Blockbuster is struggling, and seems to be trying as hard as it can to keep that moniker. Even though the company's finance's are looking up, it continues to make one questionable move after another in its attempt to compete with Netflix, Apple, and Amazon. From its decision to try buying Circuit City -- another struggling retailer -- in some crazy scheme to sell movies and TVs in the same store, to the company's latest hair-brained move: in-store movie download kiosks.

Blockbuster first started talking kiosks last November, and last week unveiled the prototype to the press. The kiosks will work like this: Customers will visit a Blockbuster store and connect a supported digital media device to the in-store kiosk -- at launch, that will only include devices made by Archos. For a trial run at a few stores in the Dallas, Texas area, Blockbuster's kiosks will have a limited selection of movies, but CEO James Keyes hopes that will change in the future as the company plans to get more studios on board.

Last November, we expressed skepticism about the kiosk plan. "The major advantage [Blockbuster] had over Netflix was the ability to offer free in-store rentals if people returned mailed videos to the store," we wrote. An in-store kiosk cuts the convenience level in half -- now that you're not getting anything mailed to you, you're forced to make a trip to the store, and there is no longer any reason for Blockbuster to offer free rentals.

Much of Blockbuster's good news was at the store level where mechandising revenue rose 19.7% over last year. But as the Motley Fool points out, in-store kiosks might hurt that revenue stream. "I thought the purpose of winning foot traffic at the store level was to grow incremental impulse-item sales," writes Rick Aristotle Munarriz. "Folks walking in to use an automated kiosk are unlikely to bother with conventional checkout lines."

What About Redbox?

While it's true that Redbox DVD rental kiosks already have 6800 locations in the US -- more than Blockbuster -- and that the company is moving toward an IPO, Blockbuster's kiosks aren't the same. Redbox works because the kiosks are placed in locations that already have a lot of retail foot traffic -- such as Wal-Mart, Walgreens, and grocery stores. Redbox inspires impulsive movie rentals and is convenient for people already out doing other errands.

Blockbuster kiosks, on the other hand, would be in places you only visit if you're planning to rent a movie already. The convenience of no late fees is also diminished when you have to leave the house and download your movie to a portable device -- which may mean less than perfect video quality when you hook your device up to a television.

The Future is in Downloads

Last fall Keyes told reporters that he expects the DVD business to be a significant part of Blockbuster's business for at least 5 years, and that the kiosks are meant as a way to transition users toward a future of digital downloads. Netflix agrees that in 5 years the DVD business will be on the decline, but Netflix is skipping the "transitional" period and moving straight to downloading movies directly to the TV.

Blockbuster is also working on a set-top box, which will put its acquisition of movie download service Movielink to use. Unfortunately for Blockbuster, they'll be a late entry to a market that is already crowded with mammoth competitors, including Amazon, Apple, Netflix, and Microsoft.

Despite some good revenue news, Blockbuster still seems like a company that's making all the wrong moves as it struggles to transition to the digital world.

Perhaps the Onion says it best though, in the following news report.