Blockbuster Shutting Stores and Taking on Netflix and Redbox
Blockbuster has not made an announcement about this, but they may as well since they filed this 8-K yesterday with the Securities and Exchange Commission.
Blockbuster will close more stores than expected, and shift its business to accommodate 21st Century video watchers.
Larger stores are going bye-bye (really, how much floor space do you need to showcase videos?) and smaller urban concepts are coming in.
Blockbuster will take on NetFlix by growing its order-online-receive-in-the-mail model. It will replace real estate leases by placing vending kiosks in stores and other locations (like RedBox does). And it will offer videos on demand through cable providers and on the Internet.
Could this mean the ultimate end of bricks and mortar for Blockbuster? It sure sounds like it, as it discusses the expense involved in its operations.
Does it mean you’ll eventually get your cup of Starbucks from a vending machine instead of a human being? That’s another story for another day. But if a Blockbuster can disappear from your local shopping center, a Starbucks could leave, too.
September 18th, 2009 at 2:58 pm
When I was completing my MBA about 6 years ago, I took a course where we had to pitch a stock to our class and the instructor. I selected Netflix. The stock was currently selling at around $18 and I predicted that it would reach $33 within 12 months. As part of my financial analysis, I included Netflix’s investment in server infrastructure that could handle on-demand downloads via online delivery. Unfortunately at the time, residential internet connections could not handle the bandwidth required for movie downloads. My, how times have changed in just 6 short years! I received grumbling from classmates about how Walmart was going to take marketshare away from NFLX by also offering movies by mail, and others argued that people will still want the brick-n-mortar experience from Blockbuster. Who was right? Walmart shut down their movies by mail service, Blockbuster is closing stores and playing catch up with NFLX and Redbox, while NFLX is selling at $48/share. Man, if only I had the money to follow my own advice.
October 2nd, 2009 at 10:45 am
I’m not sure why you draw the analogy between Starbucks and Blockbuster.
Blockbuster’s original model was to have as many physical locations as possible so that they were the most convenient video renter. But what service did they actually provide in the stores? Lackadaisical clerks and a relatively limited selection. Netflix was able to take away their advantage of physical proximity by bringing the movies right to your door. (Though Blockbuster’s Total Access gives the added convenience of being able to rent immediately and I’m not sure why that hasn’t taken off, aside from Blockbuster being the late mover). Netflix offers a virtually unlimited selection and provides reviews and recommendations. That is why Blockbuster is shutting stores - they don’t provide a competitive advantage.
Starbucks, on the other hand, was built on a model of customer service, atmosphere and customization. These are the elements that enabled it to become popular (though some of them have waned in recent times). If Starbucks moved to a vending machine, it would lose all of these things that give it a competitive advantage.