Blockbuster Won't Survive: CEO Says "Conservative Approach" Required For Digital

Eight months ago I wrote a post entitled "Ten Years Later, Blockbuster Still Lacks A Digital Media Strategy" where I outlined some of the ways that Blockbuster has faltered with their strategy for the digital distribution of movies. After the post, I heard from some angry shareholders who wanted to argue with me about how the company would turn it around and I received a call from Blockbuster directly who wanted to brief me on their digital media strategy.

While it was great to hear directly from the company on what digital initiatives they were working on and their pitch to me on why things would get better for the company, I'm afraid that eight months later, things have only gotten worse. While I don't doubt that some of the folks working on the digital media strategy at Blockbuster get it, if you just look at some of the things Blockbuster's CEO said last week on their earnings call, you can clearly see that the company simply doesn't have the right culture to be successful with digital.

When asked different questions about Blockbuster's digital strategy, CEO Jim Keyes responded by saying things like, "these times demand a conservative approach," and that the company "will proceed cautiously as to how aggressive the company should be." For a company that has almost no digital offering today, those are some pretty scary statements. The last thing Blockbuster can afford to do is stay at the same slow pace for a digital offering roll-out that they are at now. For all the talk of what Blockbuster is actively working on, I still don't think they have a single successful deal involving digital they can talk about today. Of course, some will say that they have already signed deals to get their platform on to TVs and mobile phones, but so far, those deals are meaningless.

Six months after making a big PR splash that Blockbuster's platform was now available on TiVo, Blockbuster only has a total of 26 HD movies available and just under 1,000 movies all together. To put that in perspective, Apple has more than 2,500 HD only movies available via iTunes. How can Blockbuster think they are going to make any traction in the market with a catalog of 26 HD movies on a platform that has less than 1.5M stand-alone subscribers? YouTube and Netflix content on the TiVo platform has to date only streamed a few million videos in total, or as TiVo put it "millions and millions of streams" - and that's content that is free.

Of course one of the major arguments I heard from some shareholders the last time I wrote about Blockbuster was that Blockbuster's big advantage is that the vast majority of their customers rent new releases. Apparently they felt I didn't "get it" since they seem to think that gives Blockbuster a huge advantage in the market. While they are right in that about 80% of Blockbuster's rentals are from new releases, show me one instance how that has helped them on the digital front? If Blockbuster has all these new releases, why are only 26 movies available in HD on TiVo? And for all the shareholders who think Blockbuster is going to be on fifteen or twenty million devices by the end of this year, that's just not realistic.

Another deal I hear some shareholders talk about is the one with T-Mobile where Blockbuster will be the exclusive movie download experience embedded on the upcoming HTC HD2 smartphone in the U.S. While that sounds nice, there are a couple of major problems keeping this from being a big deal. For starters, consumers have already shown us that they don't want to download full-length movies to their phones, let alone pay for that content. Not to mention, the movies will only be available to download on the phones via WiFi and from folks at T-Mobile I have spoken to, they hope to sell a "few million" HTC HD2 phones over the next eighteen months. That's not enough of an install base to make any real impact on Blockbuster's business. Oh, and I should also mention that in Blockbuster's PR release with T-Mobile the company said that, "This will be the first download and multi-screen mobile movie application for Blockbuster and is part of the Blockbuster multichannel offering to connect customers with more than 100,000 movies, television shows and games." Well if 100,000 is the number they are aiming for, they are currently at 1% with their movie inventory on TiVo.

Listening to Blockbuster's earnings call last week, you really get a good feel on just how confused they, or at least their CEO is. Additional answers to questions included statements like, "As for the competition, we’re not worried. The Blockbuster brand is so well-known. Netflix is much more longtail. We’re known for hit movies. So this is all very good to us." Other statements included, "Netflix has said that it is not interested in going into mobile. So we think we’ve got a nice head start in mobile." Why do companies seem to think they can be successful in every market just because they have a "well-known brand"? Having a well known brand in retail does not automatically carry over to digital. Not to mention, the company has one announced deal in the mobile space, for a phone that has not yet even been released, but they think that gives them a "head start"? And would someone please tell Blockbuster's CEO that it does not matter if you have a "well-known brand", it only matters if that brand is connected to a service or product that consumers feel is valuable. One could very easily use the example of Toyota, which has a very well-known brand, but not for a good reason.

