Why it's time for Blockbuster to give up
Netflix has always been a thorn in Blockbuster's side. For years now, the company has found creative ways to shape new business models and generally make Blockbuster look old, ragged, and incredibly foolish.
And although it was facing serious financial issues that required it to close hundreds of stores and layoff thousands of employees, Blockbuster has turned things around as of late. In the last two quarters, it enjoyed a slight profit of about $40 million in each period.
With that in mind, I was under the impression that things were finally turning the corner and it would have the ability to realize that the future of its business isn't in the brick-and-mortar, but in the wide world of downloads. And although its stock price is laughable and its foolhardy decision to go after Circuit City made it look desperate, I thought Blockbuster would finally wake up and get to work on something worthwhile.
Evidently, I was wrong.
Instead, it's (once again) Netflix realizing that the future of the the rental business isn't in the brick-and-mortar and probably not even in the mail sector. It's Netflix that's adapting to the changing times by streaming movies and TV shows to its Roku box and, now, the Xbox 360.
And in one fell swoop, Netflix has once again made Blockbuster irrelevant.
What other recourse does Blockbuster have now other than to keep plugging away with its brick-and-mortar business and hope to stay afloat long enough to sell it off to the highest bidder? It's not only the loser in the rental business, but now that it's slow to the streaming game, how can it capitalize on the market?
Whether it wants to believe it, the future of the rental business is in streaming, and once broadband speeds increase, HD downloads. Netflix realized that quickly and with the help of Microsoft and Roku, it's now the leader in that space. But what can be said for Blockbuster?
So far, Blockbuster has stayed true to its core business and aside from its acquisition of MovieLink, has done little to improve its prospects of beating, nay, competing with Netflix. So what exactly has this company been doing while Netflix has been analyzing the industry and finding ways to expand its presence and future-proof itself?
My guess: worrying about the company's financial standing, hoping against hope that Netflix would implode, and spending far too much time on Circuit City.
Blockbuster's ineptitude over the past few years is simply unrivaled. After presiding over a financial crisis and allowing an unknown company to become the leader in the rental business, it once again missed an opportunity to lead a sector and saw that same pesky company take control. All the while, the company's shareholders will suffer.
Because of that, I simply don't believe Blockbuster executives have any other recourse, but to sell the company to the highest bidder and get out from under the albatross before it's too late. Suffice it to say, that this team of executives has been made to look foolish by Netflix and unless it comes to that realization, it'll continue to make the wrong moves and see all parties suffer.
As the second-place company in a dying industry, Blockbuster should have been the leader in a new industry. Instead, it has let Netflix slide into that role and leave Blockbuster behind to pick up the scraps and hope against hope that Netflix will make a mistake. Sure, some will say that Blockbuster is banking on MovieLink, and that may be true. But the fact of the matter is that MovieLink isn't doing anything for Blockbuster and by allowing Netflix to beat it again, it has been cornered out of the one place it could save the company from an almost guaranteed financial crisis.
Once again, Blockbuster executives have shown that they just don't have what it takes to stand up to Netflix and the latter has shown that it has the requisite knowledge needed to take Blockbuster out.
It's time to sell Blockbuster to the highest bidder. If that doesn't happen, look for this company to continue its trek deep into the realm of irrelevance.
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Don Reisinger is a technology columnist who has written about everything from HDTVs to computers to Flowbee Haircut Systems. Don is a member of the CNET Blog Network, and posts at The Digital Home. He is not an employee of CNET. Disclosure.
It's got nothing to do with "greedy corporations" that us bandwidth is lagging behind. It has to do with population density. it simply too expensive to build the infrastructure. In my opinion, north american strategy for high-speed access has to be wireless. Where I live, 6 miles outside of a medium sized city, I have only 3 options for high-speed access, and they are all wireless. Places like South Korea and Japan can afford to install a lot of very high speed infrastructure because there are a lot of people around to pay for the service. outside of major metropolitan areas in North America, there is simply no way of turning a profit.
