Blockbuster Shifting Resources from Stores to Kiosks

Discussion
Sep 17, 2009
George Anderson

By George Anderson

Blockbuster is getting hammered by the likes of Netflix and Redbox. In
the past, the movie and video game rental company created its own Netflix-like
service with mixed results and it has also invested in building up
its kiosk business a la Redbox.

This week, Blockbuster announced that it plans to close as many as
960 stores by the end of next year in an effort to cut costs and become
more competitive. This number, according to a Wall Street Journal report,
is on top of the previous closings the company announced that could reduce
its total store count by up to 40 percent. At the same time, the company
continues to push ahead with placement of its Blockbuster Express kiosk
business.

“We’ve been described as a melting iceberg, but we’re no longer melting,” Jim
Keyes, chief executive of Blockbuster, told The Dallas Morning News. “We
have an opportunity to improve our availability to the customer. With 2,500
kiosks opening this year and a total of 10,000 by next year, we’re not
shrinking.”

As a point of comparison, Redbox currently operates over 14,000 video
rental kiosks in the U.S.

The latest stores Blockbuster plans to close are among the 18 percent
it says are unprofitable. Another 35 percent are said to be performing
very well while 47 percent are profitable but not to the same degree as
its core stores.

Discussion Questions: What is your reaction to Blockbuster closing stores
and opening kiosks in response to market conditions? Are the changes Blockbuster
is making ahead, in line or behind
the curve in the rapidly changing DVD and video-game rental business?

Please practice The RetailWire Golden Rule when submitting your comments.

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20 Comments on "Blockbuster Shifting Resources from Stores to Kiosks"


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Steve Montgomery
Guest
11 years 7 months ago

The video rental business used to be a destination business. People were willing to drive a reasonable distance to rent their entertainment. Today the business model has evolved to being one of convenience. Blockbuster has now recognized the change and is reacting to it.

You can join Netflix and for a small monthly fee have unlimited DVD’s delivered to your home or with Redbox (and a larger number of smaller competitors) rent DVD’s at the corner store. With the kiosks you might not get the selection but the vast majority of movie rentals are the new releases. Redbox has been turning down locations where they were not assured of getting the high volume of traffic that they have come to expect. As Redbox, Blockbuster and the myriad of franchises such as DVD Now grow, movie rentals will become commoditized and we will see consolidation.

Doug Stephens
Guest
Doug Stephens
11 years 7 months ago

I’m amazed it took this long for it to happen.

Last week I signed up to test a service that allows you to download and play video games wherever you are, whenever you want. Coupled with the fact that I can download or stream just about any form of entertainment I like, why would I rent a DVD that I have to (and won’t) remember to return? Even my 85 year old father is using on-demand television and pay per view movies.

It seems pretty apparent that these are the death throws of a company that simply didn’t read the writing on the wall at least a decade ago. The business model begged to be changed radically but they didn’t do it.

It’s a shame but I think we can safely say that Blockbuster is busted.

Joel Warady
Guest
Joel Warady
11 years 7 months ago

Blockbuster looked at Netflix when they first started, and declared them a non-competitor – until Netflix became as big as they are through innovation, and then Blockbuster tried to copy the innovative model.

Blockbuster looked at Redbox when they first started and declared them a non-competitor – until people started to use Redbox in huge numbers, and now Blockbuster is going to be in the kiosk business, trying to replicate Redbox’s innovative business model.

Replicating innovative ideas is not innovation. It is an indication that one has no ideas of their own, and this, in a nutshell, is Blockbuster. They lack innovation, they lack a reason for being, and sad to say, they lack a future.

Kenneth A. Grady
Guest
Kenneth A. Grady
11 years 7 months ago

Blockbuster is coming to the party late. The media rental business is moving quickly towards models that don’t support expensive real estate. Whether kiosks in combination with downloads or downloads alone will be the waive of the future (and downloads have an edge since they can be used on mobile devices), Blockbuster needs to have a great exit strategy from brick and mortar. Sure, the stores won’t go away immediately. But they will go away and the sooner Blockbuster can reduce its dependence on 5 and 10 year leases, the better.

