Convergence Economics Personal Technology

Blockbuster: RIP?

Is Blockbuster going the way of Tower Records? Have Netflix and other video-on-demand services like Amazon’s Un-Box killed Blockbuster because the company — like many monopolistic firms — failed to adapt to a changing market? In this case, the demand for ‘movies’ has been changed irrevocably by long-tail economics (Netflix) and home entertainment/computer system integration (Amazon).

Over at cNet, Don Reisinger says “yes” and gives the giant two years to live.

I can personally attest to the company’s missteps. We are long-time Netflix customers, but we decided to try Blockbuster‘s entry level Total Access Premium service for those last-minute “what to watch tonight” itches, to support a local employer and to simply compare services. [I don’t know if our Blockbuster is corporate owned or a franchise.]

The company has not come close to living up to the Netflix distribution/delivery promise. The only reason to use Blockbuster T.A.P., in my opinion, is for the coupon/exchange that allows you to pick up a title at the store. The filling of queued titles is a joke, as I recently told support.

And why was I writing support?

Blockbuster changed its pricing model (with no warning, but we are grandfathered) and then did not provide us with our once-per-month coupon for an in-store rental. [We’ll see what happens on 5 November: will our coupon remain AWOL?] Our plan ($5.99/month) pays for itself in our minds if we see two ‘movies’ a month. The coupon is good for one title, but the second must come from the queue. We have gone more than six weeks with no ‘movie’ being mailed — even though we had about a dozen titles in the queue, all marked “available.”

Support sent us two coupons — one for the missing coupon and one for our troubles with the queue — and encouraged us to expand our queue to 30 or so ‘movies’ so that we’d be sure to get one. Can you imagine if Netflix had had such a lackadaisical attitude?

You might wonder why I set off ‘movies’ with single quotes. That’s because we’ve been watching “TV” on DVD — catching up on Lost and watching Coupling in chronological order.

This is another area where Blockbuster’s service pales in comparison to Netflix. You can’t just order one in a series — selecting a TV series puts the entire series in your queue. But we already know that Blockbuster has trouble with providing titles in your queue … so why would anyone in their right mind do this?

Also, see what happens when you search the Blockbuster site, after you login. For example, the only option I had when I searched for “Network” was to BUY this title. Not available for rent.

I think the biggest problem facing Blockbuster is staring us (and them) in the face: the name reflects a mindset that Netflix (and the economics of the digital age) has set on its ear. We are no longer living in the age of the blockbuster, we are living in the age of the niche. But Blockbuster clearly does not “get” this — more evidence: compare the top 100 titles from Blockbuster and Netflix. [Right now, they both start with “Crash” — but #8 on Netflix is #39 on Blockbuster and #36 on Netflix doesn’t appear in Blockbuster’s top 100.] Based on my experience, I’d say these differences have more to do with the stock on hand than audience (market) desires.

Last month, the Motley Fool reported that Blockbuster was “[scaling] back its ad spending on its Total Access program, which couples Netflix-esque rentals by mail with free in-store exchanges.”

Yeah, you read that right. The one thing that has the potential to help them through this changing market just got put on the back burner.

Blockbuster stock closed at $4.81 on Friday after the company announced pending layoffs, dismal third quarter earnings, and a $35 million quarterly loss. As this financial chart from Yahoo! shows, Blockbuster’s stock has been on a roller coaster for five years, although the trend has been downward. In November 2002, the stock was briefly in the $22s and it bottomed out in the low $3s in April 2006. However, its first quarter 2007 recovery bottomed out at $4.07 in July.

As a comparison, in November 2002 Netflix stock was in the $4s; today it’s in the mid-20s.

I suppose the slow but steady downward slide for Blockbuster stock reflects the inertia associated with the decline of large institutions. Last December, Blockbuster operated 5,194 stores (including franchises) in the US and its territories as well as 3,166 stores in 22 markets outside the country. Blockbuster was founded in 1982.

By Kathy E. Gill

Digital evangelist, speaker, writer, educator. Transplanted Southerner; teach newbies to ride motorcycles! @kegill

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