Blockbuster Plays Hard Ball with Hollywood

Discussion
May 17, 2010
Tom Ryan

By Tom Ryan

Earlier this year, Blockbuster reached agreements with Warner Bros.,
Fox and Universal that gave them access to new releases for a period of 28
days before Netflix and Redbox, as well as more favorable payment terms. What
wasn’t learned at the time was that studios opting in would be getting better
shelf space at its stores than those who didn’t.

The policy came up last week
after an analyst on Blockbuster’s first-quarter conference call asked why he
only saw two copies of "The Lovely Bones," from
Paramount Pictures, at his local Blockbuster.

"Frankly, it’s pretty simple," said CEO James Keyes, on the call. "There’s
some studios working proactively with us with day-and-date windows. And we
want to support them and reward them. They’ve been very helpful to us
in being able to provide a competitive advantage. Those studios who are still
providing our competitors with an advantage, you know, not so much. We’re going
to work with them, but if we’re out of stock on a movie that is in-stock
with our competitor, so be it. We’re going to help those who are helping us."

Speaking
afterwards to the Hollywood Reporter, Mr. Keyes elaborated, "Warner,
Fox and Universal have worked very cooperatively toward agreements that actually
allow us to be in stock. I’ve encountered as a retailer an acceptance of opportunity
cost — a product being out of stock. If the deal structure for ‘Lovely Bones’
makes it prohibitive to stay in stock, that’s a loss for the studio and for
Blockbuster."

On the call, Mr. Keyes noted that since over 60 percent of
the industry’s $22 billion rental and retail business represents new releases
during the first 28 days of street date, "we believe that these agreements
provide a significant competitive advantage for Blockbuster’s stores and for
our cross-channel offerings."

He also noted that given the retailer’s
liquidity issues, Blockbuster hasn’t been able to advertise its new release
advantage.

"We do believe this is a significant opportunity going forward and for
the first time in many years, we now have a tangible advantage to communicate.
And we hope that additional funds and studio co-op advertising can be used
to promote this advantage," said Mr. Keyes. "Finally, we believe
more studios are likely to introduce a window and that, over time, this will
strengthen this virtual exclusivity, if you will, in new release rentals in
DVD."

Blockbuster posted a loss of $65.4 million in the quarter as revenues
declined 13 percent.

Discussion Questions: Does Blockbuster’s 28-day new release policy with
studios provide it with a sizable competitive advantage? What do you think
of the "opportunity
cost" of favoring certain studios for special terms if it leads to out-of-stocks
for customers?

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15 Comments on "Blockbuster Plays Hard Ball with Hollywood"


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David Livingston
Guest
10 years 11 months ago

I don’t think it’s much of an advantage. DVDs are not perishable items. If someone really wants to watch a movie bad enough they could have seen it in the theater. If they can wait for it to come out on DVD, they can certainly wait another month and get it for a buck out of Red Box. Or better yet, free from the library or on YouTube.

Dick Seesel
Guest
10 years 11 months ago

My question upon reading this article is why the three studios in question reached this sort of agreement with Blockbuster in the first place. There must have been favorable financial terms, not just the promise of preferred shelf space. After all, better shelf space in a rapidly declining retail concept is of questionable value.

Did the movie studios consider the speed with which Blockbuster has closed locations all over the country? Did they consider that the “bricks & mortar” delivery concept is rapidly achieving obsolescence? It makes you wonder what this decision is going to look like five years from now.

Mel Kleiman
Guest
10 years 11 months ago

Great move for Blockbuster, bad for the consumer and the studios.

One line in the article points out a real problem. We can not afford to promote the new 28 day window because of cash.

The real question is why are the studios betting on a horse that is already in last place and fading fast?

Max Goldberg
Guest
10 years 11 months ago
The studios are trying mightily to find ways in protect their products from piracy and increase revenue streams. They are bound by a 70 year old consent decree prohibiting them from owning theaters and rely on companies like Blockbuster to reach consumers in the post-theatrical aftermarket. Consumers, on the other hand, want a movie to be delivered by the method of their choice, in the format of their choice, on the date of their choice. There’s a basic conflict here. This conflict has been building for years. Blockbuster is the latest to try to find a way to exploit it. It may want to play hardball with the studios to get favorable terms and a Netflix-free window, but Blockbuster is still bogged down with retail leases and the need for a consumer to make extra effort to visit its stores. Eventually the movie distribution paradigm will shift and consumers will be able to get any film they want, on any device, on the day of its initial release. Some will choose to watch it in… Read more »
Doug Stephens
Guest
Doug Stephens
10 years 11 months ago

It seems to me this is sort of like rearranging the deck chairs on the Titanic. This strategy and just about everything else Blockbuster has rolled out over the last 5 years all simply forestall the inevitable…people want movies delivered digitally.

