Blockbuster Facing Possible Bankruptcy
Back in 2008, we wrote that Blockbuster’s CEO Jim Keyes
was looking to unlock the chain’s potential by creating a deeper connection
with customers.
At the time, the company offered a few ways it might do that
including opening stores earlier to allow consumers to drop-off or pick-up
movies before heading to work. Another idea was to add coffee bars and fountains
to stores to make them more of a destination. There was also to be a dedicated
play area for kids.
Since that time, Blockbuster has closed large numbers of stores
and pursued a joint venture with NCR to place video rental kiosks at other
retail locations. In the past week, Sheetz announced it would allow Blockbuster
kiosks to be installed at its 365 convenience stores.
Now reports suggest that tightened credit on Blockbuster
by movie studios may force the chain into bankruptcy.
“Should we not be able
to generate sufficient cash flow from operations and should the studios tighten
or eliminate credit terms, we may determine that it is in the company’s best
interests to voluntarily seek relief through a pre-packaged, pre-arranged or
other type of filing under Chapter 11 of the U.S. Bankruptcy Code.”
Discussion
Questions: What do you think the future holds for Blockbuster? Has the day
of the video store ended or is it simply in need of recreation?
I think this business model is outdated and will become extinct. I haven’t paid for a DVD in years. Our local library stocks multiple copies of all new movies and they can be checked out for free. With access to multiple libraries in the system, the inventory of movies is well beyond that of a typical Blockbuster. Then we have all the free movie sites on the internet. In our new economy, consumers are not going to want to pay for something that is now free. For those wanting convenience and willing to pay a small fee, we have Redbox at nearly every supermarket.
Changes to the operating model of Blockbuster (longer hours, coffee bars, etc.) can’t change the fact that technology and other business models have left them behind. Blockbuster’s mistake over the past five years was to react too late to the different types of competition offered by Netflix and Redbox. You can’t beat Netflix for convenience and breadth of assortment, and they have been very forward-looking by adapting to live streaming technology. At the same time, Redbox has become a strong competitor in terms of new releases at low prices in convenient locations.
I made far too many trips to my neighborhood Blockbuster in the past, only to be disappointed in the search for a new release or otherwise walk out empty-handed. No retailer can survive forever at this level of execution, and my local Blockbuster now has a “Store Closing” sign by the front door.
Blockbuster is being killed off by Netflix, on demand, and Redbox.
Yes, I agree with all the posters that their business plan is a relic, and they will soon be extinct like Hollywood and so many others in the DVD storefront rental business.
Personally, Netflix has been great and an enjoyable form of entertainment for my elderly, partially housebound Mom. She has been a member since 2003, and I can tell in her voice every time I speak with her how much she enjoys her Netflix DVD selections.
Viewing these movies keeps her mentally sharp, and she does enjoy the flexibility of watching them according to her schedule.
The Netflix business plan does work, and because they continue to be in the forefront of the pack in terms of innovation, they should further strengthen their market share in years to come, as Blockbuster withers into extinction.
The brick and mortar video store has been first up in the path of change to this industry all along. They required the most cumbersome model for consumers and the highest cost in the marketplace to survive. While we have often argued in this space that the pundits touting the inevitable dominance of the digital download are far ahead of their time–and they still are–the time is nevertheless coming. And the most capital intensive competitors will be the first to fall along the pathway to VOD.
Unless Blockbuster were to find a way to compete against Redbox with its own version (Block Box? Nah), I don’t see a light at the end of the tunnel. That’s not to say that there isn’t power in the brand. Perhaps Hilco could snatch them up and work some intellectual property monetization magic ala Linens ‘N Things.
This is sad for me. I cut my management teeth over at BBV and made some good friends and contacts and learned a lot from the brand. Unfortunately, their business model was outdated years ago (and nobody noticed). It’s a great brand and they should try to salvage it any way they can. Download, mail order, and kiosks could be marginal ways to at least keep the brand alive, but I would like to see something radical come from them. In the meantime, it’ll be 2 for 1 previously viewed movies!
Blockbuster is going the way of the blacksmith, which is a shame. When VCR technology (you remember that, don’t you?) came out and signaled the decline of the movie theater, they were the first to organize this fractured business into a national chain. Later they created the self-service model that made it a very profitable business. They successfully transitioned to DVDs.
Like all businesses that are content-rich (books, movies, music, news), they are now facing the same fate as the blacksmith as a new technology makes obtaining the content more convenient and cheaper with fewer limitations on the breadth of assortment.
Once upon a time…How often can we write this story? The industry leader loses its position and eventually its business because it can not move out of its business model. Retail is perhaps the worst offender.
It is often challenging to suggest that a market leader has a poor business model, but in the case of Blockbuster, it was obvious the day Netflix first dropped a DVD in the mail. Blockbuster is done. The age of the video store is done. And, it is time to start counting out DVDs.
Perhaps if the BBV model were to be changed from 80% DVD rental/sale 20% games to 90% games 10% DVD they may survive.
Doing business against Gamestop and Play and Trade may be a better bet than trying to catch Netflix and other movie portals.
Other than that, it appears to be the end for BBV.
