Blockbuster Files for Chapter 11
It always seemed to be a question of when Blockbuster would
file for bankruptcy protection and now it’s official.
The movie and game retailer
has filed for Chapter 11 bankruptcy protection after reaching an agreement
with a group of bondholders to reduce its debt from its current $900 million
to $100 million or less. It has also reached a deal for $125 million in financing
from noteholders.
The company said that it plans to keep all of its U.S. operations
including its 3,000 stores, vending kiosks, digital downloads and mail service
operating normally for the time being although it is clear significant changes
will be needed for Blockbuster to reduce its debt level.
A company press release
added: "Blockbuster is fulfilling all orders as
usual, including continuing to provide access to new releases the first day they
become available. Blockbuster intends to continue honoring its Rewards program,
valid coupons, gift cards and other customer programs."
Blockbuster said
operations in Canada, Denmark, Italy, Mexico, and the United Kingdom would
remain as-is, but that it would no longer fund its business in Argentina.
"The process announced today provides the optimal path for recapitalizing
our balance sheet and positioning Blockbuster for the future as we continue
to transform our business model to meet the evolving preferences of our customers," said
Jim Keyes, chairman and dhief executive officer of Blockbuster, in a statement. "The
recapitalized Blockbuster will move forward better able to leverage its strong
strategic position, including a well-established brand name, an exceptional
library of more than 125,000 titles, and our position as the only operator
that provides access across multiple delivery channels — stores, kiosks,
by-mail and digital. This variety of delivery channels provides unrivaled convenience,
service, and value for our customers."
Blockbuster said it will also continue
with a program that gives its customers the opportunity to rent new releases
28 days before its main competitors.
Discussion Question: What do you see in the future for Blockbuster now that
it has filed for Chapter 11 bankruptcy protection?
Maybe Blockbuster will go into the buggy-whip business; given their track record, their chance of success there is about as high as it is in the DVD rental business….
Look for Blockbuster to shed underperforming or high-rent stores, place more kiosks and try to renegotiate with the studios. The first two items are more or less under their control. The studios will be the most difficult, especially if Blockbuster wants to hold on to their 28 day head start. That’s why their senior management made the rounds of the studios before their filing.
If Blockbuster comes out of Chapter 11 they will need a newly revised business model. Time has passed them by in terms of how people watch movies.
Blockbuster has been caught in the digital shift. Music, movies, and now books are moving to on-demand over the internet. The problem for Blockbuster is, if they get too far ahead of the curve they will lose money. The issue going forward is how to service the digital divide. It will be years for all households, if ever, to access movies over the internet…and to profitably change the business model for internet delivery.
“Reinvention is required” seems trite–yet true. The big question is “reinvention as what?” The only unique part of the BB model is the part that is killing it, brick and mortar stores. Everything else is a second fiddle me-too to someone else in the market. This is a tough one.
Their business model is no longer relevant. The younger generations watch movies for free on the internet or perhaps even download them. The older generation gets them free at the library and maybe once in a while, will splurge and spend a dollar at Red Box. Where does Blockbuster fit in? They don’t.
Blockbuster provides a cautionary tale of how short a business format lifecycle has become when dependent on technology. Blockbuster was first to organize a fractured business (remember VCRs?) and then, a couple of years later, came up with, at the time, a breakthrough store layout that shifted in-store task work to the customer. Now they are saddled with a capital investment in a 4-wall structure that is hopelessly behind the latest curve. All of this in about 25 years.
The lesson here is that, if you are not adapting to the new technology, particularly in an information-rich product or service, you’re going out of business.
Blockbuster is doing everything right as they transition from one business model to another. They are the only entertainment provider who works in every channel, and they are well aware of changing preferences in media consumption. Don’t count them out yet.
Blockbuster’s best days are behind them. Wayne Huzienga built that empire. He has the knack of building for little, selling for a lot then moving on to the next opportunity. He did it with Blockbuster. He managed it well. Since then they have been caught in a spiral. Then competition walked in taking a good percentage of the business. They will not give it up no matter what Blockbuster promises the studios.
