The Movie Rental Business: Blockbuster … or Blockbusted?

Blockbuster logoWhat’s going on with Blockbuster? For several years now, business analysts have wondered whether the company’s movie rental stores could withstand the competitive pressures from alternative delivery systems such as Netflix’s monthly subscription program, or the growing popularity of movie downloads direct to the customer’s own computer.

The latest announcement by Blockbuster’s management seems to suggest that we may be entering into an endgame phase for the company. Blockbuster reported that it will be closing as many as 40% of its stores over the next two years. This figure – nearly 1,600 of its ~3,750 total store population, is significantly higher than had been signaled by the firm earlier in the summer.

Blockbuster seems to be caught in a situation where its business model is no longer attractive – or even relevant – to a large and growing chunk of movie consumers. The company has nicely appointed, well-stocked stores scattered all across the United States. But these outlets are an expensive way to rent movies when compared to Netflix’s “movies by mail” program or Coinstar/Redbox’s $1 movie vending machine kiosks. The Blockbuster stores are losing money – and customers.

Come to think of it, Blockbuster has been playing catch-up ball in the movie rental game for quite some time. When Netflix introduced the idea of “no late fees – ever,” Blockbuster resisted following suit for a time … until it became clear that charging late fees was becoming a deal-breaker for many consumers. And with the end of late fees, a major source of revenue and profits dried up.

Blockbuster has also tried to compete with Redbox, but the latter is expected to have nearly ten times more kiosks than Blockbuster (~20,000 versus ~2,500) installed by the end of this year.

Blockbuster has even tried to compete with Netflix by introducing its own monthly mail-order subscription program. But that program, which had grown to ~3 million customers, sank back to ~1.6 million once its aggressive promotional program for the service had run its course.

And then there’s the direct download business – the proverbial “elephant in the room” that is a threat not only to the Blockbuster model, but also to aspects of Netflix and Redbox’s business as well. Blockbuster is taking a stab at this segment of the business by working out a phone-download program with Motorola plus a TV-download program with Samsung, but it’s not clear at all that these efforts will help preserve Blockbuster’s market dominance.

Looking at the current volume of business done by Blockbuster compared to its competitors, the casual observer might think that the company has nothing at all to worry about. After all, its customer base numbers more than 50 million compared to just shy of 11 million for Netflix. But these point-in-time figures belie the fundamental problems facing the company. Blockbuster – the lumbering ocean liner – is losing upwards of $40 million each quarter, while its rivals – the swiftly maneuvering speedboats – are making profits.

Wonder how much longer that can go on?

2 thoughts on “The Movie Rental Business: Blockbuster … or Blockbusted?

  1. UPDATE: Blockbuster is now up for sale having failed in bankruptcy proceedings and now faces liquidation if no buyer can be found. The sale ought to fail and the liquidation begin at once.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s