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

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Includes: BBI, MSFT, NFLX
by: Todd Sullivan

Blockbuster (BBI) has spent the better part of the past year "talking" about an online video strategy. Meanwhile Netflix (NASDAQ:NFLX), has just gone out and done it. Rumors are that Netflix will announce a collaboration with Microsoft (NASDAQ:MSFT) this week, to distribute videos through its Xbox. For the moment we will ignore the possible blow to Apple (NASDAQ: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The bottom line for Blockbuster is that they held fast to an outdated business model for too long while the competition not only innovated, but took its model to the next level.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 (NYSE: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.

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