I've had an insane week, with three major assignments due, hence my absence from this blog. But, I'm back now...and I have quite a bit to write about. Starting off with some Blockbuster news.
As you might know (if you've read two posts down), my recent E-Commerce assignment was on Netflix. In one section of that assignment we analyzed Blockbuster's entry into the online DVD rentals market; i.e. why it entered, how Netflix reacted, what would happen next, etc. As everyone knows, Blockbuster has a serious problem. Here's how we explained it in our assignment:
Finally – crucially – [Blockbuster] had a retail store mindset. Its online store had a channel conflict with its retail stores and it didn’t want to cannibalize its offline revenue stream (which included lucrative late fees). Because of this, it chose run its online service in conjunction with its stores. This was good because it let them use their stores as mini distribution centers and, from the customer’s perspective, it overcame the problem of spontaneous rentals. But it was also bad because it, not only made their logistics much more complicated, it also reduced their online store’s adoption rate. As explained previously, profits in online rentals are a volume game. Accordingly, Blockbuster’s rental revenues fell by 2.3% from 2003 to 2004. During the same period, Netflix’s rental revenues increased by 85.1% while its number of customers increased by 75.5% to 2.6m. To counter this slower adoption rate, Blockbuster later dropped its late fees for online store users altogether. It also reduced its subscription fees, albeit to seemingly unsustainable levels.
That was our January 2007-based analysis. Since then, of course, Blockbuster has drop its subscription fees.
What has happened since then, though, is much worse. As Don Reisinger from CNET explains it:
According to the company's third-quarter results released Thursday, Blockbuster's revenue slid 5.7 percent and the company harbored a net loss of $35 million. Worse, it has closed 526 stores in the past year, and the number of employees will be reduced to offset high overhead costs to the tune of $45 million. Blockbuster's injured stock price continues to fall and was priced at $5.06 at Thursday's close.
But if that's not enough to signal defeat, Blockbuster Chairman Jim Keyes admitted that his company's focus on Netflix was damaging and has decided to pull the plug on his demand for higher Total Access membership. Instead, he wants Blockbuster to focus on increasing overall membership.
Sorry, Jim, but I think you're out of luck.
Much like the print media and retail stores refusing to change, Blockbuster has been a victim on an online company finding new and inventive ways of bringing a product to a customer. And due to its size and outdated corporate culture, there really is no salvation for Blockbuster at this point. Try as it might, the future of Blockbuster is bleak, at best.
Reisinger gives Blockbuster two years before the company goes under. I think Blockbuster will last longer. Mainly because I think it'll hire some smart MBA grads (probably management consultants) who will figure out a way to radically change its business model, if not the whole company. (And by "radically" I pretty much mean "completely"). At least that's what I would do (or I like to think that's what I would do, should I have found myself in that position). And, judging from his comments, that might just be what Jim Keyes does as well. Let's see.
