Monday, November 19, 2007
Blockbusted by Online Rentals
Years from now they will be teaching the story of Blockbuster's rise and fall in business schools everywhere. The once unstoppable video marketing company is bleeding money and market share due to as a resurgent Netflix and slow move to video downloads.Blockbuster was too aggressive in defending it's turf against Netflix. The decision to remove all late fees from in-store rentals and to allow offer a free in-store rental for every online movie rented decimated the company's revenue.
The deal was too good to be true (I made the jump from Netflix myself). Now Blockbuster's curtailment of free in-store rentals has cost the company customers, and a plan to restore some late fees or raise prices will prompt more of an exodus to other services.
Blockbuster is also considering in-store burning of DVDs, an idea likely to fail as it will give customers the idea that burn your own services are out there and will take too long and cost too much in discs and labor. The company will also start selling/renting music CDs and e-books, which may help, but not much.
The future is video on demand. Today online rentals are just 16 percent of the market (no number was provided for VOD sales), and consumers are showing a growing liking for not having to run out to the store to get or return a movie.
The movie studios aren't so happy about that because they charge the rental stores more for a DVD rental than they do for download because of the associated purchases (candy, soda, etc.) that an in-person rental generates.
But consumer demand will speak, and video on demand and online-to-TV rental services are the answer. From the Amazon Unbox to TiVo service to AppleTV to vide on demand being able to order online and watch on TV is the ultimate solution.
How can these services be made more profitable? Volume, and delivery food tie ins.
Pizza and a movie at home are becoming as popular as popcorn at the theater, and some chain (Pizza Hut, Poppa Johns) should offer free or discounted movies with every pizza purchase. You call and order a pizza, you get a code for a free or 99 cent movie, and by the time the pizza arrives, your movie is already queued up on the TV, either through video on demand or the internet-to-TV service.
The volume tie in would be a video on demand service that provides new releases for $3 and secondary runs at $2 through subscriptions. For $15 you get 6 rentals, 3 being "blockbusters" just available for rental (Shrek, Spidey 3) and 3 additional 2nd tier rentals.
Additional movies cost say $2. That would expand the reliable revenue and reduce administrative costs of charging per rental.
Blockbuster won't die out for the next few years, but it will no longer be part of a growth industry.
Posted By John Gartner at 09:45 AM
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