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Blockbuster Blindsided By Perfect Storm | January 9, 2006
By Jim Harris
IT’S BEEN THE DEATH OF A THOUSAND CUTS FOR BLOCKBUSTER, AND WHILE COMPETITORS HAVE TAKEN THEIR BITES, AT THE ROOT BLOCKBUSTER AND OTHER VIDEO RENTAL STORES ARE SUFFERING FROM A LACK OF UNDERSTANDING OF THE CUSTOMER EXPERIENCE.
Think about it: You and your spouse drive to the video store, walk around trying to decide what to get, agree, check out with your movie, get home and settle in to watch — and find the clerk put the wrong DVD in the sleeve or, worse yet, the DVD begins to skip. Movie interruptus is a drag.
And then to crown it off, you have to remember to return the disk or suffer late charges. Not exactly a positive customer experience, so when alternatives emerged customers jumped. Blockbuster’s downward spiral is caused by a perfect storm of moves that blindsided the company.
New DVD sales: Why rent a movie when you can buy new releases for $20, older films for as little as $8, or a complete TV season for $35 to $65?
Especially consider children’s movies: you watch these over and over, so why rent for $5 a night?
With American DVD sales expected to reach US $18.8 billion, nearly US $21 billion in 2006 and rising to US $29 billion by 2009 according to a PriceWaterHouseCoopers report, that’s a big chunk out of the rental market.
Used DVD sales: Millions of used DVDs are sold online every year through eBay. With 68 million active users this will continue to grow. And then there are pirated movies from China; the MPAA estimates pirates cost the industry US $3.5 billion a year globally.
Personal Video Recorders: We can now easily time-shift viewing, and we are: as of November 2005, 11 per cent of adults in the U.S. report owning a PVR, according to Total TV Audience Monitor.
Imagine you could only read your favourite book between 8:00 and 9:00 p.m. on Thursdays and you couldn’t go to the washroom until you finished a chapter.
Sound ludicrous? Well, isn’t that the way we’ve watched TV? PVRs allow consumers to record around 50 hours of movies and TV shows to a hard-disk device, watch at any time and fast forward through three minutes of commercials in 10 seconds.
Owning a PVR is an addictive experience — once you’ve been freed from network scheduling you’ll never go back. PVRs have really hit the number of videos consumers rent from Blockbuster.
Subscription services: Zip.ca in Canada is a subscription DVD service. For $24.95 a month you can rent as many DVDs as you want and keep them as long as you want, with three out at a time. There are no due dates, no late fees, no shipping fees. When you’re finished watching a DVD you mail it back to Zip.ca in a pre-paid envelope and your next choice is mailed to you.
Zip.ca is similar to U.S. - based Netflix, created by Reed Hastings. Eight years ago he returned a video to his local Blockbuster six weeks late and was charged $40 in late fees. So he founded Netflix. In Canada, Zip.ca has 25,000 customers and 36,000 titles, while Netflix has 3.6 million American customers and more than 50,000 titles.
Blockbuster has tried to respond. It dropped late fees, which at one point represented 16 per cent of the company’s profit. It also increased floor space
for renting higher-margin video games and boosted its for-sale racks. But with 9,100 stores Blockbuster’s overhead is dramatically higher than Netflix with its 37 distribution centers.
Can Blockbuster survive? In its current form the answer has to be no.
IT’S BEEN THE DEATH OF A THOUSAND CUTS FOR BLOCKBUSTER, AND WHILE COMPETITORS HAVE TAKEN THEIR BITES, AT THE ROOT BLOCKBUSTER AND OTHER VIDEO RENTAL STORES ARE SUFFERING FROM A LACK OF UNDERSTANDING OF THE CUSTOMER EXPERIENCE.
Think about it: You and your spouse drive to the video store, walk around trying to decide what to get, agree, check out with your movie, get home and settle in to watch — and find the clerk put the wrong DVD in the sleeve or, worse yet, the DVD begins to skip. Movie interruptus is a drag.
And then to crown it off, you have to remember to return the disk or suffer late charges. Not exactly a positive customer experience, so when alternatives emerged customers jumped. Blockbuster’s downward spiral is caused by a perfect storm of moves that blindsided the company.
New DVD sales: Why rent a movie when you can buy new releases for $20, older films for as little as $8, or a complete TV season for $35 to $65?
Especially consider children’s movies: you watch these over and over, so why rent for $5 a night?
With American DVD sales expected to reach US $18.8 billion, nearly US $21 billion in 2006 and rising to US $29 billion by 2009 according to a PriceWaterHouseCoopers report, that’s a big chunk out of the rental market.
Used DVD sales: Millions of used DVDs are sold online every year through eBay. With 68 million active users this will continue to grow. And then there are pirated movies from China; the MPAA estimates pirates cost the industry US $3.5 billion a year globally.
Personal Video Recorders: We can now easily time-shift viewing, and we are: as of November 2005, 11 per cent of adults in the U.S. report owning a PVR, according to Total TV Audience Monitor.
Imagine you could only read your favourite book between 8:00 and 9:00 p.m. on Thursdays and you couldn’t go to the washroom until you finished a chapter.
Sound ludicrous? Well, isn’t that the way we’ve watched TV? PVRs allow consumers to record around 50 hours of movies and TV shows to a hard-disk device, watch at any time and fast forward through three minutes of commercials in 10 seconds.
Owning a PVR is an addictive experience — once you’ve been freed from network scheduling you’ll never go back. PVRs have really hit the number of videos consumers rent from Blockbuster.
Subscription services: Zip.ca in Canada is a subscription DVD service. For $24.95 a month you can rent as many DVDs as you want and keep them as long as you want, with three out at a time. There are no due dates, no late fees, no shipping fees. When you’re finished watching a DVD you mail it back to Zip.ca in a pre-paid envelope and your next choice is mailed to you.
Zip.ca is similar to U.S. - based Netflix, created by Reed Hastings. Eight years ago he returned a video to his local Blockbuster six weeks late and was charged $40 in late fees. So he founded Netflix. In Canada, Zip.ca has 25,000 customers and 36,000 titles, while Netflix has 3.6 million American customers and more than 50,000 titles.
Blockbuster has tried to respond. It dropped late fees, which at one point represented 16 per cent of the company’s profit. It also increased floor space
for renting higher-margin video games and boosted its for-sale racks. But with 9,100 stores Blockbuster’s overhead is dramatically higher than Netflix with its 37 distribution centers.
Can Blockbuster survive? In its current form the answer has to be no.
