Blockbuster Still Lacks a Digital Media Strategy, Ten Years Later

Includes: AMZN, BBI, NFLX
by: Dan Rayburn

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 (NYSE: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 (NASDAQ: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might suggest that Blockbuster did have a strategy when it acquired Movielink in August of 2007, the company bought an outdated platform that has yet to be improved upon.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 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 (NASDAQ: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