs.