Blockbuster streaming: Too late

Blockbuster and TiVo announced a deal Wednesday that will make between 5,000 and 10,000 films available to TiVo users. Customers will be able to rent ($4) or buy ($20) films, including current major titles. It's about time: Netflix and Amazon's on-demand services are already available on TiVo. Netflix offers approximately 12,000 older and less compelling titles on the box, but Netflix users don't need to pay anything beyond their monthly fee to access movies on the DVR. Those who want to use Amazon's service, which already offers most of the films Blockbuster will stream, pay about the same rental fees as Blockbuster will charge.

I've called Blockbuster to task on its late release of contemporary technology, but I wanted to give the company a chance to respond, so I discussed what I consider Blockbuster's shortcomings with its newly installed senior vice president of digital entertainment, Kevin Lewis.

Lewis contends that his company is more than just a movie rental chain. He says Blockbuster is an entertainment retailer, which is why it wanted to make its service available to TiVo users.

"We are the only entertainment retailer with the ability to serve you a movie where you want, when you want it, how you want," Lewis said. "Whether it's at one of our stores, through virtual kiosks, or via downloads on a box like the TiVo, we can provide you with the most robust service." He told me that unlike Netflix, Amazon, and any other competitor, Blockbuster has the opportunity to service its customers across multiple channels, making its deal with TiVo all the more compelling.

"We recognize that our consumers don't act the same way every time because their needs are different," Lewis said. "Because of that, we plan to go wherever the consumer goes. And although Netflix and Amazon are already on the TiVo box, when we get there, users will know that we're the only company of the three that can offer them a movie no matter how they want it. Our competitors don't have that multi-channel capability. It's our special sauce."

That's a valid point, but I still didn't see how Blockbuster can ensure success on the TiVo or on any other multimedia device where Netflix and Amazon are already providing their services.

Lewis does. He contends that when it comes to Netflix, the company's focus is on quantity instead of quality, while Blockbuster's is on "first-run films that people actually want." But when pressed to find a competitive advantage over Amazon, Lewis' response was a bit more contentious.

"When the consumer sees Amazon's logo on the side of the box, they are wondering, 'am I going to be sold a toaster or a book?'" he claims. "The reality is, Amazon isn't really sure what they are and what they're offering. Our consumers tell us that the scary part of the digital world is that there's a real lack of a navigating brand and Blockbuster represents that to consumers."

Amazon at least stands for a company that gets the Internet, though. As does Netflix. Blockbuster has been playing "catch up" on the Web for years. Not long after Netflix was founded in 1997, the mail-order rental company was growing and Blockbuster was, for the first time, feeling pressure from an outside firm. But the company kept plugging away at the brick-and-mortar business.

Once Blockbuster executives finally noticed the dilapidated state of brick-and-mortar rentals, it was too late. The company was forced into the mail-order rental business and unveiled its own service, TotalAccess. Earlier this year, Blockbuster reported a subscriber count of a little over 3 million users for the service. Netflix announced that it has over 10 million subscribers to its mail-order operation.

It gets worse.

When Netflix announced that it had partnered with Roku to bring a Netflix streaming box to store shelves, most subscribers were overjoyed at having the opportunity to stream their favorite films to a set-top box connected to their HDTV. Subsequent to that announcement, Netflix announced that its streaming service would be coming to the Xbox 360, Blu-ray players, TiVo, and other set-top boxes.

Then, in a quiet announcement months later, Blockbuster said that it too would be bringing its streaming service to a set-top box. It partnered with Roku competitor 2Wire to release it. After its release, we heard little more about it. It's still available (here's a link to prove it), but it was hit hard in reviews for lacking worthwhile features. In fact, it looks more like a knee-jerk reaction on the part of Blockbuster executives who felt they needed to do something to show they were still relevant in this new generation of movie rentals.

But Lewis contends that my belief that Blockbuster has been late on almost every new trend (I do admit the company tried streaming first in 2000) is incorrect. He claims the company is the leader in the space, always has been, and definitely will be going forward.

"Right now, we are the leader in the rental video business in the U.S.," he said. "To the extent that the industry moves more digital, we plan to stay the leader. We know consumers are requiring more from us and we have no wish to lose our leadership."

Whether or not Blockbuster is really the leader in the rental video business is up for debate. Since 2005, Blockbuster revenue has declined steadily from $5.7 billion to $5.2 billion. During that same period, the company has lost over $800 million. In the past four quarters alone, Blockbuster has lost almost $400 million. Its stock price over the past year reached a high of just $3.64 in 2008 before plummeting to $0.13 per share last month. It's currently hovering at $0.80 per share.

Amid all these troubles, Netflix is enjoying a $41.56 share price. Over the past five years, its revenue has grown steadily to $1.3 billion and in its 2008 annual report the company reported an $83 million profit.

It's not a stretch to say that both Blockbuster and Netflix are moving in two different directions--one to more profitability and the other to possible financial ruin.

Lewis cautioned that we shouldn't believe Blockbuster is financially unsound. He said that same-store sales were up 6.4 percent last year (a first in eight years) and although his company lost money in 2008, it was due to a non-cash allocation of goodwill (an intangible asset that reflects cash paid in the acquisition of a company above its book value). Without the goodwill inclusion, Lewis claims Blockbuster would have turned a small profit.

But in the end, my issues centered around my belief that Blockbuster wasn't innovating and was simply mimicking moves made by Netflix. Lewis was unapologetic.

"If Netflix is there, so be it," he said. "We want to be wherever our consumers want us to be."

Is this a battle Blockbuster can win? I have serious doubts, and so does the market.

Check out Don's Digital Home podcast, Twitter stream, and FriendFeed.