Has Netflix Killed Blockbuster?
11/02/2007, 10 months ago
Ever since Netflix came onto the scene back in 1999, Blockbuster has been feeling the heat to catch up with the changing times. No longer would people put up with the insanely-high late charges or even trips to the store to rent a movie. Netflix brought it all to the web with no time restrictions or motions towards the car.
Since then, Blockbuster has tried eliminating late fees and its own online service with Total Access, but all of this still has not proven to be enough. As of September 30, 2007, Total Access had just 3.1 million subscribers compared to the 7.03 million people using Netflix. After third-quarter earnings for 2007 were released, Blockbuster saw a 5.7% decline in revenue with a net loss of $35 million, while Netflix revealed a 22.7 percent gain in net income with $15.7 million in profits.
As Don Reisinger has reported today that Blockbuster as we know it may now be nearing its end, it seems that Netflix is reveling in its glory as Blockbuster switches back to a focus on its retail business and overall membership as it struggles to survive.
“Going forward, we are focused on protecting our core rental business, developing new retail opportunities,” said Jim Keyes, Blockbuster Chairman and CEO. “To this end, we have launched a series of initiatives centered around product availability and increased emphasis on our retail business.”
At the same time as Keyes' realization, Netflix is surpassing analysts earnings expectations, and Netflix CFO Barry McCarthy even stated that “faster subscriber growth in Q3 was accompanied by significantly lower marketing spending… Subscriber acquisition cost of $37.91 was the lowest it?s been in eight quarters, and total marketing expense decreased by $10.2 million.” If this company was able to post impressive stats during a time of heavy competition from Blockbuster, then there is no telling what the future may hold.
Meanwhile, Blockbuster's stock price continues to drop, it has already closed a total of 526 stores this year, and it will soon reduce its staff to offset high overhead costs. This is definitely not a good sign for the company of a CEO who stated , “I am pleased with the progress we have made both strategically and financially and believe we are on our way to transforming Blockbuster into a company that is able to generate total revenue growth.”
Netflix has its future planned out, which includes offering more online, downloadable content and making it easier and more cost-efficient for users to view that content on a television set. As Don Reisinger wrote at CNET, Blockbuster's only option may be to “spend huge sums of cash on research and development and strategic partnerships with distribution companies to make downloading movies a viable alternative to Netflix.”
Don't expect Netflix to fall off of its rightly earned pedestal anytime soon though. “It took several years for us to turn our DVD rental business profitable and our online video expansion may take just as long,” said Netflix CEO Reed Hastings.” We now have more resources, bigger competitors, and a much bigger prize to earn.”
What do you think? Can Blockbuster survive or is the company really on its last leg?
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I’m a 6 year netflix member but all is not lost for Blockbuster. Here is my turnaround strategy for them.
1. Forget standalone stores. Change the battle and partner with places like 7/11 and make physical dvds everywhere. And give people an envelope to return them.
2. Make deals with cable and satellite companies where they would split the cost of buying movies from studios for a cut of the ppv profits. They would also get free advertising.
3.find someway to partner with TIVO. Bb has a cool factor of -1. They need to get some cache from somewhere…
The doing what netflix does 8 months later is a strategy doomed to failure. The stock price tells you that!
Love the post. I’m glad you twittered it.
I tried NetFlix, I tried Blockbuster online. I’m still with Blockbuster. I did not like my NetFlix experience at all.
I have not tried either of the two myself, as I rarely rent movies… but two of my brothers have tried them.. One tried Netflix, while the other signed up for Blockbuster Total Access.
Needless to say, the one who signed up for Netflix no longer has his account while my other brother still remains active with Blockbuster…
One of the primary advantages he has mentioned is the ability to return any rented movie back to a Blockbuster store (we have several around my area) and rent another movie from the store at no charge.
My only bitterness towards Blockbuster is the high in-store rental fees. $5 per movie does not cut it for me when I can visit a RedBox or DVDplay kiosk at my local grocery store and rent a movie for $1.
Blockbuster’s best bet is to take the subscription plan that they offer for the online service and offer it in stores. I would be much more willing to pay $20 a month to visit my local Blockbuster store and rent movies rather than pay per movie at the store.
I am an employee of a brick and mortar Blockbuster store. I would like to add my viewpoint.
The Blockbuster brand is powerful and customers are not fleeing away like some sources
would have everyone believe. I work within a medium sized metro area with around 20 locations within as many minutes of each other. There have been four store closings in this area within the last year but that is not a negative thing - closing over 500 stores nationwide is necessary: we have too many stores! If they don’t make money and are not busy, close them down - we absorb all employees to the locations ten minutes in either direction and it means more product to go around for the rest of us profitable locations.
Since I have worked for the company, going on three years, we have spent money on unnecessary things - total access being the most expensive. While the B&M stores can claim a victory in gaining a record number of subscribers for the service, the company spent money it didn’t have to convince customers to spend less money yet rent more product. With our new CEO we have a new vision - MAKE MONEY! Finally the idea is simply to do what all retailers should be doing. I can attest that in the area of the country I am employed we are a busy, profitable group of stores. Our core customers are average, middle class families who make stopping at Blockbuster a part of their routine. And so far no online service, set top box, or kiosk has taken away those core customers. (We have of course lost customers to the competition, but we have gained customers as well - when late fees ended people came out of the woodwork to rent again, and Hollywood video is not long for this world. If you think we have problems, Google them and see what you find.) Bottom line, the customers have not gone anywhere, at least at my stores, but the focus has not been on driving revenue as much as trying to compete with Netflix. Blockbuster used to dictate the terms of the home video business - those days are long gone and we know it - the choices are too great. But our reinvigorated sense of urgency to capitalize on every B&M transaction combined with a willingness at the top to acknowledge and test new technologies still keeps Blockbuster a viable source for entertainment. On Friday night more people stop at Blockbuster to rent a movie than go to Netflix.com or any other storefront competitor. And if my Blockbuster had a kiosk that let me tell my customers I was NEVER out of a movie so long as they had a $20 USB drive or compatible phone, you could hear car doors slam and engines start all over the city. (Because this is still the number one complaint of our business - being out of new releases. In this era of technology there is no excuse for that!) And one last piece of info: There are at least 4500 Blockbuster locations throughout the United States each averaging 2000 members, most have more. Combine these opportunities with our small but present retail-only shoppers and you have a huge customer base - more than any subscription service out there. We just have to continue to drive revenue instead of worrying about what Netflix is doing. The only caveat is that if we don’t turn a profit, ANY amount of profit, very soon, we could face the threat of Bankruptcy. But in my opinion we will not reach that level - I can feel the business shifting towards the black as we stop worrying about what the Jones’ are doing and start focusing on our customers again.
So this weekend if you are in the mood for a movie, give us another chance. I can guarantee that if you come to one of my stores you will have a great experience (but I will probably be out of whatever movies came out on Tuesday. Sorry. Let’s find something better!)