End of an Era? - Blockbuster Video

[John]

Tough Times for Blockbuster
Posted Sep 16, 2009 07:29am EDT by Chris Nichols in Electronics,

Considering the recession and fickle consumer tastes, these are awfully difficult days to be a retailer. For video chain Blockbuster, already no stranger to tough times, it just keeps getting harder.

With the rise of competitors such as movie-mailer Netflix and Redbox, whose flick-dispensing machines can be found in grocery stores all over, Blockbuster is being forced to reset, saying it may close nearly 1,000 stores by the end of 2010 as its once-certain dominance continues to be threatened by rivals.

According to a regulatory filing Tuesday, Blockbuster expects to shut between 810 and 960 locations by the time next year wraps up, a number that would exceed more than one-fifth of its current U.S. shops.

That's quite a step up, or back depending on your perspective, from Blockbuster's previous plan, which anticipated 380 to 425 closings in that time frame. Here's how the corporate office sees it: Blockbuster characterizes 35% of its stores as "core," while saying 47%, or nearly half its total, are profitable, but still "non-core." The remaining 18% aren't turning a profit.

Ugh. That about sums it up at this point. Earlier this year, there were worries that Dallas-based Blockbuster might have to consider bankruptcy before it diffused that crisis. How about 2008, though? Another close call. Back then, it looked at a merger with Circuit City -- the electronics seller that did end up bankrupt. Now, store shutdowns.

The company's filing with regulators show that it's taking a multifaceted approach to its future offerings. Currently, it has 4,356 domestic stores, of which 606 are franchised. With those brick-and-mortar sites it battles against Hollywood Video and others. In addition to shrinking overall, Blockbuster expects to have more of its stores be the smaller city-based variety, with fewer large structures.

Meanwhile, Blockbuster's Total Access service, with 1.6 million subscribers, has a way to go before it can match the 9.4 million users Netflix claimed at the end of 2008. That makes it the undisputed leader of the 12 million-strong estimated market. Not surprisingly, Blockbuster hopes to grow its own base, and with Americans always looking for convenience -- walking to the mailbox beats driving to the store any day -- perhaps it can.

(If you need more evidence of diverging paths, consider that Netflix saw its revenue go from $682 million in 2005 to in excess of $1.3 billion in 2008. Blockbuster is still bigger in that regard, with sales of some $5.3 billion last year, but that was down from almost $5.9 billion in '05. Growth, of course, is what you want, not backsliding.)

How about rental boxes? Right now, Blockbuster has just under 500 dispensers, and it foresees expanding that a whopping five-fold by the end of this year. Then it's really going to crank up the buildout, envisioning 10,000 by the middle of 2010. Even so, Redbox already claims more than 15,000 units today, and you can be sure more are on the way.

Finally, Blockbuster hopes its On Demand offering, where it goes against the likes of Comcast and Time Warner Cable, will ultimately have a presence "in nearly every connected device." Again, doable, but also again, no easy task.

Can Blockbuster solve these riddles? Sure. Trouble is, even if it does, it might soon find itself facing new competition from another front you might have heard of -- YouTube, which has reportedly had discussions with a number of big studios about streaming movies via subscription.

What a difference, indeed.

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[engfant]

I don't know how they lasted this long

[MicroSpa]

I'm suprised they have as well Engfant. I do fortune 500 bus consulting during my day job and I did some work for them a few years ago on another matter.

It was tough times then and I expected the worst would happen late last year or early this year.

I don't think they can hold out much longer.

[CROVINE1]

I was a Blockbuster Franchise for over 15 years. In that time their where many up and downs. Obviously one down turn ended my business.

Blockbuster always new that technology would kill the large video store model. They tried to open what they called hometown stores, 3k feet and less. They also tried with Enron corp to do video on demand , failed and so did enron as we all know! They have always been one step behind the technology. I just hope the one in my town that I use does not close!!!!

[Jon Engen VBG]

Blockbuster seems to be playing catch up with everybody. Either by mail or kiosk. I thought the move more into electronics was a good move for them but I have yet to see it pay dividends. The one who's really hurting right now is Movie Gallery did you see they set up a hotline for the landlords that they owe rent to for complaints. They are also closing up to 450 locations this year.

[CROVINE1]

Movie gallery bought Hollywood Video. They wanted to be the number two behind Blockbuster. As we all know number 2 is poop!!!
They paid way to much for a company that had way to much debt!
I just hope the Blockbuster near me does not close, I love to rent movies!!!

[Jon Engen VBG]

I think it all comes down to Red box and the predatory pricing they are using along with the flooding of the market they are doing. It is devaluing packaged media more so then any other products in this economy. If your a Video Store owner the savior is to be diversified into tanning which works great with video stores when ones up the other ones down vice versa.