The End of Retail Video Rentals as We Know It
Blockbuster was one of the nations premiere video rental retail stores until recently. With the advent of the internet and online shopping, customers are more willing to use their credit card online to consume “all you can eat” entertainment rentals. Blockbuster’s CEO James Keyes has said that Netflix is taking “demand out of the market” of video rental retail locations (Sandoval, 4) which could be why Blockbuster’s stock is down 72.66% year over year, and down 96.15% over five years (Google Finance).
Because there is a lack of demand in Blockbuster’s main market, they must find a way to compete in related markets in order to regain it’s profitability (Blockbuster expected to post a loss of 193 million in 2009 (Sandoval, 3)). One way to do that is to compete directly with online dvd rental services such as Netflix head to head by beating them in either price or adding to the core product (which will determine the actual product) of media rental by adding unique selling points such as online rentals, HD rentals, and other added benefits.
Blockbuster may be cannibalizing it’s retail store sales, but currently their retail stores are a huge cost center. Not only that, but the retail media rentals have reached a saturation point. They have planned to shut down many of their stores and decided to replace them with kiosks and build their online infrastructure. This will reduce the hemorrhaging of cash they’re currently facing and help compete in the market that is currently growing. If they can utilize the goodwill in their brand, they might be able to become profitable in the future.
Blockbuster is trying to turn it’s image around. Right now they face consumer attitudes that they are expensive and that needing to drive to a retail outlet is more inconvenient than having movies shipped, or visiting a rental kiosk located at a store that the consumer visits often. They are changing these perceptions by competing in the online space, as well as opening their own kiosks. They are leveraging the fact that they are one of the only online/kiosk suppliers that also has retail stores by allowing customers to return movies to their stores and also by letting them exchange a limited number of movies in the store so a consumer doesn’t have to wait for the mail.
Blockbuster is targeting consumers that might not have been in their stores to actually rent a movie but are comfortable giving payment information online: definitively a younger demographic. Their old market segment of “anyone that wants to watch a movie without paying for it” has changed to “users that want to rent a movie the traditional way” (which I feel is now an older demographic) has split into their current demographic plus “users that are comfortable streaming video online” (a younger demographic), “users that value selection and are comfortable online” (a younger demographic) and also “users that value convenience over selection of titles”. They value that approach because it allows them to connect with their consumers in a method that gives the consumer the ultimate choice.
Sandval, Greg. “Netflix has Blockbuster on the ropes” C-Net News 2010 C-Net 11 Frb. 2010 <http://news.cnet.com/8301-31001_3-10449940-261.html>
“Google Finance: Blockbuster”. Google. 2/12/2010 <http://www.google.com/finance?q=blockbuster>.
