Blockbuster's die-off is no tearjerker (Netflix, too?)

Denver Post ^ | January 02, 2005 | Al Lewis

[MississippiMasterpiece]

It's quite an epic, watching Blockbuster die.

The nation's No. 1 video chain hopes to prolong its life with a hostile bid for the No. 2 video-store chain, Hollywood Entertainment. But make no mistake - it's dying. The whole video- store industry is dying, too. Meanwhile some high-rolling financiers are picking over the corpses.

Renegade capitalist Carl Icahn has emerged as the largest investor in both Texas-based Blockbuster and Oregon- based Hollywood. Icahn is trying to put the chains together in a $1 billion deal. He'll most likely try to turn a fast buck with synergies, economies of scale, cost- cutting, restructurings, refinancings and perhaps a little bit of that old-time merger accounting.

Before Icahn's move, Leonard Green & Partners, a storied California-based investment group, bid for Hollywood. The firm, however, lowered its offer after having a close look at the books.

Alabama-based Movie Gallery, the No. 3 chain, also made an offer for Hollywood. So now, there's a testy little auction - replete with hostile takeover threats - making regular headlines.

The truth is that combining Hollywood with any other video-store chain is like handcuffing two drunks together. They could prop up each other for a while, but they are bound to stumble.

This is why entertainment giant Viacom divested itself of Blockbuster in October. Viacom's brass said they believed Blockbuster would be better off on its own. What they meant was that Viacom would be better off without Blockbuster.

Shortly after the spinoff, Blockbuster took a $1.5 billion charge against earnings to account for its declining value. As a result, Blockbuster posted a $1.26 billion loss on $4.33 billion in revenues for the first nine months of 2004.

To be sure, Blockbuster, Hollywood and other video stores still throw off plenty of cash and have seized video games as a new source of revenue. But their glory days are long behind them.

One reason they are still alive is because cable and satellite providers have failed to deliver a respectable array of competitively priced pay-per-view choices.

Another reason is that movie studios have propped up video stores as cash cows. Studios send their movies to theaters, then video retailers, and then to TV outlets. The window when new releases were only available in video stores gave Blockbuster its appeal.

But movie studios have learned they can make more money by flooding the market with inexpensive DVDs for sale at the same time they release them to video stores for rent.

That gives consumers an intriguing choice: Why pay $4 to rent when you can buy for $12 to $20 and not worry about pesky late charges while building up a personal video library?

Cheap, lightweight DVDs are easily mailed, too. This feature gave rise to Netflix, which pioneered the online, mail-order subscription model. Unfortunately, this idea is so widely copied - by Wal-Mart, Blockbuster and soon even Amazon.com - that Netflix's days are also numbered.

Meanwhile, McDonald's is experimenting in Denver with kiosks that dispense rental DVDs for $1 in a bid to drive traffic to their food counters. Supermarkets, pharmacies, convenience stores and bookstores also sell or rent DVDs for the same reason.

Then there's TiVo and other digital video recorders, including ones from Comcast and EchoStar. Why suffer long lines and slow-witted clerks at Blockbuster when you can record what you want from TV and fast-forward through commercials?

Just before Christmas, Blockbuster said it would lower its monthly fee from $17.49 to $14.99 for its Netflix-like service. That announcement came shortly after Blockbuster said it would cut late fees for in-store rentals. Blockbuster said it expects to lose income of between $250 million and $300 million for 2005 as a result of eliminating late fees.

Imagine that. Taking a quarter-billion dollars a year from customers who are too busy, too lazy or too forgetful to return their videos. This is a business model that deserves to die.

[marajade]

Storage is a problem... I have two rooms full of LDs; VHS; and DVDs. Which doesn't count CDs too.

I guess if you want LOTR on HD, you'll have to buy a player and the media.

I've never been to subscribe to keep waiting and waiting for better technology. I'd rather buy now and enjoy now.

[Jack Deth]

I know, marajade.

It's also been playing all month on HBO. I'm patient.

Patience has helped build my collection. Waited years for someone to wise up and put "The Wicker Man", "The Thing From Another World", "Them!" and the 1960s classic series "The Outer Limits" and "Combat!" on DVD.

Patience has also kept my hard earned cash out of the pockets and wallets of actors I do not care for.

It may not be much, but it works for me.

Jack.

[marajade]

I enjoyed the second in the Matrix series the most. I own the three individual movie versions. There's the new 10 disc set out now, but I don't own it.

[marajade]

ebay is wonderful.

Now if they'd just release the Man from UNCLE and Beauty and the Beast on DVD, I'd truly be happy.

[Clemenza]

As a former Blockbuster employee, I must say that when Wayne Huizenga ran the place, they were like Nazis when it came to the apprearance of the store. When he sold it, it started to turn into K-Mart.

I remember spending many a Saturday night in High School straigtening out EVERY DAMN TAPE IN THE STORE in verticle lines until 2AM.

[BigSkyFreeper]

Well I'm not a liberal but there are two posters on this thread that likes I Robot.

Never said you were a liberal, and you have a problem with the fact I don't like two movies you like. You don't like my opinion, fine, I just don't like those two movies.

[marajade]

You can like or dislike any movie you want. I don't have a problem with it.

[Mamzelle]

When I bought my big TV, it came with a "we guarantee you'll be able to upgrade this set when you want to"-- written into the purchase agreement. I guess the mfg realized that while not too many people want it right now, it'd be a selling point to be able to upgrade without buying a whole new system. If we were sports fans, it'd be worth it, but we bought it almost exclusively for movies. So, when Peter Jackson releases the LOTR in the new format, I guess that's when I'll upgrade.

I only own a handful of DVDs--I guess that reflects the favorite movies. "O Brother, Where Art Thou?" seems to be one I can watch over and over, so I bought it.

[MississippiMan]

I have enjoyed my association with Netflix, and am impressed with their speed and service. It'd take a lot to make me give it up.

Same here. I've been a Netflix customer since the way early days back when you had to buy "rental packs" of ten movies or twenty movies or whatever. I then signed up for the monthly service on the first day they offered it. Got grandfathered when they decreased to 3-out on the base plan; I pay the 3-out price but still get 4-out.

MM

[Beckwith]

I subscribed to NetFlix. Ordered and received 15 films. 6 of them were flawed. 3, so badly flawed they were not viewable. One died after 90 minutes into the film. I canceled.

By the way, BuyBlue.org reports that 95% of political contributions by its executives were to the democratic party.

[marajade]

I did some searching on the net for Master and Commander. $14.99 seems to be about the going price.

[Mamzelle]

Netflix also has an eye to competition. They recently reduced my fee for five/month. I figured that I'd get tired of five/mo and would run out of movies and switch back to three. So far, I haven't run out. Their library keeps getting bigger.

TO ANYBODY ON NETFLIX WHO IS A FAN OF ANN COULTER--I've emailed their request line for "Is It True What They Say About Ann?" the docu on Ann Coulter. If enough of us customers want to see this, they'll start stocking it...

[Mamzelle]

Yes, I've had several "bad" DVDs. It happens often with popular movies that have been on DVD for several weeks. You can immediately get online and order a replacement, which may disappoint for an evening but I generally have another movie to watch on hand at the same time.

I also make a habit of cleaning all DVDs with isopropyl alcohol before starting them--that helped a lot.

So, that is a problem with Netflix. But it's been a workable one for me--BB also rented me broken movies, only I had to drive to them for a replacement.

[garbanzo]

I'm guessing video on demand will hurt companies like Netflix also

Netflix's advantage is selection. Much like Amazon, it's real advantage is carrying a very wide selection of titles that are difficult to find in most brick and mortars outside of the largest cities.

[SamAdams76]

Too lazy to return videos when you said you would? What part of rules do you not understand?

And what part of free market do you not understand? Netflix came out with a better business model that is far superior to the "punish our customers" model that Blockbuster tried to keep going. And Blockbuster is now getting hit for the mother-of-all late fees. Because they were late in changing their business model, they are now doomed.

[Boazo]

bump

[PogySailor]

I hear you. I've seen more movies I'd not spend the money on otherwise since joining Netflix. Between them and the HD PVR, I rarely watch live TV anymore, other than sports.

BB ripped me off over "unreturned" videos one time to many. I suspected that the pimple faced staff was stealing the videos rather than checking them back in.

Never had a problem with Netflix and they have a HUGE selection.

[tahiti]

"Bottom line the tax payer should not have to float the bill for a corporation who is not turning profits."

It is difficult to turn a "profit" when our federal government requires the airlines to spend their property (money) for the purchase x-ray machines to search (unconstitutionally, I might add) our luggage (for the public use of "security) down in the bowels of the airport.

Amendment V is crystal clear on this subject. The airlines deserve to compensated for such takings. <> I am not suggesting subsidies to stay in business. I suggesting following the constitution and compensating private property owners for their property that has been taken for public use.

Sometimes, for the preservation of liberty and freedom, it costs we fellow citizens tax money to follow the constitution.

[Jack Deth]

I could go for a "Man From UNCLE" or "Hill Street Blues" Season by Season multi-disc set, marajade.
Never missed the former when I was a kid.
Older sister had a crush on David McCallum.
While I had a major crush on Diana Rigg's Mrs. Emma Peel from "The Avengers".
She was also a huge "Beauty & The Beast" fan.
I still can't get to her believe that Ron Perlman (The Beast) also plays "Hell-Boy"!

Jack.

[discostu]

They also have "9/11" the documentary that was being filmed about firefighters in general and just happened to be at THE firestation, that's a pretty amazing documentary. They've got a pretty impressive selection that lacks political bias, and excellent service. I don't worry about where their donations go, it's a wide open world and eventually some of your money is always going to wind up in enemy hands and some of it won't. I need look no further than the company I work for, most of the politically active people are hardcore super leftists (some are DUers even), but there's also me and a few other hardcore conservatives; so if you bought a product from us I garauntee that some of your money wound up in Kerry's campaign... and some wound up in Bush's, such is life.