Peter Milic
Guest
Peter Milic
11 years 7 months ago

In formulating my comment on this discussion topic, I imagined myself faced with a decision on whether or not to invest in Blockbuster based on this recent announcement coupled with the direction technology is taking us. Regrettably, I concluded that this is not a growth strategy and I would not invest.

Product distribution in the entertainment industry is changing rapidly and it would appear that Blockbuster is abandoning the least viable distribution channel (retail box) in favor of more viable channels that may only be viable for a few more years. It is difficult to applaud a move that takes an organization from 5 steps behind the times to 3 steps behind the times. Financially, this will be beneficial in the short term, but there is no long-term thinking in this decision.

Paula Rosenblum
Guest
11 years 7 months ago

It’s a stopgap at best. The industry is moving to a media-less model, and downloads are the wave of the future. Even Comcast has started moving to a “Get movies the same day they release in theaters or come to DVD.”

I have no idea what Blockbuster’s going to do with all its real estate…buy online and return or pick up in store makes sense for tangible products…not digital ones.

Phil Rubin
Guest
11 years 7 months ago

If Blockbuster is “no longer a melting iceberg” does this mean it is now a puddle of water? Like other retailing has-beens, Blockbuster has had a long, slow and painful demise. Ironically, this is the first significant step they’ve taken to leverage the brand equity they have left.

Assuming they’ve done the math, this is surely their best alternative given their situation, past and present. It kind of reminds me of surfing before the onset of a hurricane or tropical storm: great surf and conditions but you know it’s not going to last.

Kevin Sterneckert
Guest
11 years 7 months ago
I’ve counted Blockbuster out several times over the past 15 years. Each time they have figured out a way to thrive and transform their business model. In the short term they have significant competition from Netflix, RedBox and on-demand providers that challenge their business model. I believe there will be a day when the majority receive their entertainment in ways other than physical media. However, this seems to be something that will occur outside of 3 to 5 years. I believe Blockbuster’s move away from unprofitable stores toward dotting the map with kiosks is a viable business plan. The real question for me is, what’s next for Blockbuster? In my mind, this is a plan that handles short- and medium-term issues, but avoids the larger question. What is Blockbuster doing to position itself as the go to on-demand provider. We’ve seen how digital content can be king (reference iTunes); where will Blockbuster fit in that equation? There are enough competitors in the mix today, it is not clear that Blockbuster can or will win the… Read more »
Doron Levy
Guest
Doron Levy
11 years 7 months ago

As usual, Blockbuster is on the forefront of technology. Unfortunately it’s not 1990 and the flux capacitor on my time machine is busted so I can’t provide any help to them. Let’s see. VHS died a quick death while BBV still carried them. Then they over stocked themselves with DVDs which were on their way out as they were coming in. Then Netflix and a bunch of others came on board. Then satellite and cable upped their offerings. Now they are getting into the kiosk business which doesn’t seem like a solid business model to begin with. Coming soon to Blockbuster: Hand cranks for your Model T and full length bathing costumes for men…They should give up and focus on the mail and internet. Or at least sell some cool gadgets at the store level.

Max Goldberg
Guest
11 years 7 months ago

Blockbuster is simply responding to changing conditions in the marketplace. Their by-mail offering is superior to Netflix because consumers can take a viewed DVD to the store and instantly swap it for a new one. Their decision to close unprofitable stores is sound, as is their desire to open kiosks, which are far less costly to operate than stores.

Blockbuster used to be the leader in video rental, then they lost momentum and became a company that follows, rather than leads. They had an opportunity to be first with mail order service and kiosks, but passed. They have been hit hard by both of those decisions.

Even with those setbacks, I would not count them out. The DVD rental formula will eventually give way to online distribution and rental. The question is, will Blockbuster lag behind again or lead the way?

David Livingston
Guest
11 years 7 months ago

Why is Blockbuster waiting so long to make changes? They should have done this years ago. I think my local library is going to put the movie rental stores out of business. They get several copies of all the new releases and you check them out for free. Or you can watch just about any movie you want on the internet for free. Paying to see a movie just sounds nuts to me. I don’t see how any of them make any money.

