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.
The extras on the DVD make buying the movie worth the while, especially the actor and director interviews and the behind-the-scene documentaries.
I've been using the DVD rental machine at a grocery store. 99cents per day.
Unlike most people, I take them back after one day.
of course, there are only so many movies they can put in that little machine.
I like hollywood video better than blockbuster. Hollywood has started a couple new monthly pass things... $20/ mo for 5 movies at a time for a few days, and $25/mo or something for keeping 5 at a time as long as you want.
I now get DVDs from the library or from a locally-owned store with a much better selection (and all rentals are due by closing time). Luckily, I also work in the media and have a friend who is a movie critic and brings her advance screener DVDs over because I have a great video projector and can set up a theater in my living room. This weekend, I sat on my sofa and watched "Sideways" and "The Incredibles." To hell with Blockbuster.
Just signed up last Thursday night. Got our first three movies Saturday.
L
Not so fast, hall monitor. It's important to keep in mind that returning the video late is not like violating a contract or breaking the law. It's a value transaction just like anything else; and in fact, I would argue that late fees were likely a decent source of revenue for Blockbuster at one point. What Blockbuster did was adjust the late fee system to one that, in my opinion, backfired on them.
In the past, the late fees consisted of a small charge for each extra day you kept the video. That charge was a reasonable fraction of the original rental fee. So if you didn't get around to finishing your stack of videos, it was no big deal, you just return the ones you did watch and pay a little late fee for the rest. Or if you just happen to be an hour late? Again, no big deal, it's just an extra buck.
But now what they do is charge you for a FULL rental cycle (a week, for example) even if you're just an hour late. Now it costs you twice as much to be late instead of, say, 25% more. Yes, it probably reduced the incidence of people returning movies late. But look what good it did them?
I argue that they were making more money when they were being less punitive. It's not like it's particularly costly to them when a movie is late. In fact, when a movie is late, it's almost "free money" in a sense---they're making the same money, even more, per day that the video is out, but they didn't need an employee to ring up a new customer in the process. A bird in the hand...
Now again, it's not a matter of breaking rules. Blockbuster had a revenue stream in late fees, so they can't really complain. They just blew it.
We decided to go satellite. SSQ is interested in the HD and the DVR to record movies in HD. Now we just gotta get a big a$$ TV on which to watch the movies! ;o)
The next few will be classic chick flicks as Mrs. L did most of the picking.
Happy New Year to ya!
L
It's not quite that simple. You get charged only if you're seven days late.
everyone should re-read this post...the most cogent analysis I have seen of reality of our movie business.
Movies start 15-20 mins after their advertised start time for more commercials. No one cares. So they continue to do it.
I can't believe the titles some people bought here. King Arthur? To Own!?
http://www.dvdempire.com/index.asp?
http://www.amazon.com/exec/obidos/tg/new-for-you/top-sellers/-/dvd/all/dvd/0/1/2/ref=pd_ts_pg_2/002-5283998-8991201
#4 at dvdempire.com
#35 at amazon.com
What's your problem?
Don't foget the $1.99 channel.
Very good post, I concur with it one hundred percent.
Agree.
I just bought a couple of ReplayTV's. They record what I want from the cable that I pay monthly. Each has over 500 gigs of memory, for over 1000 hours of entertainment.
They connect to my computer, and with a program called dvarchive, I can back up some of what I record up onto my computer hard drive(s) - I'll just add more drives when the spaces get full but I already have some old drives I could wipe clean for this purpose. Dvarchive also emulates the ReplayTv on windows or linux, and so it can stream my shows back and forth from the computer to the Replay units, etc, any time I want. You can watch any show on any TV with a replay unit, or computer with dvarchive. It can also share shows over the internet with other replaytv owners. I am building my own digital video library.
Plus, I can burn these shows to DVD if I want, to take them on the road with me or for extra storage.
I have burned most of my music to MP3, and will burn most of my (meager colection of) DVD's to the replay as well. Soon, my house will be all computer entertainment driven. All music, TV and film will be digital computerized and driven by computers.
I will check it out ... and will try to find it's web address. Upstairs Downstairs is around $250.00 at Amazon.
And I guess you used the term, "ya" because you flunked English 101? Or. you're 13 and that's how you write when you send notes to your girlfriend while in Detention?
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