Blockbuster Deathwatch

Blockbuster

Okay it’s finally time to put Blockbuster on a deathwatch. This isn’t just me wishing this would happen. This is Blockbuster saying it to the public. In a recent SEC filing Blockbuster actually said, “Our future viability is dependent on our ability to execute … If we fail to do so … would not be able to continue … and could be forced to file bankruptcy …” Holy Cow!

I’m sure the accountant who got to write those footnotes had a fun day. Anyway, they go on and on about the bleakness of their future. It’s crazy. They are acting like it is inevitable and despite having some sort of plan to save themselves it is not going to work. I for one despise Blockbuster and its either clueless of drug addled employees.

Their stock currently sits at $0.33 down from a an all-time high of $30 in 2002. They lost $435 million in Q4 of 2009. And they are $964 million in debt. Think some bank is going to give them a loan? Think again.

I give Blockbuster until the end of the year or perhaps right after Christmas in a best case scenario. They have noting to offer their shareholders that can possibly save their long since dead business model. The only reason I’ve set foot into a Blockbuster in the last ten years is because we were watching a TV series and did not want to wait until tomorrow to watch the next episode.

Blockbuster is getting crushed by Netflix and Redbox. Redbox is simply Blockbuster done more cheaply. No giant brick and mortar stores to pay for, they don’t have thousands of employees to pay. Redbox is open 24 hours a day. You can check to see it a movie is in stock before hoping into you car. You can even reserve that DVD/BD before you leave your house. Yes, there are late fees, but at $1 per day, who cares? Blockbuster has recently instituted late fees again. At this point they are desperate for cash and they don’t care how they get. I have to wonder if I lived right next door to a Blockbuster would I even use it? There is probably very little chance I would actually use it. Most of the stores around here are so old and run down they attract diseases. The carpet has not been cleaned in 20 years.

Blockbuster added 2000 kiosks last year, and they say they are going to add another 7000 this year in a partnership with NCR. More reactionary moves of a dying whale. If a company becomes nothing more than a reaction to its competitors it has already failed. If you fail to innovate you die. Their price war with Netflix didn’t fare much better either.

So why is Netflix so successful? I think they gained a loyal following because of two reasons initially. There were never any late fees and you never had to deal with the stupid employees. Blockbuster always made you feel like you are being granted some sort of privilege to be renting a movie from them. Then to compound the insult they charged you late fees if you you were even a few seconds late returning a movie. That was never customer service. I really liked when Blockbuster took a page from Disney and they rearranged the layout of their interior stores so the checkout lines took you through the myriad shelves of highly profitable but totally unrelated junk. I think this is standard fare for big box retailers these days. Best buy has perfected this to an art form.

Have you ever asked an employee at Blockbuster for a movie recommendation only have it be a horrible movie? Asking Blockbuster staff, “Is this a good movie?” is always a risky proposition. It’s not like the nerds at Radio Shack The Shack who actually know all sorts of useful information about electronics and cables so you can get the right part. Netflix has one of, if not the most sophisticated recommendation systems called, Cinematch. If you have not used it, you should seriously give it a try. It has surprised me on a number of occasions after watching a movie it recommended. One more reason why Netflix is a winner and Blockbuster is a loser.

Looking at this chart from The FeedFlix Blog you can see where the future is. Blockbuster my have movies via snail mail and blue boxes but this is the one thing they don’t have that has a chance of success.

Yes they have agreements with Samsung and Tivo but honestly it is too little, too late. They not only have to compete with Netflix but that huge monster called Amazon. They both have a huge head start and a doing very well at it. It has now been a year since Blockbuster started its streaming service and there is no turn around in sight. Netflix has agreements with many if not all of the major TV and BD manufacturers, and it works well.

So it has become obvious that Blockbuster’s success is inversely proportional to the amount of bandwidth in a home. As bandwidth increases their profits will continue decrease. It is only a matter of time before they are crushed by their debt and ever decreasing cash flow. Can Blockbuster avoid Chapter 11? Blockbuster says it faces a $390 million debt payment in 2012 and raised the possibility of a restructuring in its filing. “This is a company that has two years to turn itself around,” says Wedbush Securities analyst Michael Pachter, who gives Blockbuster a neutral rating. The CEO Keyes is “making all the right moves. But he has the lousiest job in the world.” If they owe you money I would think it is time to start collecting.

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