They only have a very limited amount of movies. Or do you actually think RedBox can compete on selection?
Idiots take 10 minutes to decide on a movie making the wait intolerable. It is fine if there is no line. Double that time when you return it.
Netflix is substantially less than $1 per day per movie, which is why it is eating Blockbusters' lunch and RedBox is a little niche service with little value.
If Blockbuster were to go out of business because of online movie rental services, then if I wanted to go out to a store to avoid overage charges on my Rogers internet service, my major local choice would be.... Rogers video.
I assure you that is not the case. Its simply a matter of them being 'stuck' with a retail footprint that they need to sustain/justify.
The question you need to ask yourself is
1. why cant they get into the streaming business themselves
2. why can't they get into a subscription service vs rental model
3. why can't they offer USB download keys (as being tested in Ireland via IBM) for their retail stores
4. what else can they use that floorspace for
5. who else might want to split the rent with them - regardless of which delivery mechanism they chose.
their recently hired CMO has a challenge on her hands
its a matter of what they are allowed to do that is at stake
not what they can/have to do.
cheers
Miro
http://miroslodki.wordpress.com
a few thousand brick and mortar stores that's the majority of their capital investment as well as the core value of the company.
The management is not willing to let that go to embrace the future, AND that my friend is Blockbuster's archilles' heel.
And online downloads aren't really interesting to me, either. I don't have an XBox, or a PC hooked up to my TV. My surround sound system only provides surround sound for DVDs (the DVD player is built in); other inputs only get stereo. So, if I'm to watch a downloaded movie, then either I have to be able to download it and burn it to a DVD playable in a standard DVD player, or I'm stuck at my computer with my 19" monitor.
And, honestly, I'm pretty sure there are a *lot* of people who are the same way. They don't want a subscription service, and they aren't set up to watch movies from their PC on their TVs, and, for these people, brick-and-mortar stores are the best option.
I don't know what country you live in but it isn't happening in the US in less than 20.
The one thing that may send me back to Netflix is the better selection.
I haven't used Netflix's streaming capabilities yet, but when they become available via my Xbox 360 soon I'll definitely give it a try. What's going to kill Netflix's streaming business (as well as a lot of other similar services) is if my ISP (Time Warner) enacts those download caps like they're trialing in Texas. I've been downloading a couple of HD movies via Xbox live every month and that coupled with game demos, trailers, etc. will definitely put me over the cap if it gets enacted.
Netflix' online selection sucks (too old to seriously consider) and in Vindows Vista at least it's anything but instant. It chokea every five minutes so you're better off waiting for a good couple of hours for a good download (see Apple model) than using the so-called instant view. Quality of the instant movies is low as well, especially when using a larger (50 or 60 inch TV).
Another frustation with Netflix: lack of access to the new releases: every time I want to see the latest and greatest release I have to wait for at least a week... verry frustrating. With Blockbuster I can go to their store and have it same day... BIG difference.
Also, waiting for the mail to come is no fun either. As previously mentioned, it would be all godd if, like in Apple's model, I could wait for 45 minutes for the latest release to download rather than enywhere between two days and two weeks - depending on Netflix' availability...
The wholy grail (for now) is a combination between Apple, Netflix and Blockbuster: Online availability of the latest release, monthly subscription for unlimited movies and DVD quality that can be upconverted to 1080i resolution. None of them delivers that and I suspect they won' mainly because it doesn't depend on them alone. They are at the mercy of film studios to approve to such approach and so far seem very resistive.
I've tried all of them and I must say that from a quality standpoint, blockbuster won for now with their one movie per day monthly subscription. The only drawback is that I have to drive to the store. Instant gratification trumps selection ... sorry Netflix, couldn't bear the wait... and your online selection sucks (did Imentioned that already?)
"online selection sucks": new releases are not all that is out there. Also, it is the studios that are limiting this, not Netflix, so it will definitely be coming.
