Posted on 01/02/2005 11:07:50 AM PST by 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.
So so true! But with Mrs. Daschle being the highest paid airline lobbyist in DC and husband Tommyboy being booted back to a state of big rocks, the airline industry just might have to tighten it's own belt this year. :-)
My husband tore up our Blockbuster card many years ago when we kept getting hit with late fees, even when we had returned the movies on time (I think there was eventually a class action suit brought against them for these types of practices.)
Anyhoo, if I want to see a DVD, which is not too often, I pick one up at our local grocery store on Monday or Thursday.
The rental on those days is 99 cents, and after you've rented 10 movies, you get the 11th rental for free.
Plus it's convenient, I'm in the store buying groceries, so why not pick up a movie too.
I also believe there are other factors which will contribute to Blockbuster's demise:
Their support of full frame whether than widescreen movies for rental.
Their continued support of the rent through video pricing rather than the $20 MSRP of owning in the DVD market vs. VHS.
slow adoption of the DVD market.
Their support of the failed CC DIVX model which most DVD player owners were against.
I probably watch perhaps one new movie a year, on PPV, they aint worth buying to own on DVD, the notable exception being The Passion.
"We quit Blockbuster and went to Hollywood Video because BB had ridiculous 2-day rentals."
I have always hated the two-day rental as well.
One day I was renting two movies and the Blockbuster gal said, "Did you know that for the price of one more movie you can get the Movie Pass and rent two at a time for as long as you want, exchanging them as often as you want?"
For me it was a no-brainer since I am a movie nut (I hate television). It was one of the very few times that I felt Blockbuster was actually offering me something of value.
Well I've probable bought 5-10 titles this month alone: ROTK ext edition, I Robot, Luther, King Arthur, Top Gun Spec Edit, Collateral, Wizard of Oz (co worker xmas gift), Dawn of the Dead, Crusade.
I hate full screen format. I much prefer the widescreen format movie, be it the new movies or the old classics on Turner Classic Movies.
I'm still pissed at "Lackluster" always scalping me with late fees. My shadow has not darkened their doors for months now.
Every 6 months a new season of MASH is released, so in total, I spend about $60 on DVD's. Season 7 (of eleven seasons) came out a month ago, which I plan to purchase the next time I am at Wal-Mart.
Well Blockbuster tried to force that format in the DVD market onto their customers. In most Blockbuster stores where the studio released both versions, Blockbuster refused to carry the widescreen for rental.
Hollywood Video on the other hand, embraced the widescreen format on DVD for rental.
I buy a lot of titles on preorder at 40% off MSRP. So for $20 you can own a title rather than $5.00 for renting it.
Thanks for the Netflix report. I am planning on starting up as soon as my current Blockbuster pass expires.
I've browsed their titles and they have almost every obscure film I searched for. And many of those are the high caliber Criterion Collection versions to boot.
Oops forgot Daredevil Dir Cut I also purchased for myself and In Search of the Trojan War for my husband. So that's at least 11 titles this last Month Dec.
Which explains why you see dual sided DVD's. Widescreen on one side, full screen on the other.
They have lots of older movies, that don't get shown on TV very often. You don't have to wait until it happens to be broadcast; you can order it up and have it in a day or two!
Netflix has lots of TV shows on DVD as well.
Having stuff I want to watch is important. I don't have cable because I feel that there's not enough stuff on there that I want to watch....not at those subscription rates anyway.
If I rent out a DVD I usually go to a local man who has an electronics business along with movie rentals. He gives good customer service (free popcorn with every rental) and I like the idea that I am contributing to a local business instead of a franchise.
Here's how they can survive:
Blockbuster can announce that they are only going to carry movies that are Politically Correct. They can make a big deal out of banning films like the "homophobic" Dodgeball or the "fundamentalist" Passion of the Christ from their stores.
They can then highlight PC films such as Alexander, etc., and in addition can start carrying "educational" videos promoting abortion, homosexuality, atheism, naturalistic evolution, socialism, etc.
This will be the perfect model for getting governmental subsidies and grants from the Ford and Rockefeller Foundations, which should more than make up for the lack of actual customers.
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