October 27, 2004 6:52 AM PDT

Blockbuster's brick-and-mortar Netflix defense

REDWOOD CITY, Calif.--Blockbuster plans to use its rental outlets to deliver movies by mail next year.

In an attempt to undercut rivals like Netflix and stave off the appeal of video-on-demand services, the rental giant will start to employ its retail outlets as distribution centers, so consumers can rent a movie via the Internet more rapidly, even the next day, said Shane Evangelist, a Blockbuster senior vice president and online general manager.

"If you're in Duluth, we can do next-day delivery," he said at this week's Consumer Technology Ventures conference here.

Like Netflix, Blockbuster currently lets customers rent movies through the mail via the Internet. Now, these movies come from centralized distribution centers. Sending movies from a closer retail outlet will cut costs and delivery time. Since Blockbuster already owns these movies for its retail business, the cost of goods for the program should be relatively low, Evangelist asserted.

The company will first exploit its real-estate holdings for the rental market and then expand it to drive DVD sales, he added.

Blockbuster and other rental outlets are rapidly trying to modernize in the face of growing competitive threats. At the conference, several start-ups were promoting new ideas and products for bringing premium content directly to the home. Cable operators, which will likely be the ones to deliver much of this content, also spoke warmly of the concept.

These proponents predict that film studios in the relatively near future will begin to release more films to video-on-demand and release them earlier.

"The real issue is when video-on-demand is going to become a window that gets respect in the digital marketplace as a first opportunity," said Curt Marvis, CEO of CinemaNow, a Web site that lets consumers download movies, concerts and other premium content. "Piracy, ironically, will probably drive the content providers to drive into the window earlier. You will see the studios shift to deliver movies at an earlier time" to pay-per-view services.

Netflix reduced its monthly subscription rate recently to compete more aggressively with Blockbluster, Wal-Mart Stores and, soon, Amazon.com. Reed Hastings, CEO of Netflix, said in recent weeks that he has confirmed that Amazon plans to introduce a rival DVD-rental subscription service soon. Amazon has not confirmed that it will do so, but the company has said that its customers request such a service.

Ed Cholerton, vice president of DSL at SBC Communications, theorized that the broadband lifestyle, which involves accessing content from a variety of devices and VoIP, or voice over Internet Protocol, home service, will be a reality in 12 months as networks improve.

For his part, Evangelist said that Blockbuster continually examines video-on-demand technology. It even has a pilot project under way in the United Kingdom. Still, rental, retail and mail delivery won't go away anytime soon. Rental, according to some predictions, will still be about 10 times as large as video-on-demand four years from now, he said.

The mail-order business is also gaining the company customers. More than 50 percent of Blockbuster's mail-order customers are not traditionally Blockbuster renters, he added.

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Netflix woes`
I've been with Netflix since March 2004, I wss watching 3 movies every week and everything was great until they decided based on my zip code to switch my mail drop from Stamford CT to Hartford CT figuring based on the zip code I was closer to Hartford than Stamford and movies would arrive quicker. Hartford is twice as far away and movies that use to have a turnaround of 4-5 days now are 7-9 days, plus the quality of the DVDs is pathetic. I've complainted twice and they say it's their computer and nothing they can do. Of course when I do complain they suddenly manage to send a movie in 3 days, but then things go back to the way things have been. If they don't correct it soon I'll be dropping them
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Before you switch...
I've been with Netflix since 2003 and I too was switched from Stamford CT to Hartford CT which is 20 miles closer to my house and I too am seeing a slow down and a drop in service but I will tell you right now as a side by side comparison against Blockbuster, Netflix is still a better deal even when it was $4.00 more a month than Blockbuster. I just emailed this experience to Blockbuster support and I am waiting on a response - "I am really at a loss to understand the speed at which Blockbuster sends my movies to me. On Thursday OCT 21st I put all three of the movies I had recently watched into the mail and sent them back to you and today is the 28th and I still do not have new ones to watch. On Wednesday the 20th I mailed out the three DVDs from NetFlix back to them and I received 3 more on Saturday the 23rd which is effectively a four day turn around time which is what I have come to expect. I received these next three and watched them over the weekend and mailed them out on Monday the 25th. How is it that Netflix can get two mailings in to me compared to Blockbuster's one over the same period of time? I am going to use only one service and it appears that it is going to be Netflix; while they are more expensive they are better at turn around times than you are and I had been told from an email last month (040925-000291 below) that this was going to be addressed. This appears to NOT be the case. Please respond." The big picture here is I can get about 12 movies a month out of either service on a monthly basis without ever having to leave the comfort of my home and if you calculate that out to what you pay at the brick and mortar places you're way ahead of the game. My main issue here is, as always, what was initially delivered is becoming unsustainable (what I used to get for my $19.99) and the CUSTOMER SERVICE (my how businesses forget that) is beginning to take a back seat to the price. I will pay TEN DOLLARS A MONTH MORE for better service (getting the disks to my door and more titles in stock) and response to queries (customer service). Call it a Platinum level or whatever you want, if you make it worthwhile I would be one to pay extra for it.
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