Netflix & Microsoft Move On; Blockbuster Still Stuck in the '80's

Blockbuster (BBI) has spent the better part of the past year "talking" about an online video strategy. Meanwhile Netflix (NFLX), has just gone out and done it. Rumors are that Netflix will announce a collaboration with Microsoft (MSFT) this week, to distribute videos through its Xbox. For the moment we will ignore the possible blow to Apple (AAPL) this will be.

Blockbuster, still clinging to the video store business model, will soon disappear with this news. The ONLY prayer they will have would be to go to Apple hat in hand and beg to be rescued. Perhaps Apple would want the stores Blockbuster currently has, at least they could make money off of them. Most likely Apple would tell them to politely "go away".

The bottom line for Blockbuster is that they held fast to an outdated business model for too long while the competition not only innovated, but took its model to the next level. What to do if you are a Blockbuster shareholder?

1- Sell and lick your wounds
2- Pray

Blockbuster's plight could be reversed in a few easy steps. But, considering I have been saying the same thing since last spring and management is still determined to follow the current downward path, let's not bet on it. What to do?

1- CLOSE THE STORES: A few strategically placed locations could be spared, but the overwhelming vast majority of them need to be shuttered. They are a drain on resources.
2- Call Sony (SNE): If Microsoft is going to distribute Netflix's offerings, perhaps sony could do the same for Blockbuster.
3- Call Steve Jobs: Blockbuster rentals through itunes?
4- CLOSE THE STORES (just in case we missed it the first time).

Now, unfortunately, all of these moves will only serve to stop the inevitable irrelevance of the business. If Blockbuster ever plans to actually compete with NetFlix, innovation is what they need.

Wouldn't it be nice to walk up to one of a thousand kiosks, insert a memory card and download a movie for rental on it that I could then plug into my computer or TV to watch? Surely these locations would be stunningly cheaper than a store? If my local supermarket can give me a card to track my purchases and send me related coupons, surely Blockbuster could produce cards to track and bill purchases, just swipe the card and download the movie, easy. Perhaps place the information on the stick, one step and you're done?

The point is that by sticking to an 1980's business model the company now stands on the precipice of extinction. Here's hoping for those who still own shares that they recognize this soon.

Disclosure: No position.

Comments

[Celticpole]

Your suggestions may make sense in a mathematical way but they seriously don't understand the "shopping experience". Somewhere in your schooling you must have heard about the importance of owernership of the object for sale. Color, smell, touch the pretty DVD box. I've rented on-line and from video stores. The 2 experiences are not comparable. It's not only about the DVD. It's about having a shopping experience with the other humans in the store. Watch the shopping experience on HSN or QVC. They vicariously suck in all your senses. They do it so you can feel that you did. Netflix business model is based on the belief that we consumers exist to cocoon; having all our needs supplied by forces outside a habitat from which we will never, or minimaly, venture out. That's what Blockbuster is not selling; and I'm not buying.

[Tom B]

If Netflix and MSFT are teamiong up, that means one thing: stark terror.
Smells like a shear panic play. Which is funny because nobody owns the movie downlaod market yet--though Apple is best positioned at this time.

[Unoshatta]

You're dead wrong. I will NEVER download a movie on my PC or Xbox 360. That is not the wave of the future, but a minor offshoot of the standard method of renting movies. There is no replacement for renting a physical movie and watching it at my leisure on my choice of DVD player. Btw I am not a geezer but 28 and the prime demographic for this industry. BLockbuster will disappear? Oh yes, I suppose the stores and the long lines within them every time I go there will just evaporate. Celticpole is correct in that you are missing the reason why people rent movies in the 1st place. Truthfully I am somewhat annoyed by your idiotic attack on a proven, solid business model. My advice: buy Blockbuster and double your $ within the next 2 years.

[avalonpc2]

I have to disagree with this article. Sure Blockbuster might not be the "up and coming" business right now, but it certainly isn't going anywhere soon. If you look at certain markets, there are some positive signs in the way of YTD comps. Also, it would be nice to see kiosks that you can download from, but it will not instantly replace DVD rentals. There is still a huge percentage of people that simply do not have the technology to do this, nor do they want to watch a movie on a computer (maybe a 17" monitor or smaller) or an MP3 player (screens much smaller). I just don't think that the time to rid the nation of rental stores has arrived yet, but it certainly has taken a downward trend since the late 90's/early 00's. The current trend of the economy will set the trend for rental stores going into the next decade, along with what technology the market will be able to create and the public able to afford.