Blockbuster's Troubles, And What They Mean for Netflix

Blockbuster needs cash, so what does that mean for Netflix? Rental chain Blockbuster (BBI) denies reports that it's planning to file for Chapter 11 bankruptcy protection, but it is refinancing its debt and looking for another bank facility. The company's stock plummeted Tuesday to as low as 22 cents on a report that it was investigating a bankruptcy filing, rebounding Wednesday on its denial to a whopping 44 cents the last time I checked. No doubt, the 7,500-store chain is struggling with competition from Netflix (NFLX) and the huge variety of new ways consumers can get entertainment at home, including digital distribution.

While Blockbuster's stock is down some 90 percent over the past year, Netflix's stock is up about 18 percent. All the news of Blockbuster's financial woes has sent 10-million-member Netflix higher. The DVD-by-mail and over-the-Internet service stands in real contrast to Blockbuster. Netflix has been growing fast and most importantly, evolving with the Internet era, figuring out how to offer streaming of its films directly to your television, TiVo, XBox 360 or Blu-Ray player.

Netflix is well-positioned to continue to grow through the recession — its unlimited rental model for a certain number of DVDs per month is great value and great convenience. And Netflix has huge growth potential for streaming movies and games over the Internet thanks to expanding broadband.

But some analysts are saying not to overestimate the benefit of Blockbuster's financial challenges. Janney Montgomery Scott's Media analyst Tony Wible warns that a Blockbuster bankruptcy may not actually benefit Netflix because the two companies' customers are quite different — the majority of Blockbuster's revenue comes from its stores. So it's unclear if Netflix would win market share if Blockbuster were to go under. And certainly there's the chance that Blockbuster could restructure its debt to emerge stronger.

Regardless of what happens with Blockbuster, Netflix still represents the future of the home video market. Earlier this week a number of media CEOs at the Deutsche Bank media summit commented on the secular decline of DVD sales. It's that decline that makes revenues from the likes of Netflix's digital distribution all the more important.

Comments

[Mozatta:]

Netflix plays on two key characteristics. It's cheap and it allows us to be lazy. As the economy continues to struggle, more and more people will turn over to Netflix. Bankruptcy or not, Blockbuster's days are limited. They will end up going the route Circuit City did..gone.

Mar 04 03:51 PM

[jkk:]

and NFLX will end up going the route that blockbuster after the masses convert to digital streaming devices- uh and please dont tell me that NFLX will dominate the digital streaming market - it is just not going to happen (either it will follow cd music model where everyone can sell the movies/tv and pay based on views - or there will be very long windows between a la cart rentals going into the all you can watch subscription service)

The Rise of Digital Media (non physical)

first with Blockbuster and mom and pop B&Ms declining, Redbox will explode with kiosks popping up everywhere (as it is already) and .99 cents dvd rentals will become the norm in the industry (further killing the B&Ms).

while this is happening NFLX dvd by mail is eroding

next digital rentals start going at .99 cents as the norm (amazon and itunes already has a few of these) - cheaper easy streaming devices replace the DVD and blu-ray players - bly-ray rentals $1.99

while this happens Redbox will start eroding

next comes the boom in Digital Movie Collections - with cheaper portable (or not so portable) harddrive storage and ability to stream throughout house to any tv - this is the ultimate destination

while this happens, physical DVDs sales are falling off a cliff and digital movies sales and downloads overtake physical DVD sales on revenue

I give the complete timeline of this to be between 4-7 years.

Mar 04 06:00 PM

[wholesalecd:]

I am wondering why in the world people would rent from Netflix when you can return Blockbuster movies to their store in exchange for new movies. It's surprising to me this benefit hasn't been a boom for Blockbuster. It's also an EVEN exchange meaning you don't even have to pay extra for the movies rented in exchange for the online rentals...

This really boggles me for some reason.

Mar 04 10:42 PM

[billddrummer:]

I stopped renting at BBI years ago when a clerk told me I had to return the movie to the store I rented it from. Since I was across town, it seemed ridiculous to me. The library lets you return anything to any branch, so why not BBI?

Anyway, I never went back. That was in 2002.

Mar 05 11:23 AM

[MadJim:]

Netflix stock split by end of summer imminent. Possible Blockbuster buyout. BUY: NFLX

Mar 06 03:18 AM

[kris23:]

BBI is going out of business for sure. They need a miracle to keep up with Netflix at this point. NFLX is a great company with a lot of potential for growth and an already growing subscription base. Investors love NFLX, sentiment has been more bullish this month www.predictwallstreet.... showing ppl are optimistic about NFLX's future in the upcoming economic troubles.

Mar 09 04:09 PM

[o'grady:]

If blocckbuster online dvd rentals goes out of business netflix will become a monopoly and have no competition. remember when blockbuster goes out of business, people who have netflix will regret it as soon as blocbuster goes= no competition and watch how fast netflix is going to raise prices and milk you. then you won't have no other place to go other than pay per view on cable or satellite or fiber or go back to renting from a store.One other thing i want to say is i was a former NETFLIX customer and they banned me from their service and i tried to rejoin and they wouldnt allow it. I want everybody to know how they treat you and what they do to you so here is what happened. when i was a member i called and or emailed them about movies that were in my queue that were not being shipped which is called delayed shipping so i reported it customer service that movies were not shipped. when they received my previous movies they intentionally delay to ship your next movies so that you don't a get second set of movies the same week. example 3 out a time unlimited rental a month they dont like members getting 6 movies a week. basically i rented 3 movies got them next day watched all 3 movies then returned next day it only takes 1 day to get movies and 1 day to receive them back so what they started to do is in your queue your movies would not be checked in. they would delay the return sometimes by 1 or 2 days or if they didnt do that method they would check in your movies and tou had movies that said available and they would delay sending your next movies by 1 or 2 days so that you would nt receive 6 movies twice in 1 week. they should say 3 out at a time with maximum rental of 12 per month. try it people you see how fast they dont care about you the customer. the other nasty thing they do to you is say a movie gets lost/stolen in the mail and this only happened from time to time not often. either i wouldnt receive a movie or a movie i sent back got lost/stolen in the mail i reported they would clear that movie and send another replacement. but after a couple of times that i reported it to customer service what they did was charge ny credit card for the lost movies. i said to them my long rental history of getting and netflix receiving back all the other rentals. i asked them why did they charged my credit card without even telling me.they said we are charging for the movie lost in the mail. i said this is ridiculous your terms and policy does not state anything for paying for movies that were lost/stolen in the mail other than just reporting it to netflix. i said how can be responsible when i take your movies to the post office and drop them in the box and the post office has the responsibility to deliver them. same thing with receiving movies which sometimes were misdelivered by my carrier in which i spole to my post office manager about. it is in there hands i do not have no control over the post office i said. so customer service tells me charge stands and they cancelled my account. i tried to make things right and said charge me for the lost rental but please keep my account open. they said you can never be a member again. now i asked why here are the reasons they gave me that reported delays in netflix shipping movies to me, i was renting 6 movies a week in which they no longer want you to rent movies from them even though i still gave in to their delays. the other reason was i lost 6 movies throughout 5 years of being a member.so if people are experiencing these kind of problems with netflix please write about it. When i tried to rejoin they blacklist you by your first and last name address city,state and zip code, phone number,email address, credit card and phone number. i think this is discrimination. i was a good paying customer and rented and returned over 1000 rented dvds to them. i even tried my dad to signup and because it is the same last name and address they denied my father to have a account with them. is there somthing i could do i would appreciate the advice? i know taking them to court would be difficult because they are incorporated. unless there would be others who would file a class action lawsuit.

Aug 28 06:16 PM