Blockbuster Files for Bankruptcy

I love Blockbuster.  I didn’t always. I hated that they took out my favorite place to buy music, and rent movies and games; Sound Warehouse. But I got over it and since then, I have rented my movies and my games from them.  In fact, I’m a rewards member in good standing.

So, as a somewhat loyal customer, I’m saddened to see it have to close so many stores.  However, I’m not surprised. The company has been losing market share for well over a decade.  Even if they didn’t see it at the time, pay-per-view and the increasing number of movie channels have been eroding their market share slowly but surely for years.  Many want to blame the success of Netflix and upstart Red Box, but Netflix filled a different market place by originally shipping dvd’s to customers, while Red Box only focused on recent releases.  All the while, Blockbuster became more concerned about the short term profit and the price of their stock, instead of the quality of their product. 

For starters, Blockbuster could have focused more on sales. They could have done this by simply not being greedy, and instead price their products realistically. Most of the movies for sale were $25, while Wal-Mart sells the same disk for $20.  I just want the dvd, I don’t care if it comes from a movie store or a grocery store, I don’t want to pay anymore than I have too. 

How about the prices of their snacks?  Ridiculous. On items like their box candy, you’re paying theater prices.  If you are cheap like me, your buying your candy, popcorn, and cokes on the way back from the electronics aisle in Wal-Mart.

It really seems to me, they didn’t take into consideration as to why Blockbuster was so successful in the first place. Going to the theater to see a movie is an expensive proposition. The tickets are $13 to $17, popcorn is $6.50 for a big bucket, $3 for a large coke, $5 dollars for a box of junior mints or whoppers;  I usually get both. So, for just me to go alone to a Theater, and I pretty much only go to IMAX movies, it’s $36.50. Who goes to the movie alone? Take a girl to the movies, which used to be the cheapest thing you could do for a date, and you’re out a hundred bucks, add dinner and drinks and you could be in for over $200.

 So what does Blockbuster need to do to stay afloat? This is where the planned Chapter 11 filing comes in.  Filing for bankruptcy allows them to keep their creditors at bay while they reduce their overhead. Closing 500 to 800 stores will relieve a tremendous amount of debt by freeing them from expensive leases and allow them to liquidate quite a bit of inventory.

 Second thing to do is step up their mail delivery and streaming video presence, they are definitely behind Netflix in this marketplace but the fight isn’t over yet and Blockbuster is in a good position to catch up and at least solidify their share of this open market.  Netflix has a major advantage in the media delivery department because of its ability to stream to so many different devices. Many of the newer HDTV’s have Netflix-streaming feature built in;  Blockbuster needs to scramble and do the same. That will actually give them the advantage in the Mail delivery as Netflix doesn’t have a store to return disks to if you want a movie while waiting for the next one in your queue.

I would get rid of the majority of the DVD back catalogue. Save that for the Mail/Streaming delivery business.  Concentrate the in-store business to Blu-rays and new releases.  Not doing this sooner has been one of the things that have hurt them.  They should start by reducing the price of their new release movie rentals, including Blu-rays, to $1.50 per night, or $4.99 for a weekly rental.  In fact, I would suggest charging just one rental rate for all the movies in the store. And making sure the in-store rental inventory isn’t older than 18 months.

I would also reduce the game rental rate as well.  In this economy, if you want to move product you need to stay within a dollar of Wal-Mart.  Reduce the price of your candy popcorn and cokes and you’ll sell more.  Continue to sell movie memorabilia, trinkets, storage units etc.  Blockbuster should be a unique experience.  Maybe even give store managers more autonomy on how to run their stores, allowing them to tailor each store more to the community around them. This will get rid of the corporate feel and allow them to trim down some of the more expensive middle management types.

Definitely continue the rewards programs. They cost 10$ a year and the customer gets a free in-store rental every month, plus they earn a free rental by renting;  consumers love that sort of thing.

Here’s some stats I gathered:

Blockbuster Total Access= disks at a time : 1 = $11.99, 2=$16.99, 3=$19.99.

Program(s) include in store return/exchange up to 5 disks, Blu-ray disks included free.  Xbox360, PS3, Wii games by mail included.  Steaming content online - computer only

Blockbuster By Mail    = disks at a time : 1 = $8.99, 2=$13.99, 3=$16.99.

Program(s) include in-store return (love this one), Blu-ray disks included free.  Xbox360, PS3, Wii Games by mail included. Steaming content online - Computer only

Netflix  = disks at a time : 1 = $8.99, 2=$13.99, 3=$16.99.

No late fees, access to streaming content on computer, iPhone4, and an increasing catalogue of HDTVs, and other devices including Xbox360, PS3, and Wii

Redbox= disks at a time= as many as you want at $1 dollar each. Per day.

Limited to new releases, Continently located kiosks