Blockbuster Still Lacks a Digital Media Strategy, Ten Years Later

Almost ten years ago to the day, on August 24th, 1999, I sat down for dinner at the Mayflower Park Hotel in Seattle with senior executives from Blockbuster (BBI) about a new video on demand movie service that the company claimed, "would forever change the movie industry". Back at the time, I was working for Globix, which had just built out a CDN and we were in discussions with Blockbuster about using our network to deliver their movies.

Fast forward one year later to July of 2000 when Blockbuster and Enron announced they were teaming up to deliver a Blockbuster entertainment service, initially featuring movies on-demand, via the Enron Intelligent Network. Globix never did get Blockbuster's delivery business but as we all later found out in 2002, there never really was any business between Blockbuster and Enron to begin with.

At the time, similar movie services were also being worked on between U.S. West and Intertainer, a company funded by Sony (SNE) and NBC and if you remember that era, you'll recall that all the talk in the space was about how video on demand was this "killer-app" that telcos would use to destroy the VHS rental business.

While Blockbuster was ahead of its time in 1999 and was thinking about a digital media strategy way before consumers wanted the service and the Internet was even able to support it, that foresight on its part never materialized into any real online video strategy over the next ten years. Today, Blockbuster is getting its head handed to it from Netflix (NFLX) and others who have developed, executed and rolled out online video services with much success, in a very short period of time.

Without a doubt, Blockbuster should have been in the position Netflix is in today as it was the first mover in the market. Yet ten years later, the company still can't seem to get its act together when it comes to digital media. We've seen Blockbuster do wacky things like create in-store kiosks for downloads and its executives have never had a clear strategy for how they plan to take their video business into the digital era. While some might suggest that Blockbuster did have a strategy when it acquired Movielink in August of 2007, the company bought an outdated platform that has yet to be improved upon. The fact that two years after the Movielink acquisition Blockbuster still can't support Mac users with its video on demand offering shows it is still relying on Movielink's outdated technology for its digital media strategy.

Blockbuster is not thought of as a company that has any strategy for digital media and every year, seems to come up with some sort of new idea, like kiosks, only to change its mind a year later. I've never met, talk to or read an interview with any executive from Blockbuster that makes any clear case as to why anyone should think of Blockbuster as a digital media company. Sure, the company's executives do a lot of interviews and talk a big game, but it's all marketing fluff. It has never even presented its so called digital media strategy at any industry conference or event, I can't find any white paper on it and no where on its website does the company even outline what digital media means to its business.

Last March I was reading Don Reisinger's article on CNET.com where he interviewed Kevin Lewis, Blockbuster's new SVP of digital entertainment and Kevin's answers to Don's questions only goes to reinforce Blockbuster's lack of strategy. Kevin is quoted as saying, "We are the only entertainment retailer with the ability to serve you a movie where you want, when you want it, how you want," Lewis said. "Whether it's at one of our stores, through virtual kiosks, or via downloads on a box like the TiVo, we can provide you with the most robust service." How on earth can Blockbuster think anyone would take it seriously when its service doesn't even support Mac users?

While I realize that Blockbuster wants to keep highlighting the fact it has local stores and as a result can service the customer over more channels than someone like Netflix, this is about a digital strategy. So talking about brick and mortar stores as an argument as to why its digital strategy is compelling simply makes no sense.

Or how about the fact that to date, Blockbuster's service is not available on any gaming console, which is the number one selling device in the home for the playback of digital movies, outside of the PC. Blockbuster makes a big deal about its relationship with TiVo yet to date, TiVo only has 1.6M stand alone DVRs in the market and Microsoft and Sony combined have sold well over 20M consoles in North America. I love my TiVo, but for Blockbuster to act like having a deal with TiVo is such a big deal, it needs to think again.

I realize that Blockbuster has made other deals like the one announced this week with Samsung, but that won't even kick off till later in the year. And even with adding Vizio TVs to the mix, how many of those devices will be in the market in the next few years? While Blockbuster has also rolled out its own device for videos on demand, the MediaPoint set-top box doesn't even come close to the functionality that Roku or others have. Not to mention, you can't even find the set-top-box listed on Blockbuster's home page. You would think that part of its digital media strategy would be to promote its own hardware that allows for digital downloads, but it doesn't.

