At the heart of it, I think the "new release" is a market strategy rather than a consumer goal. Creators want consumers to believe that they should forget everything in light of the "latest and greatest". The creators' strategy is to attempt to drown out all other consumer thoughts with marketing. Consumers just want a good trade-off for their time.
In the past, information was substantially easier to find on things that were new. Finding good movies in the so called "long tail" of a video store involved book research, knowledgeable friends, or lucky guesses. You could choose what had been recently marketed to you or the devil or the unknown box. Modern information networks have changed this reality largely in favor of the unknown box.
The truth is that a large percentage of new creation is not really worth your time. The biggest advantage the new stuff has is frankly that it is new. As information systems progress, people will have an easier time separating hype from substance. This will effectively make older quality creations more desirable.
It is probably fanciful, but I'd expect his statement to be exactly wrong in the long run. The reality may become "why would anyone want to watch new releases"?
Well, I wouldn't worry about share price so much as their overall worth. It's heavily reflected there, though: Netflix ($1.8 billion) has nearly four times the market capitalization of Blockbuster ($472 million).
The fact that the CEO is confused really is obvious in the market as well as in the interview.
"Why would anyone want to watch anything other than new releases" is pretty much the slogan of RedBox. Why pay $5 for a movie rental when you can pay $1 at McDonalds or the grocery store or the gas station for the same new release? Plus, with RedBox, I don't have to show two forms of ID or fill out an application. I pick the DVDs I want, slide my card in, and the movies pop out.
NetFlix has become the premium rental service. RedBox is the budget service. Blockbuster is getting squeezed out of the market from both sides.
It is refreshing that he bluntly admitted his confusion. Most CEOs know enough to BS so that it is not obvious that they are clueless. Give this guy some kind of pity award.
He might know what his customers want, but the problem is his customers are becoming Netflix customers. The market has changed, but his target customer hasn't.
That is exactly how disruptive technologies take over big markets. While they are developing a great service, the big company is still completely focused on the ways of their old customers.
Yeah. Way to fail completely at your job, Keyes. This is a guy who can't imagine anyone using his product in a way different from the way he uses it. Fail.
This is a guy who can't imagine anyone using his product in a way different from the way he uses it.
There is really a different problem here. It's probably true that most people want to see new releases. The problem is that Netflix has new releases and old movies also. So if you go with Blockbuster, you are stuck with only new releases. If you go with Netflix, you get everything. Why bother with Blockbuster?
Also, I guess there is an agile-ish mantra like "design products for yourself first". He is doing this, and is proof that it doesn't work for everyone. :)
"Design Products for Yourself" works in the brave new world of the long tail.
'You' are probably representative of a bunch of consumers worldwide. Enough to make a market.
'He' isn't in that world. He's in the mass market world where you need 'market share' and 'mass appeal.' So being very appealing to some people is no good.
In that world, you needed to be 'good enough' for lots of people. Problem is people will move away from good enough to good when it becomes available. And it almost impossible to be good for everyone.
It works well when other people also like what you're designing for yourself. The solution is not for this guy to start doing something he doesn't understand, but for Blockbuster to get a new CEO.
No history of charging late fees. This is a really important point - in my mind, the name Blockbuster evokes the image of a scolding librarian who sells used cars on the side.
I had Blockbuster's Netflix-like service. At the time I canceled (to switch to Netflix) something like 17 of the 22 movies in my queue were unavailable with a "long wait".
There's a good lesson in here -- if one moves beyond knee-jerk criticism of the CEO for blindness/idiocy.
To him, Netflix is a marginal player lurking in a "tiny" $5.6b, while Blockbuster is the giant, going after the $27.2b. From this point of view, narrow as it is, he's not really crazy at all. And obviously some investors agree. There's a lot of money here that Netflix isn't even trying for, and Blockbuster has a foothold in.
Yet Netflix is worth 4x Blockbuster. Why? I'm not sure that the CEO has really followed this question to the end. He seems overly focused on the size of his market, rather than on how profitable it is.
Put another way:
Netflix is worth about 32% of the market it's playing in ($1.8b market cap, playing in $5.6b market).
Blockbuster is worth 1.7% of the market its playing in. ($472m market cap, playing in $27.2b market).
Physical presence seems valuable, so that's what he goes on and on about -- nobody can compete with Blockbuster in the physical realm, that's their advantage. But maybe that's because nobody wants to. Stores cost too much for what they give you.
Just because there's money being spent, doesn't mean there's profit to be made.
Physical presence is valuable if used properly. Most stores aren't very inviting and it's hard to shop around for movies when you can only see the cover of the movie. The movie packaging doesn't tell you much.
Hm. An interesting idea is to have reviews of movies stickered on the cases.
"Hm. An interesting idea is to have reviews of movies stickered on the cases."
I don't have a Netflix subscription because I've been renting movies from the local mom-and-pop store near my apartment. It's employed by film-school-dropouts and they have hilarious comments stickered on the movies. It always affects my movie-renting decisions! A corporate hog like BB couldn't scale such mom-and-pop personalization, but reviews would be an excellent alternative.
I agree -- I'm just finishing up helping design a retail store for a new brand here in Calgary. With the right product/market mix, a retail store can be very profitable.
(Which is why it's good that Blockbuster is trying to change their retail model to something else -- "We have a physical store network that nobody can match, now let's figure out how to make money off it." It's just a shame that they haven't been able to take their eyes off those stores, so they've missed other opportunities..)