In an interview on CBNC last Thursday, Blockbuster's CEO said, "we don't think we're late on the digital side" and he also made the comment that when it comes to digital, "there is very little actual traffic today." Apparently he missed the press release from Netflix and Microsoft from last year that said in the first three months of Netflix being on the Xbox platform, Netflix streamed 1.5 billion minutes worth of videos. That's not a number you can argue with. You have to shake your head wondering how or why Blockbuster's board would want the CEO speaking on digital when clearly he's not aware of what's going on in the market. Just watch the CNBC interview, listen to the direct questions asked and then listen to all of the fluff and marketing provided for answers. If Blockbuster does in fact have a real digital strategy like the CEO says, where is it? Has anyone seen them present it in public? Is there a slide that showcases what they are working on? I got some details from Blockbuster eight months ago when they were nice enough to walk me through it, but most of it was from a high-level with no real details other than to reinforce they want to be on as many devices as possible. Well isn't that everyone's digital media strategy? While no company is under any obligation to share their game plan with the market, for a company that has no creditability on Wall Street or the industry when it comes to a digital strategy, you'd think they would go out of their way to prove otherwise.

I didn't see it get a lot of press but it was interesting to see that last week, Blockbuster quietly brought back late fees on video rentals in their stores. While that may help their core business, it's not going to do anything to help their digital offering. I have a Blockbuster store 6 blocks from my house, yet I use the Redbox machine that is right across the street from them in the grocery store. If I wanted to use a Blockbuster Express machine, I'd have to drive about 15 miles away since Blockbuster won't put machines in any locations close to where they have a store. As a result, they leave me no choice but to use Redbox.

While I am not a shareholder in Blockbuster or any other public company, some of their shareholders sure are adamant about the stock. One of the funniest comments I got was from a shareholder who wanted to convince me that the brick and mortar stores would always do better than digital due to the "experience" it provides. He wrote, "many consumers still find it fun to rent DVDs at a physical store instead of getting movies in the mail because of the experience of walking into a store where there are lights and other videos to look at and the whole experience". Maybe that's true if you're a five year old, but if that's the biggest thing Blockbuster has going for their brick and mortar business, then don't be surprised when their lights go out sometime soon.

Comments

[Nomo Blockbuster]

I wouldn't even waste your money on Blockbuster's stock even if it is dirt-cheap.

Blockbuster has just announced it is selling its European operations. Basically, the company is running out of options to stay alive and is shutting down its international stores before closing all the domestic stores for good. That's how it should be.

[John L]

Everyone who stated that Blockbuster will turn around, I'd like to thank you for helping me to laugh on what was a pretty rough day for me.

I live in Wilmington, NC. Two blockbuster stores shut down in the past year. One Hollywood video shut down that I am aware of. Anybody who is sure Blockbuster will survive is just not living in the present. Read this - http://www.reuters.com/article/idUSNN1611187620100316?type=marketsNews - they just don't have the cash to pay down their debt. BBI management and board missed any chances they had years ago when they were not so debt laden. Sell your BBI penny stock now, it's not going to get any better.

I stopped going to Blockbuster 6 years ago when I had a late fee that got out of hand. It just didn't make sense to me that my few day's old late fee were worth more than a rental I forgot I had rented. Netflix sold me with their wonderful mail rental program, then Redbox. Now, I simply use Netflix and stream the movies I want, when I want.

Why is blockbuster dying? I believe this article made that clear - too much caution and poor management. But what motivated caution? Too much debt for one.

@Dan, I'm waiting for your next article titled "Blockbuster declares bankruptcy". Until then, ciao.

[Scott]

To Dan and several others who've posted comments here.

Agreed. 2010 is a make it or break it year for Blockbuster. Liquidity is definitely a legitimate concern. But keep reading and you'll see the company is spending money to make money; transforming itself into the what WILL be the at-home entertainment industry leader.

Below are a just a few FACTS about how Blockbuster WILL not only survive, but thrive in this rapidly changing industry (and challenging economy) by the end of 2010:

1. The company has already signed an agreement with Warner that gives them EXCLUSIVE rights to new releases for the first 28 days of a film's release date (the greatest revenue generating period). The film "The Blindside" is the FIRST title under this agreement. The other studios are following suit and deals will be finalized in the very near term. Check out RedBox and Netflix. Guess what? "The Blindside" won't be available.

