Bad News For Blockbuster Shareholders

Lionsgate CEO Jon Feltheimer told industry analysts during a conference call on Friday:

We have nearly a dozen active agreements in place for digital delivery of our content with such major players as Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Blockbuster, Best Buy (BBY) and Wal-Mart (WMT), with more to follow.

Now, it is great that Blockbuster (BBI) is finally getting into the digital game, a sentiment I pleaded for after its latest earning announcement, but there is just one problem. Industry leader Netflix (NFLX) has been doing it since January. So now Blockbuster, which has failed in its rumored attempt to acquire Movielink, not only must start a service from scratch, it must do so half a year behind its chief competitor. Now, under normal conditions, this may not be such a daunting task, but when you are hemorrhaging cash like Blockbuster is in its quest to build subscribers, it then becomes daunting.

What is Blockbuster's take? A Blockbuster spokesperson declined to comment on Feltheimer's statement. "We intend to offer a movie download service, but we have not provided any details on timing or anything else," spokesperson Randy Hargrove told Ars Technica. "It makes sense for us to participate in the download space, but we don't see it becoming a huge business in the next year or two. That said, it's something we think is important."

I got news for him: it is important now. The DVD is going away faster than the video cassette did. Has he noticed what the iPod did to CD sales? When is the last time anyone bought a CD? Of course, one has to consider that this is a company that has yet to realize that the stand alone video store is also a dying concept.

Now, he may be playing possum, but based on the chain's recent history, he isn't - and that is very bad news for the few folks who still hold shares.

BBI 1-yr chart:

Comments

[gstewartjr:]

Sounds good to me. Can you please give me the cost breakdown before I cancel my $20 Blockbuster subscription? I'd like to watch my movies on my TV and not my computer... call me old fashioned. I'm ok at burning dvds, but they still cost $1 or $2 each, and typically single layer dvds can't hold a full movie. I typically watch 1-3 movies a week, and I'd like a selection similar to Blockbuster or Netflix.

So far, the closest is Tivo/Unbox.
Tivo Box is > $100, $17/month subscription. Unbox video download rental is $4 (with restrictions, limited selection).

BBI or Netflix
$50 DVD player, $20/month subscription, Every video is $0 ( no restrictions, large selection)

Tivo would cost me $40+ more per month.

As for Apple, they are always overpriced, so I'm not even going to check. Netflix download would require a cable running from my computer to my tv...and my wife would shoot that down.

2007 Jun 04 11:25 PM

[Sr. Pessimist:]

Hollywood is running for their money. I spoke with a consultant worker recently, and from what he told me, video skills are few and far between. Google put up, as I read, like 2000 jobs for video tech, just to get as much video skill under the roof as they possibly can. Here's why, I suppose. Name businesses are getting jolted. Whoobaby.

2007 Jun 05 12:55 PM

[James Wilcox:]

This is classic Blockbuster. Remember they could have bought Netflix when it was only a $50 million dollar company. Now they are following in their footsteps but still don't have a superior product. In order for Blockbuster to oust Netflix they are going to have to develop a better application or provide something above and beyond what Netflix does (Total-Access is going to fail).

I have been following these two stocks for some time now and write about them on my blog The Proficient Investor

2007 Jun 08 07:39 PM