I realize that there are some stalwarts out there for whom the trip to the video store is “part of the experience” but their numbers simply don’t support any future for the format.

Sandy Miller
Guest
Sandy Miller
10 years 11 months ago

It does not seem to make sense. They should focus on providing shoppers what they want.

Camille P. Schuster, PhD.
Guest
10 years 11 months ago

If the studios are getting more money the deal is favorable for them for now. Since Blockbuster is not advertising the deal, many consumer do not know about it. In addition, a number of Blockbuster stores have closed so they are not as convenient for some consumers to use. If the studios see a difference in usage that affects their revenue stream the deal will not last long. Blockbuster is no longer the major source of movie viewing so the deal may not have much impact on consumer movie viewing.

Ryan Mathews
Guest
10 years 11 months ago

Blockbuster may have won a temporary victory, but it’s not enough to save it. Good move for buying time, nothing more.

Susan Rider
Guest
Susan Rider
10 years 11 months ago

Blockbuster needed to do something to keep themselves afloat and this may help for awhile. (Like the Titantic analogy :)) Hopefully, they are thinking of other very creative and out-of-the-box things to evolve to in order to generate significant revenue to justify their operating cost.

Lee Peterson
Guest
10 years 11 months ago

Doesn’t matter. The idea of going to a store, parking, shopping, getting in line, returning–for a movie–is a dead idea. Unless it’s a buck (which doesn’t support a store)! Like music and books have proven already, we’d rather shop on-line or get it for practically nothing. Just check the success of Netflix and Redbox. The cat is out of the bag and the old and sick mice are doomed.

An interesting question is; what’s going to happen to all of them when we can simply download a movie, any movie? I think we know that answer to that one too; it’s called iMovie. Meow.

Victor Willis
Guest
Victor Willis
10 years 11 months ago

Too little too late. Blockbuster should spend its dwindling resources on finessing its online business model and extricating itself from bricks and mortar contracts. How much did it cost them to secure these exclusive deals? In any case, the one true advantage they have over Netflix and Redbox–delivering a superior customer service–is starting to disappear. The last time I visited my local Blockbuster was a depressing experience–dim lighting, stale aroma, poor signage and a sad array of snacks to choose from. My DVD was available but that seemed almost unimportant.

Anne Bieler
Guest
Anne Bieler
10 years 11 months ago

As most panelists reported, this move may buy time for Blockbuster to reinvent itself going forward. It has been disappointing to go into a Blockbuster, see new movies listed as “coming soon”–and the staff were unsure when this might occur. It may help for now, in some locations.

Longer term, Blockbuster will have to create a better reason for its locations than a few weeks lead time, the ship has sailed, and time to look forward to new distribution/technology to engage today’s consumer.

Craig Sundstrom
Guest
10 years 11 months ago

Blockbuster…are they still in business??? I think the remarkable part of this story is the suggestion that BB might (still) have some kind of leverage; I would have thought they would still be out waiting in the reception area. Then again, this is a company dealing with an industry who both have in common that their delivery method is outdated (or almost so): I guess they’re made for each other.

Ted Hurlbut
Guest
Ted Hurlbut
10 years 11 months ago

I think everybody involved in this deal is hopeful rather than realistic. The Blockbuster store-front business model is dying. The consumer has chosen other means for renting movies. A 28-day exclusivity window is not likely to turn the tide on consumer preference.

Still, for the studios, this might be a no-lose deal. If Blockbuster ultimately can’t turn their business around, they’ll go away and so will the deal. If the deal turns out to be inconsequential in the marketplace, the studios pick up a little bit of extra cash from Blockbuster, and the rest when the movie “really” breaks 28 days later. And if it should happen to work…

Kai Clarke
Guest
10 years 11 months ago

Blockbuster is trying to negotiate within their old model which is already outdated and dying. Blockbuster needs to evolve or perish. The customer is asking for immediate access and more current movies now, with electronic downloadability. Blockbuster needs to deliver on this model or it will eventually perish.

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