In Don's article, he asks Kevin about Blockbuster's competitors, that being Amazon (AMZN) and Netflix and I think the way Blockbuster responds to those questions really shows just how confused Blockbuster really is. When asked about Amazon Kevin said, "When the consumer sees Amazon's logo on the side of the box, they are wondering, 'am I going to be sold a toaster or a book?" Again, Blockbuster is being asked about its digital strategy as compared to a competitor and instead of addressing the question, replies with an answer about Amazon selling something from the website that is mailed to your house. That's not a digital service and makes no sense to try and compare Blockbuster to it.

What are we seriously supposed to think when Blockbuster says, "Right now, we are the leader in the rental video business in the U.S. To the extent that the industry moves more digital, we plan to stay the leader. We know consumers are requiring more from us and we have no wish to lose our leadership."

Leadership? Based on what? You might be the leader in the movie rental business for DVDs, but that has absolutely nothing to do with digital. If you are the industry leader for DVD rentals, then why hasn't that leadership translated over to the company for digital? No one, not a single person who doesn't work for Blockbuster would think of them as a "leader" when it comes to digital. And when your SVP of digital entertainment says, "To the extent that the industry moves more digital, we plan to stay the leader," really leads me to believe Blockbuster thinks we're stupid. The industry is moving more to digital, to make it sound like anything else and to imply that Blockbuster leads in that category is simply false.

Why can't someone from Blockbuster come right out and say the company is working on a strategy, it is aware that the company is late to the game and will present that strategy to the market as soon as it has its ducks in a row? That would be an acceptable answer, would be respected by the media and wouldn't make Blockbuster look like it is drinking its own Kool-Aid. I challenge anyone to try and figure out what Blockbuster's digital strategy is when the company makes no efforts to present it to the market. Where's the communication from the company?

Sadly, I don't think Blockbuster will ever be a leader in the digital media arena. While I don't think it's too late in the market, they simply don't have the mentality or the foresight that they showed ten years ago. And while the online video movie industry is still in its infancy, if and when Blockbuster gets its act together, I think the opportunity will have already passed them by.

Disclosure: No position

Comments

[wegrew:]

What do you expect from a company who's CEO came from 7-11?

Jul 16 09:11 AM

[sl62:]

Man...you're a bitter dude. And thanks for telling us why up front:

>>Globix never did get Blockbuster's delivery business <<

Still hurting from not getting their business my friend? I think so. Get over it and move on. Writing incessant crap like l this over and over and over "where is your digital strategy" "and "boo hoo..mommy, mommy, they're not compatible with my precious mac" does not an informative article make.

And this:

>>Sadly, I don't think Blockbuster will ever be a leader in the digital media arena. While I don't think it's too late in the market, they simply don't have the mentality or the foresight that they showed ten years ago. And while the online video movie industry is still in its infancy, if and when Blockbuster gets its act together, I think the opportunity will have already passed them by.<<

is a completely nutty swirling sucking eddy of conjecture and contradiction. So..let's see. According to you, the online video industry is still in its infancy (which you are correct, it is and still years away from being de rigeur)...yet you're betting your house, wife and kids that BBI has already missed the boat? Missed the boat of an emerging industry still in its infancy? How do you make that correlation? When they are announcing deals like with Samsung this week and the deal with TiVo earlier? Just because you're not happy with how those moves fit into YOUR life, or maybe they are a little later than others who never came from all B&M and freaking VHS, it doesn't mean they're not good moves or that the company is not thinking about the future of their own industry. Making the transition from 100% B&M, coming from the simplicity of VHS, et al, into digital and online delivery is not as immediate as you flippantly make it out to be. They can't just implement a brand new model on a dime while they still have all the legacy B&M out there still. What do you suggest? They just close all their stores down and become Netflix? And to that, Netflix has their own issues with DVD headed for extinction. Doesn't work that way my man. And so what 'if' they are experimenting with things like kiosks, that favor the concept that people actually LIKE GOING OUT WHERE OTHER PEOPLE ARE and not sitting in front of a boring computer. So what?...if they haven't yet decided to totally abandon the social consumer experience model. They're trying it to see if a hybrid shows any strength (while they still have the capability). If not, they'll keep moving on. Fact is, they have more than enough time to experiment a little to assess the future mix of B&M (while they continue to tighten that up by downsizing the number of stores) and while also putting the new digital model in place. They are a behemoth brand that has many more issues to deal with than you give them credit for. But they clearly show, they are making the moves they should be making on the digital side of the equation to eventually arrive at the right mix of delivery strategy.. but please.. Never forget my friend, that BBI holds pocket aces over their competition when it comes to CONTENT (which as we know is king!). And in this case meaning they get new movie content before any competitor, who have to wait for the PPV release market. What will you write about when they fully complete their model mix transition AND they are the first-in supplier of content. Hmmm. I'll look for your next article about a year from now. Can't wait to see what dirty socks you'll have in your mouth then!

