Consumerist.com has a discussion going about this LA Times article about Blockbuster Video. Seems that yesterday Blockbuster announced it will close nearly a thousand stores–twice what was previously announced–to focus on a kiosk-rental model a la Redbox.
The one-two punch represented by Netflix (quick shipping, movies online) and Redbox (new releases for only $1 a night), followed by the growing range of free On Demand movies from cable have clearly put Blockbuster on the ropes. The LA Times says that 18% of the chain’s stores are unprofitable — and 47% are barely profitable.
But this decision to go chasing after kiosk rentals just makes me roll my eyes.
BB tried to complete with Netflix, and it just couldn’t. Netflix had a bigger catalog, with more copies of the movies people wanted to rent, as well as a better distibution network. BB’s “you-can-return-your-online-rental-to-the-video-store” approach backfired–because the whole reason you rent online is to avoid going to the video store. Combine that with their free movies you can watch online. Now add the recession and people realizing how much money could be saved by switching to Netflix. Ultimately, it was no contest.
And Redbox is a cotton-picking beast. They started with twelve kiosks in 2004 and by early 2008 they surpassed Blockbuster with more than 100 million rentals. They just recently celebrated their 500 millionth rental. They’ve got 15,000 kiosks nationwide and plan to expand to 22,000 by year-end. They’re already the 5th largest DVD rental company in the US, and analysts expect them to take another 30% of the DVD rental market from rental stores. (source).
Meanwhile, Blockbuster has a measely 500 Blockbuster Express kiosks, and are gonna try to open up another ten thousand between now and the end of 2010, all the while shutting down storefronts and dealing with their debt load. Chasing after Redbox is going to be like skating uphill.
I had initially thought that BB might get some traction by going after an underserved market in kiosk rentals–the video game rental. That was already a big part of their brick-and-mortar business anyway. But it turns out that Redbox is already there. They’re testing video game rental in key markets (Reno and Salt Lake have already been confirmed) at $2 a night. That’s a little pricier than BB with their $9-for-5-nights pricing. However, BB’s closing up stores, so some video game customers will be abandoned. Redbox is already deeply penetrated and well positioned to reach a lot of folks if they decide to add video games nationwide.
I feel sorry for anyone who still has Blockbuster Video stock. I mean, just look at their 10Ks:
- 2007: net loss of $73.8 million
- 2006: net income of $50.5 million
- 2005: net loss of $583.9 million
- 2004: net loss of $1.2 billion!
- 2003: net loss of $977.3 million
Over the past 5 years, blockbuster has lost $2.8 billion. Yikes.
I suppose they might still surprise us. Then again, they seriously considered buying Circuit City, so I kinda doubt it.
