Blockbuster Sees Future in In-Store Kiosks, Movie Downloads

Just a couple of weeks ago, CNET’s Don Reisinger wrote that Blockbuster was doomed. After posting a quarterly net loss of $35 million, closing 526 stores over the past year, and seeing its stock price tumble, Reisinger predicted that the company would be out of business in 2 years. “The way I see it, Blockbuster has two options: sell off the company as soon as possible or spend huge sums of cash on research and development and strategic partnerships with distribution companies to make downloading movies a viable alternative to Netflix,” he wrote. “But unfortunately, I simply don’t see this happening. I think Blockbuster will try to stay the course in the hopes it can find a way out. It won’t.”

But Blockbuster CEO James Keyes doesn’t see it that way. While he admits that pursuing Netflix hard with its Total Access service (by giving away free rentals that cost the company $29 million in the third quarter) was a mistake, he doesn’t think the end is nigh.

Keyes told the Associated Press that he believes in store rentals will be an important part of Blockbuster’s business for at least 5 years (which assumes that Reisingers prediction of impending doom is wrong). Eventually, Keyes says that consumers will come to stores to download and burn movies to DVD at kiosks, or save movies to portable devices like phones or PMPs.

Blockbuster will begin putting kiosks in stores soon, though initially, they will not be able to burn DVDs. The company will also put more emphasis on retail, and begin diversifying its revenue stream beyond rentals by selling electronics, soundtrack CDs, and books. Finally, Keyes plans to make use of Blockbuster’s $7.7 million acquisition of the movie download service Movielink.

Movielink, which was a joint venture between Paramount, Sony, Universal, and Warner Bros., reportedly sold to Blockbuster for far below its asking price of $50 million. That the movie studios have such a lack of faith in the movie download model, and that the market is crowded with mammoth competitors, including Amazon, Apple, Netflix, and Microsoft, probably does not bode well for Blockbuster. Further, if the study we reported on earlier today, which predicts a slow down in Internet speeds over the next couple of years, is accurate, it is unlikely that many people would give up discs for bits just yet.


Photo credit: AP.

Though kiosks and movie downloads make sense from a convenience standpoint — no late fees, no chance a movie is unavailable, potentially infinite selection, etc. — I’m still not convinced that Blockbuster can compete with Netflix. The major advantage they had over Netflix was the ability to offer free in-store rentals if people returned mailed videos to the store — a practice that customers loved, but which cost Blockbuster $29 million in a single quarter. Keyes limited the free rentals for the Total Access program that were costing the company so much money, but that prompted 500,000 customers to leave the service.

What do you think? Can Blockbuster ever compete with Netflix, Amazon Unbox, Apple iTunes, and the rest? Or are they doomed?

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