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I’m a loyal Blockbuster Online customer (but not a stockholder) and have been following the Blockbuster (BBI) / Netflix (NASDAQ:NFLX) battle for a while now. I applauded the Total Access service, was disappointed when they limited my Total Access DVDs to five per month and now after seeing how Blockbuster works I can comment on all the places they went wrong.

The first thing that Blockbuster did wrong was operate Blockbuster online and the stores separately. The next thing after the Total Access program was the fact the the online-store partnership was structured badly. When I return movies to the store, the store actually mails them out to the Blockbuster online location. I would expect it would have saved Blockbuster money if they kept the online operation in the stores themselves.

The other problem for Blockbuster (not the customers) is that with Total Access, a customer can have more than 3 (or whatever their plan limit is) out at a time. And with no late fees at the store and no incentive to return the movie fast, the stores have an even bigger lack of new releases. What Blockbuster can do to make this process easy is rent the in-store movies in Blockbuster online envellopes so that I don’t have to drive back to the store to return it in addition to including the in-store rental in the three out at a time. This might piss off some customers (like me) for a short while but in the long run it will be better for both the stores and the online service because with this method all plans can have unlimited in-store exchanges and Blockbuster can still make money (save on mailing + drive more cutomers to the store). They an also possibly convince more store customers to join the online service by making everything simpler - X movies at a time regardless of online or in store.

What I think would be the ideal situation is that the store be no more than a return and pickup point for the online service rather than a separate entity that seems to be sucking the life out of Blockbuster. They can move to a smaller store format and have kiosks to compete with those fast becoming ubiquitous 1$ per night (with the per night part in really small print) DVD rental kiosks.

Maybe I’m taking a simplistic view and what I’m saying is not as easy to implement as I think it would be - but it could save Blockbuster money, get them more subscribers and make their operations more efficient. It would be like running one company instead of two.

There are some good things to say about Blockbuster like their attempts at exclusive deals, their acquisition of movie link and their current Jackass 2.5 deal and I hope they continue on the path in competing with netflix. I am currently a happy customer and if things keep going well, I might become a stockholder.

Disclosure: none

Source: Where Blockbuster Went Wrong