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.

[BigSkyFreeper]

I bought the original MASH movie on DVD, digitally mastered and restored. They even have a documentary showing the restoration process and the comparison between the actual film the mastered into digital with the digitally enhanced version in a side by side comparison, and the movie is a directors cut version. Parts of the audio track deteriorated and they ended up having to restore that as well. There's about twenty hours worth of documentary material on one of the two DVD's. The process of restoring the movie to it's original state took about 5 years to complete.

[PMCarey]

As long as you don't care about seeing the most recent flicks and seeing the movie today, a nice alternative to video rentals is your library. Our library system has an online catalog and a large collection of DVDs and videos. I usually just put a hold on the DVDs and videos that I want to see and have them sent to my local library. In the last few months I've watched several excellent series, specials, and movies that you normally can't find in video rental stores. I can usually rent the videos for 1 week and with renewals, usually 2 weeks.

Oh, and it's free. I haven't stepped inside a rental store in over a year.

[conservative cat]

I love Netflix for the same reason. We are currently renting the first few seasons of the Sopranos for a refresher, but we've rented some odd assortment of movies and old series that would never be found at Blockbuster.

[CIB-173RDABN]

"... do away with late fees will only drive customers away because alot of people will feel they own the product."

---

Blockbuster is not being entirely open with their announcement about late fees.

As I understand it, if you don't return the video you buy it and they charge your credit card. If you bring it back late, they will take the charge off your credit card but then charge you a RESTOCKING FEE.

All they seem to have done is re-named the late fee.

[tahiti]

"...do what the airline industry did, instead of adapting and changing to match up with the new competative environment, just run to the government for money."

Let's be clear about this.

Free people are the sole owner of their property.

Amendment V guarantees that right.

"...nor shall private property be taken for public use without just compensation."

All mandated "security" procedures, by the federal government take private property from the airlines (money) for the public use of "security."

The airlines deserve to be "compensated" for those takings.

Just in case you have doubt that "money is property," I offer the following:

SUPREME COURT OF THE UNITED STATES No. 98—963 JEREMIAH W. (JAY) NIXON, ATTORNEY GENERAL OF MISSOURI, et al., PETITIONERS v. SHRINK MISSOURI GOVERNMENT PAC et al. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT [January 24, 2000]

Justice Stevens,

"I make one simple point. Money is property;"

[marajade]

That only presents an argument that its better to just buy it outright.

[Clovis_Skeptic]

I quit BB years ago due to Hollywood Video offering 3.99 for 5 evenings.
I rent lots of dvd's, love movies, hardly watch any tv shows.
I wouldn't be so quick to predict the demise of brick and mortar video stores. When movies first were available on vhs, I thought that would have closed down theatres everywhere. But more and more people go to the theatre, then buy or rent the dvd later.

[wideminded]

... the fact that Blockbuster decided in it's infinite stupidity to do away with late fees will only drive customers away because alot of people will feel they own the product.

Blockbuster was fraudulently charging late fees that weren't really due, something I caught them at myself. They recently had to make a big settlement. Doing away with the late fees however is a business model I don't understand.

[sgtbono2002]

Lately DVD's have been full of advertisements I dont want to see and they dont allow me to fast Forward through the BS. Give me the Video so i dont have this crap on the front of the movie.

[Defiant]

Netflix is the greatest. I've been a member since 1999, and I was so glad to be rid of the Blockbuster late fees and the mad dash to the store to return the videos. It was also cheaper, a flat rate per month. I could get 10 or so DVDs a month for $20, avoid the driving and the late fees and the hassles.

Now, with the kids all wanting different DVDs, we are getting around 12-15 DVDs a month. Turnaround has improved because of (whisper) DVD burners. I get to watch the movie when I have the time, not forced to watch it right away.

I hope Netflix survives the coming war with Wal-Mart. They invented the market, they deserve to keep it.

[ClarenceThomasfan]

Another reason Blockbuster is a dying breed is cheap DVDs. I have stocked up on many DVDs. Some were from my favorite TV shows. Some were movies I bought at Walmart for $5.50. Now some DVDs of old movies are selling for $1.00.

Who wants to go out a rent a movie when you have a whole DVD library at home that you haven't seen yet?

[BurbankKarl]

the studios are mad because they get a cut of the late fees....

[SunStar]

...and Netflix actually has stuff that I want to watch.

Yep. They even have "Voices of Iraq", "FahrenhHYPE 911", and "Celcuis 41.11".

[LS]

Can you explain to me (and I should know this) why Hollywood gets a movie, say, on Tues. but DirectTV only gets it on pay-per-view two weeks to a month later? Why wouldn't DirectTV get the release immediately?

[marajade]

dvdempire.com is running select paramount titles at $8.99 each and if buy three or more titles, free shipping.

[marajade]

"the studios are mad because they get a cut of the late fees...."

I think it largely depends upon the studio.

[lawgirl]

I was in Blockbuster this weekend. I had not rented a movie in over a year an a half. Two DVDs for $9. Whatever! Rip off! And they had very little selection.

[Overtaxed]

I checked their listings and they even have "Killer Tomatoes" LOL!

[marajade]

That's just been the general trend of home video market. It may change.

[kennedy]

"You know, at one time there must've been dozens of companies making buggy whips. And I'll bet the last company around was the one that made the best g--damn buggy whip you ever saw. Now how would you have liked to have been a stockholder in that company? You invested in a business and this business is dead. Let's have the intelligence, let's have the DECENCY to sign the death certificate, collect the insurance, and invest in something with a future."

Larry "the Liquidator" Garfield