Thursday, September 23, 2010

What Happens After Blockbuster's Bankruptcy?

Blockbuster finally filed for bankruptcy protection today. TechCrunch, the well-respected tech blog, started its post this way (and I couldn't have said it better myself):
It’s come to this: the success of Netflix and Redbox in the United States have driven Blockbuster, as expected, to file for bankruptcy protection after failing to adequately and swiftly adapt its movie-rental model from physical storefronts to mail-order and online technology pioneered by its aforementioned competitors.
Now the question is: Can Blockbuster, slow to change its strategy in the past despite clear and present competitive danger, market itself into a profitable future? First, a look at the numbers:
  • Blockbuster has 3,000 stores but will probably close hundreds and hundreds to cut its costs for bricks-based retailing and encourage customers to rent via electronic methods.
  • Redbox has 23,000 kiosks in retail stores across the US and is expanding every day. Its costs are far lower than bricks-based Blockbuster and its limited inventory also keeps costs under control.
  • Netflix has 15,000 subscribers and enjoys growth momentum. Its costs don't include storefronts, but renting DVDs by mail is more expensive than instant viewing (especially with a USPS rate increase in 2011). It must put more movies up for instant viewing to contain costs.
The next 6 months will be the real test. If Blockbuster (with its long-established brand) can convert customers to kiosks and online rental transactions by demonstrating a meaningful advantage or at best competitive parity with real benefits (such as first-release of movies, ahead of competitors), it could survive and ultimately reshape its destiny for a profitable future.

For an excellent analysis of Blockbuster's "blind spot," see this Fast Company post.

No comments:

Post a Comment