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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[gsmiller88]

iTunes Movie rentals is where it's at.

[bsalus01]

if netflix was really smart they would buy hulu or start their own version of it. the market is moving to downloads (obviously) and its already started the next phase which is ad supported movies (like hulu). the subscription model will die along with netflix dvd rental business and be replaced by pay per download. in 5 years we will all say how foolish netflix and how they are doomed to be replaced by hulu (which for them would be trivial to add a non ad supported pay per download service.)

[Akoloski]

You didn't even mention RedBox - they are the real reason Block Buster is doomed. I'll never have to drive 15 minutes to Blockbuster because I can go to my local supermarket and get the same move in 30 seconds! And it's a buck a day!

[Kev Orng]

You know what sucks? I go to Blockbuster instead of renting online, because Rogers (of iPhone overcharging infamy) and their evil traffic-shaping makes online rentals a little expensive.

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.

[miroslodki]

You presume that Blockbuster isnt smart enough to recognize the changing modalities of entertainment consumption.

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

[CoderForChrist]

Honestly, I really hope Blockbuster doesn't go under, because Netflix and online downloads just don't do it for me. I don't watch a whole lot of movies, but when I do, I'd prefer to wander down to the local rental store, pick up the DVD, and return it after a few days. I just don't do that enough to justify a Netflix subscription.

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.

[crashkup]

I switched from Netflix to Blockbuster. the combination of being able to order most any film -- but for no more money run down to the store for the last minute idea has been great. I'll give Blockbuster time to get on the downloads.

The one thing that may send me back to Netflix is the better selection.

[johnbuker]

If Blockbuster's mail subscription service was half way decent, I'd likely still be with them over Netflix because I really liked the addition of getting a couple of free movies every month from their brick and morder store. But their mail order service was horribly slow and I was charged $15 for my "free" monthly trial (4 phone calls complaining about being charged for a "free trial" netted me an extra 2 weeks of service and I only received 6 movies from them in 6 weeks before canceling). Due to my experience with them, I'll never ever give any money to Blockbuster again.

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.

[btravitz]

We are a long way off from either streaming or downloading HD content. It will happen, just not within the next 10 years. both Netflix and blockbuster should remain relevant for anyone wanting high quality video. What we can download or stream now is a joke regarding resolution.

[emil serban]

Netflix is not a home run. As one user commented, only a minority (less than 5%) have their PC's hooke-up to a TV. Ther may be another 1% with an XBOX 360 hooke-up to their TV.
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?)