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]

That's because BB was still trying to push the VHS market instead. BB didn't keep up with current home video trends in the adoption of the DVD format.

[puroresu]

I'm amazed that there are still as many video stores around. My town's loaded with them, including three Blockbusters (four if you count one just across the city line in a neighboring community).

Our cable system has Video on Demand, dozens of PPV channels, Showtime on Demand, HBO on Demand, etc., plus you can buy DVDs at Best Buy, Wal-Mart, and dozens of places cheap. Heck, and half the supermarkets in town rent DVDs.

I really don't see how Blockbuster can survive. It's simply technologically becoming obsolete.

[Keith in Iowa]

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

It's not that stupid...instead of the late fee, if you don't bring it back, you get billed the retail cost.

[ActionNewsBill]

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.

I had to click on your home page to see if you lived near me, LOL.

I have the exact same store in my neighborhood....free popcorn, electronics repair, etc.

[EEDUDE]

"Blockbuster was fraudulently charging late fees that weren't really due, something I caught them at myself."

Here's a horror story:

About a year ago I got a call from a collection agency demanding payment for a purchase on a credit card that I had closed three years ago.

The date the charge was placed on the card was 2 and 1/2 year AFTER the account had been closed!!!

They wanted something like $189.00.

After many hours on the phone, I finally discovered that Blockbuster had charged a late fee against the original account used to secure my membership.

I had never received a call or letter from Blockbuster saying I owed ANYTHING to them. They just kept adding late fees from the movie I was supposed to have rented, to an account that had been closed for over two years. I still don't remember ever having rented the movie in question

Finally got it dropped (with a letter of apology to me) but that was the last I will ever have to do with that outfit.

I think I was a victim of said fraud.

[ExtremeUnction]

I haven't been back since.

Yeah. Why go to the video store again if you know you will be socked for a $19.00 late charge. You just never go back.

[Puppage]

Ah, it was $3. But, I guess ya needed to make the story more appealing, hmm? And, the amount isn't the issue, now is it? Perhaps, you should resubmit your resume to the NY Times, Mr. Blair?

[BigSkyFreeper]

Go to a place like Hollywood Video, and you'll find a very small selection of VHS rentals, and the rest of the place packed with DVD's.

[BigSkyFreeper]

A movie I've never seen, but I've heard alot of rave reviews for is Army Of Darkness. That would be a movie I'd want to check out if I had a Netflix account.

[GOPrincess]

<> This used to be the case, and I really liked the value for the money. Unfortunately, any DVD I've bought in the last year or two (and I buy dozens) has had separate releases of widescreen and fullscreen, and you have to choose. (I always go widescreen.)

[BunnySlippers]

Don't forget the fact that good movies are not- or only rarely- made. I never have the desire to watch a new movie anymore.

I just joined Netflix this morning. I put in my queue the entire "Upatirs, Downstairs" series ... 26 DVDs right there. The whole Pallisers series (12 DVDs), Jewel in the Crown ... about 6 DVDs. I've saved a bundle. But I don't watch very many contemporary movies. I did get Gladiator and Saving Private Ryan which I like very much. Oh, and I got the whole "Band of Brothers" series.

[GOPrincess]

I read a week or two ago that Amazon is testing online DVD rentals in the UK, so Amazon may ultimately enter the U.S. market as well.

I love Amazon, but I hope Netflix succeeds because of their innovation in this area.

[GOPrincess]

<> This is why I rarely rent movies anymore. Between the extras and re-watching movies, and lending them out to my parents, I feel I really get good value for the price of my DVD purchase; I'd rather buy one than rent.

[BigBobber]

The Blockbuster business model seems to be "Treat the customer like dirt."

I had it out with them about a year ago when I rented a movie on Saturday night and dropped it off Monday morning on the way to work. This violated the "two-day" rental and I got charged with a late fee. The late fee is equal to a two day rental, even though you don't get to have the movie an additional two days.

I had a "conversation" with the manager (a punk teenager). I asked why the "two day" rental period was not even 48 hours long. I asked if the late fee was a punishment. I asked if they actually lost money because they couldn't rent the movie between midnight (the cutoff time) and 7 a.m. when I put it in their box. He had no good answers but reluctantly waived the late fee and I have never been back.

I don't do business with jerk outfits whose objective is to rip people off. Besides, they rarely had movies I wanted to rent.

I've been with Netflix since then and love the good service and large selection they have. Luckily, in America every obnoxious company that pisses off customers creates an opportunity for someone else to make a fortune.

[marajade]

And today most studios don't even release a full frame version of their titles. Its widescreen or none.

Another problem for BB because they tend to only offer recent releases that have the full frame format for rental.

The only studio that I can think off the top of my head was earlier Warner releases where they had both widescreen and full frame on the same disc.

[BigSkyFreeper]

Last fall, I bought The Passion Of The Christ at Wal-Mart, there was a display case with wide screen format on one side and right next to it was the full screen format. I, of course, bought the wide screen format. My DVD player will make a widescreen movie into a full screen movie, and I used that for demonstration purposes one time, and everyone who was in the room for my little test preferred the widescreen.

[NoControllingLegalAuthority]

I believe the entire Hollywood system is a dinosaur. Movies coming out of Hollywood are packages and attachments. The "package" is star #1 and star #2 combined with director "Mr. Overrated." The original screenplays are rewritten and changed by legions of movie corporate busybodies with no talent until the stories don't resemble anything approaching the orginal intent or "voice" that made them compelling at the outset.

The final result in theaters is a disaster upon which a hundred million dollars has been spent and appeals to and pleases nobody.

Hollywood has no creativity and can no longer make a mid-budget or low-budget picture.

The system is ultimately doomed to failure.

The model is based upon selling theater tickets to 15-25 year-olds on "dates" or accompanied by high-school "buddies." They are special-effects heavy, and story light.

There is a very good reason movies do not appeal to intelligent grown-ups. They are not made for grown-ups.

Hollywood has no idea what we in the heartland want to see because they despise everything we believe in and treasure in our values and our culture.

[GOPrincess]

If you ever decide to own UPSTAIRS, DOWNSTAIRS, DeepDiscountDVD is the place to go for expensive British series. Much cheaper than Amazon in many cases. I got Season 1 of U,D for about $40, compared to about $70 on Amazon at that time.

[RightWhale]

Blockbuster was doomed the day they opened their doors. The movie recording rental industry was alread passed its peak and headed onto the trashheap of past fads.

[Defiant]

For Amazon, it makes sense. For Wal-Mart, it is just taking advantage of an opportunity because it can. They are not naturals in the DVD rental business. I hope they fail. I hope Amazon makes a go of it, though, because all businesses need competition. There will be room for both, and it will keep Netflix honest.

I won't rent from Blockbuster no matter what they charge. I know that if they destroy Netflix, they will jack up the fees and introduce late charges.