Take a breath, grab a beer and reboot your take on the world. My advice to you: please stop thinking about how BBI "screwed you" back in 1999 and go follow another company. Thank you.

Jul 16 10:35 AM

[Dan Rayburn:]

Since I am not a shareholder of Blockbuster, or any other company for that matter, and have no vested interest in them at all financially, I have nothing to "get over".

Anyone can ramble on with a response that includes no real data to back up their arguments, but the fact remains that Blockbuster has absolutely zero traction today for any kind of digital media strategy.

Jul 16 11:35 AM

[sl62:]

mr rayburn...

My response is a response to your rambling, redundant article. I have nothing against you, but that's what your article does. It rambles about how BBI's digital strategy progress doesn't conform to your standards to-date. Whether or not you even present facts in this case is irrelevant because that is strictly your opinion. The truth is, just by the Samsung deal alone, it is proven they have a digital strategy. But again, not far advanced enough for your liking. Ok. I can accept your opinion but not over and over and over. Your article should have been half as long and I don't feel like you proved your case, because your case was weak to begin with. Again. THE FACTS are that BBI has proven they have "some" strategy in place RIGHT NOW and are developing it. Facts about current deals that you yourself present, that I reiterated, and which are common knowledge to anyone familiar with this company. Finally, the fact that you ended with pure conjecture bothers me. Again, it's your opinion, but nowhere near necessarily accurate. And..you yourself admitted the online delivery industry is still in its infancy. I don't know what kind of businessman you are but my experience supports that being a leader in anything that is still in its infancy, means very little and doesn't ensure longevity nor long-term profitablity. Did you ever stop to think it IS BBI's strategy to be a little late to a party that is no where near ramped up? What you are doing is not allowing for how the company is currently gauging their own consumer base. Did you ever also think that their current loyal base which now dates back to 1985, are of certain demographics that don't even freaking know what the word digital means? The transition they are making is tricky because of the heavy legacy they still must successfully manage...retaining current loyal muscle-memory consumers used to the B&M space, while at the same time showing both that contingent AND new and future contingents the new directions in which they are heading. You think this is easy??? They have little choice but to transition slower from their heavy B&M legacy. Or would you say I'm just dreaming this?? But you can only make apples to oranges comparisons to their newer age start-up model competitors who have no connection whatsoever to B&M nor what it means to have to navigate and ween away from such a model. All you can say is "look at how cool Netflix is..they don't use any B&M..they leave BBI in the dust!" Apples and oranges my friend.

For you to just rant on about how they are not digital enough for your taste is not much of an argument. Sorry. In my humble opinion, BBI is still a viable player in the space and will continue to be so for many years to come as they change with the industry. Not at the pace you want them to change, but at the pace that makes sense for the business as a whole. As said, come back in another year and I want to hear what you have to say then as to how the company is doing. Thank you.

Jul 16 01:04 PM

[bcncv:]

Dan, you are right on about Blockbuster's lack of a coherent digital strategy. Their stock has been in steady decline since 2002, and I can't even see them surviving another 5 years.

The future of the business is digital, and the real winner in the market will be someone doing something new, not a company copying someone else's work. Blockbuster has a history of doing nothing but jumping on the bandwagon after someone else has tried it.

I don't know who the winner in this space will be, but I'm pretty confident that it won't be Blockbuster.

Jul 16 03:31 PM

[Dan Rayburn:]

@sl62: This not about Blockbuster "conforming to my standards" or not being "digital enough for my taste" or even the "pace I want them to change" at. This is not about me, it's about the market.

The change in the market is not my "opinion", it's fact. Apple has now sold over 200 Million TV episodes via iTunes. Sold over 2M feature-length films via iTunes. Netflix got over 1 million subscribers to use the streaming service via the Xbox 360 in the first 3 months of it launching.

You say that "In my humble opinion, BBI is still a viable player in the space and will continue to be so for many years to come as they change with the industry." Yes, they are a viable player, but even you don't say "in the digital media arena".