2. Blockbuster Online has Netflix beat hands down. While the program may not yet have the name recognition Netflix should savor for the short time they'll continue to have it, that's about to change. Just see the fact above. In addition, Blockbuster Online offers thousands more titles than Netflix, is less expensive, offers and ENCOURAGES the untouchable advantage of in-store exchanges (to drive traffic to stores) AND is about to launch a completely revamped website, offering an amazingly quick and easy user-friendly experience.

3. Let's talk kiosks. While admittedly late to offer this service, Blockbuster Express offers advantages that will make RedBox start collecting dust. At the end of 2009, Blockbuster had approximately 2500 kiosks up and running. By the end of 2010, the company will have 10,000+ kiosks available. They ARE much closer to Blockbuster stores than you mentioned and for good reason. As the number of kiosks grows, the company will begin to offer the ability for consumers to return Express rentals to their local store, with incentives on exchange rentals to (again) drive traffic to store locations. Further, in addition to offering ALL the new releases RedBox WON'T have, Blockbuster Express kiosks also offer the most popular older titles and are preparing to add Blu-Ray to the consumer's choices which will quickly erode RedBox market share. Finally, the company is also testing offering games through its Express kiosks. Yet another area RedBox can't touch.

4. Blockbuster just began offering an incredible program called Direct Access. Members now have "access" to the company's 95,000+ title library in EVERY store. Same rental price. No commitment. No hassle. Just the ability to rent any available title right at the register and have it in your mailbox in 2-3 business days. As an example, I ordered season one of "True Blood" on a Sunday night. It shipped Monday and I was watching my favorite show on Tuesday night, popcorn in hand. Plus, at the end of my 7-day rental period, I had the option to either drop the envelopes in the mail OR return them to the store and swap each of them for a new release of my choice for only $1.99. Again, this service drives traffic to the stores where the member can engage in actual human contact with employees who LOVE movies.

5. Let me correct you on your statement about what you refer to as "late fees." They're not that at all. If a member decides to enjoy their rental past the 5-day initial rental period, they're simply renting the movie for $1/day. It's not a money-making charge for Blockbuster. It's a fairly-priced service, and gives the consumer the option to keep his/her rental longer for a standard industry price. It's something I appreciate, since, as a gamer, it sometimes takes me longer than five days to finish playing my game rental, and I don't have to worry about the added cost of renting the same game twice.

6. Another innovative service is Blockbuster On-Demand. Instead of paying $25/mo to my cable company to "rent" a DVR, I can buy the latest Tivo at Blockbuster and watch and record the newest titles without flushing money down the toilet on an outdated DVR which I don't even own, and I recoup the money I spend on the Tivo (it's mine) in less than ten months. I also have the option to buy one of the best Blu-Ray players on the market (pre-loaded with Blockbuster On-Demand, YouTube, Pandora music service, etc.) and stream the latest movies instantly with my high-speed Internet connection. No waiting for the movie to load either.

7. Finally, Blockbuster has just begun to give its employees the benefits (bonuses, etc.) it was forced to eliminate when the going got tough. Now why would a company you refer to as "doomed" do that if it weren't confident about the successes it's going to achieve in 2010 and beyond?

So, while in the near-term, Blockbuster may be struggling financially (just like dozens of other companies I could name), the future of the at-home entertainment industry is blue, not red.

[Nomo Blockbuster]

Blockbuster has been singing the blues for years now and has little to no chance of success of surviving past 2014, the new year a significant portion of its debt is due.

The more Blockbuster attempts to force itself into consumers' lives, the more consumers resent it, just like the consumers resent the Blockbuster employees that treated its customers like dirt. What goes around comes around and, for Blockbuster, that means closing for good.

[Jim]

A total of 26 HD movies? Are they serious? Netflix has absolutely blown them out of the water.

[Asx trading]

It doesn't surprise me hearing such possibility. The glorious years of renting DVDs and VCDs slowly ceases as people can watch movies for free on the comfort of their own home, all they need is just a high-speed internet connection and a computer.

