It is nice and sunny in SF. have 18 people to interview and 2 other business meetings. So Blockbuster is finally I have been expecting this for 6-7 years and it finally happened - Blockbuster filed for chapter 11. No surprise for many and it doesn’t take a business strategist to tell you no one is driving to a store and rent a DVD. It will cost about 20 shares of Blockbuster to rent one DVD if you do have the share certificates. If you return late you have to provide another 5 shares. May be you will never have any opportunity to return it at all, because the stores closed.
At least they tried to accelerate the death process. How? An obsolete business model renting DVDs orchestrated an unsolicited $1 billion bid for then a near dealth computer and electronics retail chain. Blockbuster went after Richmond, Va.-based Circuit City in December 2007. There is no benefit of two dying together, other than savings on funeral cost.
How about movie downloading? Yes, they wee talking about a special movie download kiosk that can be placed in stores. But why do you have to go to a store to download? Something is very wrong here. These Blockbuster executives were not sleeping on the wheels, it was not the case that they didn’t see the threats or not acting at all, so what went wrong?
Their business model was under attack by technology innovation as well as low cost competition. $1 a DVD at Redbox or download it somewhere. Yes you can download popcorn, but you can stock a big box at home from Costco. Blockbuster did match its competitors and launched mail-order, Internet, kiosk, and cable distribution, that was a smart move but only when you have their overheads. Your competition did not have the legacies of carrying those hefty retail and operating expenses. Strategic assets suddenly became strategic liability. Cost wise, Blockbuster paid out on average 35-40%of its revenue to Hollywood and Netflix paid under 25% of revenue and Redbox paid even less 20%. How do you compete with them? That’s typical the challenge with established players.
Blockbuster acquired movie download service Movielink a while back, I am guessing it costs them south of 30 mil. Not bad since more than $100 mil was sunk into the company from some big studios building the company, so it was a bargain. Well, depends how you look at it. Movielink has a very broad library of movies, but heavily DRM’ed and the prices were not competitive.
Not only Blockbuster is underthreat, even cable and broadband companies that offer movies are not better. Consumers are all thinking and talking about cutting-the-cord with Netflix, Hulu, and Apple TV are pushing forward closer.
And for many young people, their laptop is their set up box. And the iPads of the world? That $65 to $100 monthly cable bill is looking less and less attractive to many, when Netflix mails discs and streams movies all for $9 a month. Cord-cutting is real and will accelerate particular for the 20-30 year old segments.
What’s the next episode for Blockbuster? The company hopes it can re-emerge a more streamlined entity capable of competing in a digital world. I don’t think they can just copy Netflix, they have to play a “new game” and do what Netflex did to them. Amazon, Google, Apple and some start-ups are all going to offer IP TV and not questions it's going to become ubiquitous. There will be plenty of shareholder value being created and destroyed. Ready for more innovation?