I can’t decide who they will be if they are successful coming out of the bankruptcy. My greater concerns are for my friends who had service and maintenance contracts with Blockbuster for many years. They will certainly be financially affected. The question is how badly; and can they stay afloat as a result of this boat taking on water.
Significant competitive advantage isn’t enough to overcome changing trends and advancing technology. Blockbuster failed to leverage their traffic, thousands of stores, or loyal card-carrying customers.
Smart retailers constantly innovate; they recognize trends and move their organization in the proper direction. It requires constant vigilance and the willingness to slay sacred cows.
Social media will transform the way businesses communicate with customers and must be treated as such. That means employees on the front lines must be trained with the corporate policy to ensure that one consistent message is communicated to customers and competitors as well. In fact, companies should have someone on staff that regularly monitors Twitter, Facebook, Flickr, etc., to see what’s being posted about their brand. Leading companies like Southwest Airlines, Jet Blue and Dell do a great job controlling the chatter surrounding their brand.
Block Buster’s demise will only be forestalled through bankruptcy and reorganization.
They stubbornly held onto an increasingly obsolete business model (brick and mortar) and are last to the game when it comes to kiosks and mail order delivery. Trying to build leadership in online delivery model they will take years to pay off as a volume business and their cash brick and mortar operations and second fiddle purveyors in kiosks and mail order will hasten their decline.
This is a text book case of how quickly a name brand product and service provider can lose market share and their brand equity when they fail to respond to changes in the marketplace (technology and shopper habits/preferences).
“The company said that it plans to keep all of its U.S. operations…operating normally for the time being….”
They don’t have a plan; my prediction: liquidation.
I don’t see it working long term. How do you compete with on-demand and vending machines? The only ones who are going to come out of this successfully are the law firms working for Blockbuster. The upside is that it gives a little more space for the small independent video store.
This is a dead model and a dying physical product (DVDs and games). With the online presence becoming so large, as well as competition from cable and FIOS, blockbuster has to change its market and its products. With 3K locations, Blockbuster could sell the majority of its stores and still change venues with its best stores to become something different…a clothing store, grocery store, convenience store, restaurant chain…etc. The key here is that Blockbuster must evolve or perish.
Blockbuster cannot continue to be just a movie rental location. They are unable to compete on price/convenience (e.g. RedBox) or on breadth (i.e. NetFlix). But there a customer need that is currently not being met…an experience. Blockbuster has assets that can make it very competitive in this space: it has prime/convenient retail space and it has on-the-ground staff that actually is able to physically engage with its customers.
Blockbuster stores need to go the direction of Barnes & Noble or Apple stores. Immerse the customers in a movie experience. Leverage a combination of interactive kiosks, staff, customer profiles, and complimentary business partnerships to really help the customer select the perfect next movie.
– Interactive Kiosks: Rather than taking up much shelf space displaying movies on walls, they need a highly interactive and engaging kiosk that provides reviews, user ratings, trailers, and ability for users to login and review their choices.
– Knowledgeable Staff: Blockbuster needs to hire people that are passionate about movies or train people on how to talk movies. This can be a major differentiator for the company. From an experience perspective, a team on the ground that talks to people about new and old movies, and can provide a perspective can be huge. This is especially crucial in moving old inventory. People need help picking movies that are more than 20 years old, and these movie specialists can help navigate customers. I am specifically thinking of Zappos level customer service. I don’t know this for a fact, but I would guess that Blockbuster would end up making a higher margin on renting old movies than new releases.
– Complimentary Partnerships: I love the Dunkin Donuts and Baskin Robbins partnership. Blockbuster needs to get another complimentary retailer into its retail space. Think of all the products and services that can make the Friday night movie watching a WOW experience. When I rent a movie, I like to eat pizza and have a few drinks. For kids’ movies there can be cross toy promotions. The possibilities are almost endless.