[mounir]

Its time for them to shut down their stores, and go all mail order and digital. This new game/dvd's plan is sounding good for right now, but they need to get into the digital side of things asap. and just to let them know, i really, and i mean really hated going to the video store. It was a pain.

[mel_deschamps]

Blockbuster is emphasizing online movie rentals and is looking at downsizing its stores in urban areas. However, the vast majority of Blockbuster's store space is wasted on older video selections that customers often ignore in lieu of newer releases.

[John N]

http://www.usatoday.com/money/media/2010-09-23-blockbuster23_ST_N.htm

Just thought I'd post a link to a Blockbuster bankruptcy filing article. I was right from my earlier comment. It did happen. I guess people decided not to make it a Blockbuster night.

[Tim Gardner]

I can't believe the state blockbuster is in myself. I am only 17 years old, and I have been around since before the beginning of the quickening emergence of the offering of digital media. I had gone to one of the stores recently, and everything is just ridiculously overpriced. My family only uses the coupon to ever get free movies. We pay like 15$ a year or so, and just trade in the movie and print out a free movie coupon, return the movie, and wallah. I don't know if they have thought about that fact, but if they dropped it, they would lose their highest income resourse... a yearly fee. haha. I personally don't like the way the employees are pushed to get you to spend your money on obvious overpriced things. I mean, I tried to talk to one of them before, and they said in their most polite voice, "I am not allowed to talk about it, but they have no idea what they are doing."

[Matt]

I subscribe to both Netflix and Blockbuster to have the best of both worlds. If you do the cheap version of both that's still less than 15 dollars a month. And you get all the options Blockbuster offers I'll list.

When people say, "I am a Netflix customer and have not looked back." Or "I can't live without my netflix" I don't get it. When did society start accepting less over better? Seriously.

Blockbuster:
1. Trade mail movies for movies in the store
2. Brand new movies 28 days before any other service
3. Rent video games online
4. Trade video games from the mail with more games in the store
5. Face to face customer service
6. REAL ONLINE customer service that replies within the same day to 24 hours.
7. Concessions that are so cheap they can't be making money on them.
8. A WALL of DVDs to look from instead of having to know what you want to look up.
9. Trade scratched disks immediately at your closest store instead of having to wait for a new mailed DVD.
10. Instant sends when you report a problem instead of having to wait 5 days to report a problem like you do with Netflix.
11. Download ALL movies, even brand new movies, to your computer to keep for 3.99.
12. Stream brand new movies for free with a Toshiba or Samsung device.

Netflix:
1 Too many Partial TV shows you can't stream all of (seasons are fragmented)
2 No new movies on the instant view, you can't stream unlimited movies it's a deceptive advertising campaign.
3. Horribly slow delivery times after you've been on with them longer than a month (I DO SUBSCRIBE TO BOTH).
4. You can not report problems with a DVD until 5 days AFTER it's been shipped.
5. No Online Customer Service
6. A phone number you have to call, where at times the hold times are unacceptable.
7. No new movies until 28 days AFTER Blockbuster gets them.
8. Wait lists on new movies, sometimes saying "Extremely long wait."
9. Their inventory is falling fast. Blockbuster now has more titles available than Netflix does.

Since I subscribe to both Netflix and Blockbuster I know this for a fact. GO to your Que on your Netflix page. Look at your Instant Que. Look at how many "Unavailable" or "Save" movies there are. Now do the same for your mailer DVD section. There are more unavailable movies from Netflix.

[Matt]

And Netflix is NOT HD. I'm on an extremely fast connection (FIOS). Regular compressed cable TV looks better than most Netflix streams.

[Matt]

lastly... my nephews visit frequently. They used to have some cartoons on the instant stream service. Now they've all been pulled, and are no longer available even in the DVD rental section. So I went to Blockbuster to check out the online offers. And sure enough, they had all the cartoons and movies that Netflix didn't have. Including the old school retro toons my Nephews were starting to really like. Like Captain N and the Game Masters. Netflix doesn't carry it, Blockbuster does.

The only problem with Blockbuster is their horrible advertising department. They all need to go work somewhere else. For months Blockbuster focused on 2 cute hamsters. SORRY.. that doesn't work. They needed to tell customers of all the options they had over the other online services like Netflix, Games n Flix, Games By mail, and Redbox.

Don't even get me started with Redbox.