“To paraphrase Mark Twain, the demise of Blockbuster has been greatly exaggerated,” CEO, James W. Keyes, told analysts in a conference call.
In many ways Blockbuster is the Rosetta Stone for this evolving ‘physical vs. electronic’ media distribution tug-of-war. We live in the physical world but more and more of our media consumption is being enabled through digital delivery mechanisms. As such, businesses like Blockbuster which were deeply reliant on the physical distribution of media are having to re-think their business model and change course on-the-fly. Blockbuster has a lot of good things going for it. A household brand name that is synonumous with entertainment, strong local presence and visibility and a solid track record executing their (albeit outdated) business model. The big challenge for Blockbuster is to figure out a way to make bricks and mortar profitable in an era where retail shelve space is far more expensive and limiting than server space.
“An average movie theater will not show a film unless it can attract at least 1,500 people over a two-week run; that’s essentially the rent for a screen. An average record store needs to sell at least two copies of a CD per year to make it worth carrying; that’s the rent for a half inch of shelf space. And so on for DVD rental shops, videogame stores, booksellers, and newsstands. In each case, retailers will carry only content that can generate sufficient demand to earn its keep. But each can pull only from a limited local population – perhaps a 10-mile radius for a typical movie theater, less than that for music and bookstores, and even less (just a mile or two) for video rental shops. It’s not enough for a great documentary to have a potential national audience of half a million; what matters is how many it has in the northern part of Rockville, Maryland, and among the mall shoppers of Walnut Creek, California.” – Chris Anderson, Wired Magazine
Many have suggested that Blockbuster should buy Netflix, the largest mail-driven DVD rental service. However, while buying Netflix may give their DVD-by-mail business a serious shot in the arm, it does not address the need for a new retail strategy for their 7800+ physical locations. Blockbuster gave a good hint about which direction they were eyeing when they tabled an offer to buy struggling electronic retailer Circuit City. While Blockbuster has since withdrawn their offer to buy Circuit City, it’s pretty clear that Blockbuster wants to delve deeper into selling consumer electronics.
Keyes: …if you look through the rear-view mirror, you say, “It’s a video store, why would they sell a Blu-ray player?” but as Blu-ray discs become more popular, what better place to buy it, what better place to demonstrate it to our customers than the people that are in once or twice a week renting videos. They keep seeing it and pretty soon it’s an impulse item and they want to have one. So, if they’re going to buy their Blu-ray player, and get home and realize they don’t have an 1080p television. Without having an assortment of 50 TVs on the floor, could we sell them a 42-inch Bravia TV? That’s 1080p so their Blu-ray experience is more robust. Sure, it becomes an impulse item, almost a convenience item. Now, back to your original question, technology is the secret sauce in the transformation of Blockbuster.
Imagine in the future someone walking up to you in the store and you’re admiring that Blu-ray player. They’re able to sell you the PS3 player off the floor and then show you on a handheld tablet PC an assortment of 10 different TV sets that are all 1080p-enabled and bring up the transaction right there, swipe your credit card right on the spot like you would in an Apple store, and have that TV installed tomorrow.
Except a lot of the big ticket purchases you’re mentioning are not impulse buys by any means.
Keyes: Well, you’re right. A lot of them aren’t but I’m not trying to be Best Buy. What we think the role is that impulse purchaser, the person who is less price sensitive, the person who sees that beautiful 42-inch display who says, “You know, I’m a busy person. I’m just going to get it.” Thankfully, that’s a huge portion of the customer base. Not everybody is a Wal-Mart shopper, yet ironically in the consumer electronics industry, virtually everybody in the industry tries to out price Wal-Mart. Again, if you’re selling solutions, you look at what the price of an Apple product is versus a competing product in another consumer electronics environment, and you’re not buying Apple products cheap. You’re buying solutions and you’re paying a pretty good premium for the convenience of that product working and the solution being readily available. As a retailer, that’s where we’re heading.