Bill Robinson
Guest
Bill Robinson
11 years 7 months ago
The fascinating thing about retailing is the life cycle of the form. Video rental stores burst on the scene in the ’70s and became in a short time a vital retail destination and community resource. Blockbuster seized the day and built a dominant brand. This was the same cycle as the downtown department stores, the 5 and 10 cent variety stores, and the local butcher. Eventually, the external forces change that shaped the original vision. In the case of Blockbuster lots of things changed around them: technology, competition, demographics, and laws protecting intellectual property. The first job of senior management is to interpret the external forces to validate that the original vision is aligned. Blockbuster’s management failed to do that for a decade as its cachet eroded. The violent movement to kiosks has a chance because it responds to today’s technology, competition, demographics, economics, and IP. But it is a violent change. And the retail graveyard outside of town is filled with once-great retailers who failed to change themselves in time. Good luck to Blockbuster.… Read more »
Gene Hoffman
Guest
Gene Hoffman
11 years 7 months ago

As a famous rabbit once said, “I’m late, I’m late for a very important date.” And so, too, is Blockbuster. The paradigm changed ahead of Blockbuster recognizing it. What’s left are 960 empty stores as BB moves into Kiosk Land.

Hitchhiking, what would happen to the retail food industry if Aldi or Wal-Mart opened up and sold food cheap in those vacated BB locations?

Roger Saunders
Guest
11 years 7 months ago

Blockbuster, like all Retailers, has to determine the space(s) in which they play. The core strength is “Brand Name Recognition.” Now, they have to make certain that the consumer understands what that BRAND represents.

They have been on a slippery slope.

If they can catch traction, and then make certain that they execute on the Unique Selling Proposition that they can offer, they have a can survive.

Thrive? Guess we’ll have to stay tuned.

Cathy Hotka
Guest
11 years 7 months ago

The industry should have huge faith in Jim Keyes and Keith Morrow, who have been talking with everyone in the entertainment industry about how to make this work. If any team can make Blockbuster work, they can!

W. Frank Dell II
Guest
11 years 7 months ago

This is a holding tactic on the road to nowhere. You can still buy a buggy whip, but there are no stores dedicated to them today. Look at how many stores sell recorded music today–not many. The future is clear, online and on-demand movies and entertainment. For Blockbuster to survive, they must, as every retailer does, be a destination. Either they reinvent themselves or ride the down slope.

Bernie Johnson
Guest
Bernie Johnson
11 years 7 months ago

Last month my phone company came to my home, rewired their connections, installed 2 pvrs providing us with over 200 channels and a number of pay per view options (Yes and still there is nothing worth watching) and a wireless transmitter so strong that I can go online at the bottom of the garden over an acre away, all for free. I just had to switch my current provider and sign a 2 year contract. My monthly fees you ask? Cheaper than they were before. I live in Canada and we do not have Redbox (I visited the website and it does look intriguing) we do have Netflix (although I know of no one that uses it). I guess my point is that whether it be Blockbuster, Redbox, or Netflix, the present movie rental model seems to be on the way out. In my eyes it boils down to a matter of convenience; if I only have to press a button to have the movie I want, that will be the service I choose.

Mel Kleiman
Guest
11 years 7 months ago

Jim Keyes might make this change work for a while if he can leverage his relationships with the c-store industry. But what happens next?

If they have a great name now they need to become innovative and get in front of the ball and run faster instead of what they did which is getting run over by the ball.

John Crossman
Guest
John Crossman
11 years 7 months ago

They have a ton of space to get rid of in the bottom of the market. This is tough. It is amazing that they have taken this long to make the changes.

Charles P. Walsh
Guest
Charles P. Walsh
11 years 7 months ago

Blockbuster has long been a follower rather than a leader in the industry. Their actions, are akin to bragging on how a captain saved his crew’s life by taking them off his sinking ship and placing them on a leaky life raft…a hopeful but dismal act of last resort.

Blockbuster stopped innovating years ago and have been following the leader. Netflix has the customer base and the infrastructure in place, Redbox has the capital investment and the prime lease space, the online download (whether it is Apple, U-Verse or any of the other myriad players in the field of online and instant media downloads) market is quickly filling up.

Closing 1000 stores costs a lot of money, fighting for whats left of the prime kiosk space will be tough and even Redbox has admitted that the kiosk business has but a few years of viable life before downloads replaces it. It hopes to transition it’s brand to take advantage of that in tandem…and what is Blockbuster doing?

They are chasing windmills.

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