A Desperate Blockbuster Tries Something Else

After being late to the video by mail model, late to the box top set model, talking about turning its obsolete locations into Apple Stores (AAPL) like locations, and attempting a doomed from the start takeover of Circuit City (CC), Blockbuster (BBI) is trying something else.

Now Blockbuster is in talks about taking a stake in the new premium TV channel to be launched by Viacom (VIA) with Lions Gate Entertainment (LGF) and Metro-Goldwyn-Mayer.

Haven't we all come to the conclusion that Blockbuster doesn't have the financial ability to complete the proposed Circuit City deal? How does it intend on doing this also? Have you ever seen a company run in so many seemingly disconnected directions at once?

This smacks of desperation. Blockbuster could survive and even prosper and compete with Netflix (NFLX) if it would only acknowledge what everyone but it seemingly understands, it needs to close its stores. Should that happen, the cash saved could possibly finance one or some of the shotgun like business moves it is contemplating. It cannot, however, keep the stores and move on.

I guess the only thing left for Blockbuster to do is to talk about a merger with Sprint (S)?

Disclosure: No position.

Comments

[hattryx]

hmm. rent movies over the phone? i like it!

[The Obvious]

Who is allowed to write these articles? I thought printed financial commentary, unlike the local chat column, needed someone who could provide substance to their qualifications and opinion? I think I will take BBI's CEO's track record at turning around failing corporations and the CEO's investment of $3 million+ in BBI stock versus this guy's opinion. I think his criticism, although obviously uninformed, is also blatantly misplaced. The Viacom deal will enable BBI to be the first rental chain to access the digital market once all televisions sets in America are forced to roll over in '09. Is this strategic placement or desperation? I am willing to bet alot of my own money on Keyes and BBI. Disregard this clown.

[youneverknow]

Yours sounds like a pretty pesimistic view to me. I think that Blockbuster could do easily increase sales and profit by redesigning itself.

Everyone is all agog about Apple, but it wasn't that long ago that you couldn't give the shares away. Some vision and execution changed the inevitable bankruptcy applicant into a powerhouse company.

Blockbuster could follow that lead. For example, I think Blockbuster could eat Game Stop's lunch if it wanted to (or at least half of its lunch). It has all the facilities and so much wasted space in its stores.

For example, I think that game rentals by mail have just begun and this is a huge potential growth area. An area that doesn't require a whole technological leap like movie downloads do. Blockbuster could roll that product out in 3 months - fully formed with thousands of titles.

For example, why does any video store need shelf upon shelf of small empty boxes with tiny pictures and text in order to display movies. How about putting all that on a screen with earphones, good sound, a good index and trailers to boot.

You can't come close to that at Netflix. At the new Blockbuster store you could easily spend a pleasant and entertaining hour just picking out a movie - maybe having a coffee too.

I am not saying that Blockbuster will be the one to do it right, but someone will be doing it soon and it won't be Netflicks. Thats a one trick pony if I ever saw one.

[whenthemusicstops]

I agree 'youneverknow'....and having kiosks in the store to open up their store layouts is definitely the way to go. How about closing half the stores and replacing with Blockbuster express...no shelves just kiosks with movie/games/etc and a couple video game hardware demo stations. Hey how about joint venture with AMC movie chain giving discount certificates to EVERY theatre goer...

[Solid Biz Model]

I think BBI proved last quarter that they could be profitable again with its pre-existing business model and the loss of subscribers due to repricing was not substantial. I personally find half my movies by browsing shelves and half through Internet search and research means so to me the BBI model is perfect. I think all of these moves are good positioning moves, even if they turn into headfakes. Maximizing sales per s.f. makes total sense to me since I drop in about once a week and picking up staples is more about convenience than brand. I'm surprised they don't have a Gamestop model already in place, and for that matter, digital books and anything else that can be delivered through digital media....like MP3s. See, maybe the Apple store idea is not too far fetched?

[cambot]

Some one has to explain to me why is everyone writing off blockbuster?
Fact: They have more than 30 million members (how many does nexflix have?)
Fact: Their online business has over 3 million members and is no longer losing money.
Fact: Brick and mortar stores are NOT going away.
The logic that customers should happily just order their product by mail is flawed. You could make the same argument against any retailer. Should Best Buy, or Target close up and sell online too? Of course not. People are prefer browsing tangible objects, and shop by destinations not by web sites.
If Blockbuster can continue to evolve into a whole entertainment provider (movies, games, music, other media) and bulid a retail business for the newest hardware, then they wil be uniquely positioned in the marketplace to adapt to what's new when other companies can't.

[dontcallmeamarter]

What I don't understand is why everyone is so quick to say that BBI is done and NFLX is killing them. Last I checked BBI had revenue of well over $4 Billion with a capital B and little NFLX just had revenues of a little over $1. That makes BBI about 4 times their size and yet all the analyst want to declare BBI the runner up!

To many uninformed and lazy investors it may look like BBI has embarked upon some fragmented desperation moves to save itself but that's because they don't really have a clue about the business to begin with. First, I suggest that you read a transcript from the CC call or listen to a replay there are some clues in there. They would not have embarked upon this venture to begin with unless Icahn had already agreed to fund the acquisition. It sure must be nice to have a Billionaire in your back pocket!

BBI needs the purcashing scale that CC brings for personal electronics. They are not trying to become an Apple store so you can alleviate yourself of that fantasy right now. Everybody is always trying to say that this thing is the next big thin or just like that company. I don't know how many clown analyst popped into my office trying to tell me that KKK was the next SBUX!

Anyway, the CC acquisition gives BBI better distribution for their current inventory. Anybody that knows the company understands this aspect of their business sucks. It gives them economy in purchasing. They should be able to offer products in their stores that they can't economically offer today. They should be able to close some locations and relocate the movie rentals into a CC driving traffic to those stores. They may also be able to off some additional electronics out of BBI locations and close CC locations where it is not economical.

Anyone curious what the new stores are going to look like should go look at the location in Frisco Texas near Lebanon and Legacy.