What Is Blockbuster Video?
Blockbuster Video is an American chain of DVD, Blu-ray, and video game rental stores. What started as a single movie rental store at a busy intersection in Dallas, Texas in 1985 eventually became the largest video rental store in the country. Blockbuster had incredible business success well into the early 2000s, but then online video rental stores like Netflix started gaining customers. Customers preferred the convenience of sending and receiving movies and games through the mail, and even when they attempted to create their own warehouse video system like that operated by Netflix and others, it never really caught on. As of September 23, 2010, the company is operating under Chapter 11 bankruptcy. Blockbuster is still headquartered in downtown Dallas.
Blockbuster Video Successes
Their company is often credited, rightly, with popularizing videotape recorders and VHS playback in the home. Blockbuster filled a need in the late 80s that no one else was involved in — people loved their VHS systems, but no widespread system existed to let them watch movies just once or twice rather than buying them.
Back in 1987, Blockbuster soared again after businessman Wayne Huizenga took control of the company and started to get aggressive. They expanded so often under Huizenga’s reign that customers often found new stores opening in their neighborhood seemingly overnight. Huizenga also spent a lot of time and money buying out Blockbuster’s regional competition.
Carl Icahn took control of ten percent of the company in the early 2000s, when it was first showing signs of trouble. Icahn got the ball rolling on Blockbuster’s entry into the DVD-by-mail business, and though Blockbuster never had nearly as many customers as Netflix, the DVD-by-mail service is still up and running, and had it worked, Blockbuster could have become at least competitive with Netflix.
Are Blockbuster Stores Still Open?
For the moment, your neighborhood store is probably still operating. There are stores closing around the country, leaving people wondering where to rent movies now, but many are in business as usual.
Unfortunately for fans of their stores, that won’t always be the case. The announcement of Chapter 11 bankruptcy carried with it some bleak news for the future — yes, there are still some 3,500 Blockbuster stores currently open in the U.S., but the odds that the “mounting losses, rising debt and better competition” will get any better for Blockbuster in the coming months are low.
A group of investors (led by billionaire Carl Icahn) is likely to order hundreds of stores closed in a last-ditch attempt to make a profit. This is terrible news for employees of Blockbuster — the Dallas, Texas company has almost 2,6000 employees, including 7,500 workers earning a full-time wage. As Blockbuster stores close, and if profits continue to drop, there could be a huge number of Blockbuster employees seeking jobs.
If the demise of Blockbuster looks anything like their old competitor, Hollywood Video, the future for these stores is dark indeed. Hollywood Video liquidated just a few months after declaring Chapter 11, and while that company’s website says they’re “in the process of exploring new ways of delivering entertainment”, it looks more like the end for Hollywood.
What Caused Blockbuster Video’s Decline?
Blockbuster points to several factors in explaining what happened to the company — low reserves of cash, a heavy debt load, and competitors who have built better models for distributing DVDs to customers. Think of your own video experience — how many times have you visited any retail store video rental chain in the last year? Now compare that to how much video rental you did, say, ten years ago — Americans just aren’t renting videos the way Blockbuster wants them to. People are watching movies online, or renting them through the mail, using “cable on demand” services and even video rental vending machine services like Redbox.
How bad is Blockbuster’s debt? The company claims they have about $1 billion in assets, but they also claim to be over $1.5 billion in debt. It will be nearly impossible for Blockbuster to gain back the customer base they once had. Eight years ago, Netflix boasted 1 million subscribers. Today, Netflix has well over 15 million members and climbing. How can you win back a customer base that’s found a new way to enjoy movies?
How Blockbuster Could Stay Alive
Though the odds are stacked against them, there is hope for the one-time video rental giant.
By filing for Chapter 11, Blockbuster will probably reduce its debt from $1 billion to about $100 million. They’re planning to pay off $125 million in debt through a financing program for bankrupt companies, and this money will be paid to suppliers, customers, and employees while the company reorganizes. Blockbuster is planning on spending about $40 million on rights to movies, money paid directly to movie studios to keep their stores stocked with current and new DVD titles.
All of those plans may work. Blockbuster could drastically reduce the price of membership in their DVD-by-mail program, holding a 6 month promotion (for example) that cuts rates in half or by some other dramatic amount. That could get them an influx of new customers upset about the rising prices at Netflix. Whether or not this temporary fix would hold with time is up in the air.
Another move Blockbuster could (and should) make immediately — close 1000 low-performing stores. If a store is performing poorly, closing it and focusing your effort on neighborhoods where movie rentals the old-fashioned way are still popular. Blockbuster has long had their fingers on the pulse of the neighborhoods in which they are franchised. Movie stock, classic titles, and video game saturation differ from store to store, reflecting the different dynamics of the neighborhoods in which they do business. They should use this information to trim the fat, and spend the savings on beefing up high performing stores and adding inventory to their online service.
Blockbuster Video is a household name brand — even if you aren’t a member, you know the name and you know what they do. Blockbuster is planning on revamping Total Access (the name of their video by mail service) to be less “mainstream”, including a wider variety of titles, classic movies, animations, foreign movies, indies, etc. The biggest knock on Total Access is that Netflix simply has a better, more eclectic collection, and making small changes like this to existing services could ensure that Blockbuster will be with us for another 25 years.