Blockbuster needs to fundamentally change the movie rental experience…I believe that this is the path to their long-term growth.
The fascinating issue for me is that Wayne Huizenga and his executive team were well aware of the risks from digital distribution of media and discussed it at times. That is now several years ago, so recognition of the problem is not the issue, it is the ability of executive management between the Huizenga years and today that have miserably failed their shareholders.
It is interesting that everyone thinks digital immediacy is “cool” but once that model has destroyed its brick and mortar predecessor, consumers often express remorse for more options. Maybe Blockbuster should close all of their stores and reinvent as a co-tenant with grocery, fast food, or convenience retail.
That model has much lower overhead and still meets the needs of consumers who aren’t ready for digital downloads.
There is no surprise here. It was truly a situation of not if but when.
I don’t count them out. Their kiosks are great. They are far superior to RedBox albeit well beyond late to the field.
They stand as much of a chance as any one in the movie market today. It’s not done changing–not even close. Just like music and books, the shift is seismic and it’s only just begun. The fact that they are in all channels and given a pause to regroup and refocus, may give them an even chance to come out with a strong direction.
Optimistic? Maybe. Maybe…likely too optimistic. However, I don’t think they are any worse, but likely better.
Who’s Blockbuster?
John Antioco clearly ran Blockbuster into the ground with a combination of poor forward vision and personal narcissism. The stories are legion about the “Blockbuster Napoleon.” Apparently his hand inserted inside his designer shirt was gripping a golden parachute. (Wow, that’s a weird analogy!)
If a video provider has physical locations, I’ve always recommended their being able to burn legal, customized copies of anything in their catalogue on-site. It’s like the pharmacy: “Come back in ten minutes and we’ll have your order ready. Blu-Ray? That’ll be an extra two dollars.”
How often have you purchased a DVD in a supermarket? And, if you do, how often have you found yourself wishing they had more titles? Blockbuster could change that, but they don’t seem to get it.
Gosh, as hard as I try–I see nothing! Maybe a chain of hot dog stands! I look around and there doesn’t seem to be many gourmet hot dog stands out there. The stores are about the right size and you don’t need much equipment to do hot dogs right. Good LUCK BLOCKBUSTER! I always thought that the University of Michigan color scheme was a little much!
Not so fast here. Certainly Blockbuster has many challenges and the forward view will be in the hands of management and the new board. There is no certainty, but…one must remember the many advantages the company still has. The Blockbuster brand is globally known, unlike Netflix or other competitors. They have a digital platform that delivers in HD, which Netflix DOES NOT. Netflix too will have many costs and difficulties transitioning to digital. Right now it is a free package for renting DVDs by mail. The service is not so good, quality of often poor and the movie selection is limited. That’s OK when you are mailing DVD, but not OK when the primary use is digital.
My point being that NO ONE yet has a dominant position there. Yes, redbox is a challenger, but Blockbuster’s partner in kiosks is the well funded NCR. Post bankruptcy, this action can be accelerated.
Finally, while everyone pillories brick and mortar they are not paying attention to the fact that physical sales of DVDs still far outpace digital revenues. Blockbuster does have leverage or why else would the studios support them and give them the 28 day advantage? The reason the studios have not just given it to redbox and Netflix is the money is still not there yet. Blockbuster may still go away, but there is no guarantee of strong competitors.
I am not sure that the bankruptcy filing for Blockbuster will significantly impact its business situation at all. Ultimately, with the rapid acceleration of video and movies to the Internet, the fundamental business model that Blockbuster has used since inception will no longer apply.
As content moves to the Internet, control of that content becomes more distributed. Not only such websites as Hulu but the networks, cable companies and various other sites become distributors of pieces of content from movies and television shows. The fundamental business model of being a consolidator on the web is so different from being a physical consolidator of content that I am not sure they can make the jump.