No doubt I will be re-visiting this issue a year from now and I'll make you any bet that you want that Blockbuster won't be able to show us any viable, tangible, measurable result, of what you say their digital media strategy is.

Jul 16 04:18 PM

[sl62:]

mr rayburn...

Again, nothing against you but I am unsure of your agenda. I have to wonder what makes someone write so many words on the perceived lack of development by this company in the digital media delivery space. Something irks you that much, yet you say you are neutral the company in every way? I'm perplexed by your empassioned motivation. Maybe you can enlighten me. And again, your company comparisons between BBI, iTunes (AAPL), Netflix, et al, also make me wonder. You never addressed my issue that BBI is postioned very differently than any of those other companies. Why? Because BBI is the one coming off and evolving from being completely dominant in the B&M video rental space as it once existed.

>>with more than 7,400 company-owned or franchised stores in more than 20 countries (about 60% are in the US). The chain rents more than 1 billion videos, DVDs, and video games at its Blockbuster Video outlets each year.<<

Why can't you just admit that their evolution into the digital media arena is much much much different than anyone else. Instead you vilify them for it. Did Netflix corner the VHS/then DVD video store rental market since 1985? Have they ammassed 7400 stores in more than 20 countries? iTunes? No they haven't. Netflix came along in 1999 with a new spin on the DVD delivery market (for lazy American consumers I might add) and it took hold. Good for them and I applaud their success. With no B&M from go, you're surprised they so easily transitioned into digital delivery and are successful at it? It's really a no-brainer. But again, apples and oranges to the BBI model that will take much longer for that same saturated transition (because of from where it is they are coming and who their comsumer base is). Knowing these issues of disparity that exist between the different companies in the space I am at least willing to let BBI continue to show me some new moves as they continue working into digital. Yes, they have work to do, but I just told you why my posts. Will they ever become the new leader in the new space..I doubt it. But because of their advantage when it comes to access to actuakl content, I won't say never. But they've been leading their space as it existed for MANY years. They're like a lot of companies coming from all B&M roots. They are reinventing themselves over time. Not in the snap of your fingers as you would like. I asked you in my last post. What would you do with all the stores? Close them all down at the same time and just proclaim we are now only about digital?? c'mon man...

Again, I'm not sure from where your uber passion eminates that BBI is not the current leader in digital delivery. But whatever. You say you don't own the stock. Are you a bondholder? For a guy with seemingly no connection to the company, your article wreaks of bitterness, and a sense of urgency for changes to be made. What gives?

Lastly with 2008 sales @ $5.3B, I think this company has more than just a chance at successfully completing their evolution into the brave new all-digital world.

Jul 16 10:10 PM

[Dan Rayburn:]

I'll simply repeat myself again, I don't own any stock in Blockbuster, no shares or bonds. I don't have anything to gain financially from Blockbuster, Netflix or any other entertainment company. I know it's hard to believe, but someone can actually write about a company as a neutral person without having some sort of vested interest in the company.

Jul 17 10:24 AM

[Hank Pong:]

I think Mr. Rayburn's assessment on the digital delivery is correct.
BBI is playing a catching up game. BBI needs to turn around or it will go into bankruptcy with its current book.

Jul 17 02:27 PM

[bblack2:]

BBI is a brand in disarray. The much heralded B&M business suffers from constant state of panic inflicted by Dallas, no wonder there is no long term digital strategy. At the store level the focus changes from day to day week to week with no overall clear strategy . It can be summed up as a controlled panic which confuses customers and employees a like. When it comes to simplest operational task, the checkout ,the POS is so antiqued and inefficient that it takes a new employee at least a month the learn the POS competently, wonder why customers become so dismayed with BBI service. POS at the store level is also used for inventory control with it's clumsy and outdated software is costing the company million each year in payroll and shrink. Now that hardware is failing, unrepairable, and non-replaceable because if it's age (mid 1990s) there are store off line days at a time costing more loss time and money BBI's answer to field managers " you're on your own" cause we don't have the money to upgrade. So if BBI cannot service their basic operational needs how do you think they are going to roll out digital strategy.

Jul 19 09:35 AM

[Tomcat101:]

You are just simply stating the obvious. I think you upset at least one shareholder though. Truth hurts.



On Jul 16 11:35 AM Dan Rayburn wrote:

> Since I am not a shareholder of Blockbuster, or any other company
> for that matter, and have no vested interest in them at all financially,
> I have nothing to "get over".
>
> Anyone can ramble on with a response that includes no real data to
> back up their arguments, but the fact remains that Blockbuster has
> absolutely zero traction today for any kind of digital media strategy.