Let’s start with the obvious: The only way to win in the marketplace is to be better than your competitors in some way, typically with either product, service and/or price. BBV is NOT ‘better’ (as defined by the consumer) with their product and is relatively deficient on both service and price. In short, they are toast.
Mr. Keyes (easy for me to say, I know!) needs to accept these facts and move with deliberation toward sizing up the value of the assets remaining and restructuring what they have into a totally new business model, if possible. The longer BBV waits, the more the value of the existing assets continues to decline. This is not a revamping of 7-11…the need is for decisive, immediate action.
Not only is the video store outdated, DVDs may be as well. I have heard rumors that Netflix is going to phase out DVD delivery in favor of an entirely download driven model. We probably watch 70% of our movies through their download service. You can stream their movies through dedicated boxes like the Roku and through gaming systems. I wonder when we will rent our last actual DVD? Think of what Netflix would save without having to ship plastic all over the country.
Blockbuster is a vinyl record in a iPod world. They had a good business model, but technology has made it obsolete. Store kiosk and the Netflix models will have a 5-year run, and then it is downhill for them as well. Consumers simply have no desire to drive to a store to rent a DVD when they can get it over the internet. Now with the push to bring broadband to every home, kiosk and mail will decline as there is nothing better for the consumer than On Demand.
Blockbuster missed a few things along the line. The Internet and its capability in their business. Marketing research and what the customers had to say about late fees. The operational side of how many employees it takes to delivery a movie.
Their business model was inefficient and became outdated. In business it is not always about coming up with the best idea but rather being nimble enough to adapt to a good one.
This should be a great case study for retail and marketing classes and only proves nobody is too big to fail.
I’m jumping in late on this discussion, but it allows me to ask the obvious question that my predecessors have missed: “Is Blockbuster the Canary in the Coal Mine?” Blockbuster was unique because their product was all electronic and as technology changed, the physical store became obsolete. But as more and more products become available online and more and more of our economy becomes “virtual,” are other physical retailers just whistling through the grave yard?
From a societal perspective, the fact that retail is one of the largest employers is another factor that must be considered. Who is going to buy all the virtual goods if there are no more people building and staffing physical locations?
Tough questions; my head is starting to hurt.
“Another idea was to add coffee bars and fountains to stores to make them more of a destination. There was also to be a dedicated play area for kids.”
This brings tears to my eyes: I can remember when the family would dress up in their Sunday best to join Grandma for Easter dinner at BB’s tearoom … oh wait, maybe that was some other retailer.
Anyway, it’s difficult to “connect” with your customer when you don’t have any left.
Given the fact that we’ll soon be able to download our movies as we need them, all those competitors mentioned should be heads up to this fate. If what happened to music is any indication, look out!
There are three components to retail: the meeting of the minds between buyer and seller; the movement of the service/merchandise; the movement of money. For an information content business like movies, there is absolutely NO need for bricks and mortar. The meeting of the minds can almost certainly be done better on the internet, as can the movement of money. If content is the product, the internet wins hands down as well.
This scenario that is weeping Blockbuster into the dustbin is shaking the foundations of the book publishing business as well. When I speak of the Amazonification of Walmart, amongst other things, I’m trying to call attention to the very real possibility that Amazon will become a mortal threat to “Walmart.” The only real advantage that bricks-and-mortar have is immediate delivery of physical merchandise. And that’s what the quick-trip convenience store is about. Many dinosaurs do not recognize how their principal asset, deployed capital, can become an albatross–and how quickly that could happen.
This is a bad business model and Blockbuster has outlived its usefulness in the business community. It is time for Blockbuster to recognize this, especially when its providers are telling the organization that they are no longer going to support it.
This is heartbreaking. One can make the argument that Blockbuster has done everything it could. Its management is very smart. Will America be happy if Blockbuster goes away?
How can anyone excuse Blockbuster from a lack of ability to adapt to the market? Blockbuster has held on to a dying business model like a sailor onto a life preserver. They have spent their time and energy trying to prop up an outmoded system instead of moving their model into the future. They have no one to blame but themselves.
We’re generally pointing to the same issues. But specifically, on March 11th one week ago I saw for the FIRST time a promotion for the rollout of Blockbusterexpress.com (“find a kiosk near you”). I’ve only used Netflix for a few years but it’s been around since like the late 90s and streaming movies for a couple years. Amazon’s streaming movies too.
If ever I’ve seen a prime example of a retailer’s failure to anticipate, acknowledge, and adapt it’s gotta be this one. And I think the kiosk thing is a waste of time, energy, and money. It’s a mirage of a business approach. If memory serves, Redbox was first backed by McDonald’s. Kudos to somebody over there because surprising to me, I actually see people using those kiosks. But with cable packages and the increasing streaming business is it really sustainable? I don’t think so.
As with Circuit City, the brand has been taking a continuous dive, but I believe it still has some value given a new decisive storeless strategy–less brand value than a year ago, but still a bit. While the BBV brand still has some value, a PE group should acquire and revamp as a pure online/streaming brand.
A lot of folks expected BBV to go BK last year–by the way negotiating rent breaks in your stores isn’t going to solve fundamental flaws in your business. And considering the view over the years among many who could see what *apparently* management could not(?)–that bricks/mortar movie rental is a dying business–how exactly did management do everything they could especially where the goal is maximizing BBV stock value? Not so sure about that one.