Waiting times: not an issue one bit with a solid connection. I wait about 30 seconds upon requesting from my Roku, and then no stops.
Image quality: very good, actually. Here on CNET and everywhere else, the reviews of the picture quality have been great.
Streaming is the future, BB is dead, but there is always the possibility that something else will pop up and overtake Netflix. Until then, 'flix is king.
However, Netflix is the superior subscription service. I've been a member for about 4 months now and it's great. They have a larger selection and I can get new releases pretty quick. Sometimes even on the release day. I'll take that over a download any day. I own an XBOX360 and I doubt I will even try this new feature when it comes available. Most people prefer their entertainment glitch free.
As far as service comparison, I love the fact that the Blockbuster approach allows you to exchanged your mailed movies for new rentals without any additional cost which guarantees not having to wait to watch a DVD, something Netflix will never be able to do with it's current mail-in approach.
Now, about the downloading of movies, Netflix clearly has the upper hand here, but this is so different than giving such a premature "diagnosis" of BlockBuster being already doomed to dissapear (I'm very confident that they are working in developing ways to compete in the download world).
1. First off, on a personal level, I was a Netflix brand ambassador for many years but they forced me to switch. Throttling me getting my movie selection because I had a high turnover rate didn't bode well for corporate and they automatically put me to the bottom for months. Bad for business, bad for me, so I switched to BB.
2. I'm curious what gives you right to write this article and deem them out of business? Do you get up from your computer and look around our world. There are actually people still here who (a) can't afford all the hi-tech toys that we (I) enjoy, (b) are not tech-savvy enough to but into this whole Blu-Ray/1080P/PS3/box/1080i/online movie revolution (like seniors, remember these people?(c) have kids, and like the flexibility of grabbing a movie with them, actually leaving out house and (d) very tech-savvy (like me) who like 1080p BR movies on my flat screen Sony Bravia. Have you considered that?
Like everything, things take time to organically grow, develop and find their place. Are you going to write an article about how 'cars that run on gas should be shut down because of hybrid or electric technology'?
Don, open your eyes. Walk down your block, smell a flower, speak to a senior citizen or someone else outside your circle of tech geeks and people on the iPhone line and take a look at the world we live in before you make such a foolish claim. You lost a couple of notches of credibility here to me, my friend.
I think dl is the future, to be sure. Problem is, the DRM will be a pain in the butt - aka Apple. That is, until the dust settles and the studios have figured out that DRM only encourages people to circumvent DRM by finding content that was stripped of DRM...for free.
If the studios were smart enough, they'd offer their wares for free at low resolutions, and a fair price for high res / standard res stuff, without DRM. I don't care how much people think watching movies on a 3.5~4 inch screen (on their i-whatever) is great, no way would I ever pay for that crap. Not $0.99, not $0.05...nada. I don't want to pay for crap....do you?
The future is variety - free crap and pay for the good stuff. Free crap draws you in, the good stuff is what you want to keep and are willing to pay for.
- by LenSp July 15, 2008 4:13 PM PDT
- I have to agree that video stores aren't dead yet. It isn't a growth business (outside of rural areas being surbubanized), but many people aren't going to use the Internet for shopping due to personal preference or lack of internet or slower connection speeds. And while the Red Box is great for the most popular videos (and sucking off the higher profit margins on them), there's still a need for a physical store with a greater inventory for many consumers.
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Showing 1 of 3 pages (61 Comments)The problem for Blockbuster is that they were a growth business and they've yet to adjust to a business model for mature and/or shrinking markets. Also, anyone buying the company isn't going to pay a premium -- they'll know not to expect huge profit margin growth down the road.
The X factor in any sale would be real estate. Does Blockbuster own any of their stores? Or do they just lease? If they own buildings, then they have a real asset that could be quite valuable to retail chains outside of video rentals. Some big box store chains are more valuable for their real estate than they are for their actual business.