Aug 19 02:07 PM

[Tomcat101:]

Sounds like someone is desperately wanting his BBI stock to go from 60 cents back up to a dollar.


On Jul 16 01:04 PM sl62 wrote:

> mr rayburn...
>
> My response is a response to your rambling, redundant article. I
> have nothing against you, but that's what your article does. It rambles
> about how BBI's digital strategy progress doesn't conform to your
> standards to-date. Whether or not you even present facts in this
> case is irrelevant because that is strictly your opinion. The truth
> is, just by the Samsung deal alone, it is proven they have a digital
> strategy. But again, not far advanced enough for your liking. Ok.
> I can accept your opinion but not over and over and over. Your article
> should have been half as long and I don't feel like you proved your
> case, because your case was weak to begin with. Again. THE FACTS
> are that BBI has proven they have "some" strategy in place RIGHT
> NOW and are developing it. Facts about current deals that you yourself
> present, that I reiterated, and which are common knowledge to anyone
> familiar with this company. Finally, the fact that you ended with
> pure conjecture bothers me. Again, it's your opinion, but nowhere
> near necessarily accurate. And..you yourself admitted the online
> delivery industry is still in its infancy. I don't know what kind
> of businessman you are but my experience supports that being a leader
> in anything that is still in its infancy, means very little and doesn't
> ensure longevity nor long-term profitablity. Did you ever stop to
> think it IS BBI's strategy to be a little late to a party that is
> no where near ramped up? What you are doing is not allowing for how
> the company is currently gauging their own consumer base. Did you
> ever also think that their current loyal base which now dates back
> to 1985, are of certain demographics that don't even freaking know
> what the word digital means? The transition they are making is tricky
> because of the heavy legacy they still must successfully manage...retaining
> current loyal muscle-memory consumers used to the B&amp;M space,
> while at the same time showing both that contingent AND new and future
> contingents the new directions in which they are heading. You think
> this is easy??? They have little choice but to transition slower
> from their heavy B&amp;M legacy. Or would you say I'm just dreaming
> this?? But you can only make apples to oranges comparisons to their
> newer age start-up model competitors who have no connection whatsoever
> to B&amp;M nor what it means to have to navigate and ween away from
> such a model. All you can say is "look at how cool Netflix is..they
> don't use any B&amp;M..they leave BBI in the dust!" Apples and oranges
> my friend.
>
> For you to just rant on about how they are not digital enough for
> your taste is not much of an argument. Sorry. In my humble opinion,
> BBI is still a viable player in the space and will continue to be
> so for many years to come as they change with the industry. Not at
> the pace you want them to change, but at the pace that makes sense
> for the business as a whole. As said, come back in another year and
> I want to hear what you have to say then as to how the company is
> doing. Thank you.

Aug 19 02:10 PM

[Tomcat101:]

And BBI's customer service sucks too. Let's not forget that.

At a time when they had HUGE signs all over every window on the store saying "NO LATE FEES", they hit me with a $1.25 late fee. They called it something like a "restocking fee".

I asked the Asst. Mgr. for a refund. She said no. Asked the Store Mgr., she said no. Then I sent an email to the corp. office. Within a day or two the Regional Mgr. called me and refunded my money. All this over $1.25.

If they go belly-up like Circuit City they have no one to blame but themselves.

Aug 19 02:20 PM

[sl62:]

looks like your 1.25 late fee is now the price of BBI stock. Hmmm. Guess shareholders didn't have to wait all that long to be back over a buck..and, uh, which does not happen to be me. I just can see a crank agenda from a mile away and don't care for it. thank you and happy trading.


On Aug 19 02:20 PM Tomcat101 wrote:

> And BBI's customer service sucks too. Let's not forget that.
>
> At a time when they had HUGE signs all over every window on the store
> saying "NO LATE FEES", they hit me with a $1.25 late fee. They called
> it something like a "restocking fee".
>
> I asked the Asst. Mgr. for a refund. She said no. Asked the Store
> Mgr., she said no. Then I sent an email to the corp. office. Within
> a day or two the Regional Mgr. called me and refunded my money. All
> this over $1.25.
>
> If they go belly-up like Circuit City they have no one to blame but
> themselves.

Sep 04 06:35 PM