Just saying those comments should be career suicide. His PR person is probably freaking out.
Why would the board of directors just wait around for a clueless leader to drive them into the ground?
They lost the battle. Time for an aggressive plan B to stay in business.
Attempts to sell consumer electronics in blockbuster stores are pathetic and have failed over and over again. First radio shack, then circuit city. Putting up a shelf with electronic gear will not move it.
http://findarticles.com/p/articles/mi_hb6695/is_200201/ai_n2...
My plan B for them would be to change store format entirely. Build a nice home theatre that can sit 20 people and have showings of new releases. The catch is they use equipment that is in the $1000-$5000 price range, and it's a great experience that you can 'take home'. Delivery is free. Installation is extra.
Show new movie releases. Always have free popcorn!! It costs virtually nothing. Have a kids night. Let local managers be more creative.
Still rent movies and games, but change the 'browsing' process. Have large screens and use a wii type remote to navigate a virtual store with slick graphics. Show what's popular, ask what type of movie they want. Make a game that promises to find you the perfect movie. Navigate through actors or scenes. Remember what they have seen. (how miserable is it to walk to the other side of the store with a movie and your wife says 'seen it' over and over again)
Make it so people don't say "do we have to go to blockbuster?" when they are in between movies in their netflix queue.
It's staggering to think that the idea of putting boxes of discs on shelves and letting people walk around aimlessly picking at random is
My plan, if I were CEO of Blockbuster, would be simple (if undignified): compete on price.
A few years ago I lived near a Blockbuster -- I had a card but I hardly ever used it, because with rentals going for something like $6.50 (compared to $9 in the cinema or maybe $10 to buy the DVD outright at Walmart) what was the point? Then I moved to a new place, where my local video shop was an independent shop where DVDs rented for $3 a night. At three bucks a rental, I found myself watching a lot more DVDs, and of course spending a lot more money than I had previously.
(Oh, and then I moved away from the cheap video store, so now I have Netflix.)
If Blockbuster cut its prices to $3 per movie per night, it would get a lot of people thinking "Wait, am I _really_ watching enough movies per month to make my Netflix subscription worthwhile?"
This would, of course, only be a stop-gap measure, while they work on getting a good online-delivery system going for the long term.
>My plan B for them would be to change store format entirely. Build a nice home theatre that can sit 20 people and have showings of new releases. The catch is they use equipment that is in the $1000-$5000 price range, and it's a great experience that you can 'take home'. Delivery is free. Installation is extra.
Great idea, but not economical -- public screening rates for movies are ~$500. That was the rate clubs at my college had to pay, a commercial rate may be even higher.
Blockbuster has enough clout to force movie companies to "water down" their product so they don't have to sell "unrated / NC-17" editions of movies, why can't they negotiate a much better public screening rate? Also, if it is so un-economical, why do the electronics stores that sell home theaters do exactly this?
When I was growing up, we went to a small-chain video store. They always had some movie (recent, but not new releases) playing on a real-projection screen in the store -- no seats or anything, but people would cycle through, watch for a few minutes, and move on.
As far as I know, they didn't play public screening fees, but different jurisdictions have different laws.
"My plan B for them would be to change store format entirely. Build a nice home theatre that can sit 20 people and have showings of new releases. The catch is they use equipment that is in the $1000-$5000 price range, and it's a great experience that you can 'take home'. Delivery is free. Installation is extra."
This is brilliant! the Brick and furniture places try to sell you the entertainment stuff and throw a movie in there as flashing demo, but no one ever feels good about watching a 2 hour film while commissioned sales people peek over your shoulder. But put the emphasis on the movie and make the living room set "optional", and it may work. And for crissakes Free Popcorn, how cheap and good is that!
>My plan B for them would be to change store format entirely. Build a nice home theatre that can sit 20 people and have showings of new releases. The catch is they use equipment that is in the $1000-$5000 price range, and it's a great experience that you can 'take home'. Delivery is free. Installation is extra.
Toss out Blockbuster entirely, and I think that this could be a viable business in and of itself so long as you could negotiate decent licensing terms. The only change I would make is to focus on allowing customers to choose the movie. Right now, people are pretty much limited to seeing movies in theaters when they first release and watching them on home systems.
The declining price of home theater systems makes the second option a bit better, but there is still a huge gap between the two experiences. I think that a company could do very well for itself by offering a quality moviegoing experience for small groups(let's say mini theaters seating anywhere from 10 to 50). The ability to watch old favorites on the big screen (and let's face it, who wouldn't want to watch Jurassic park in theaters again), and the opportunity to watch directors' cuts that never entered theaters in the first place could be a huge draw.
So... will you go to the trouble of pitching this idea to a VC and setting up shop in some major cities (Columbus being one of them)? This would be a cool way to meet new people.
It kind of sucks that there is nothing in between "watching movies with friends at home" and "watching movies with friends at the theatre". The former is a lot a of fun, and the movie is even ignored at points as you are having more fun with each other, but there is no chance of meeting new people. The latter is 100% focus on the movie with a few comments here and there, with a slim chance of meeting new people.
Your idea could be really cool... almost an informal theatre that allows talking and horsing around, a place for both friends and bored individuals, where you can meet cool new people.
The more I think about this idea, the more I like it.
Great idea. A theater chain here in Toronto offers VIP theaters which are basically 20 person theaters with smaller screens and much nicer chairs. They offer tables to put your stuff on, space between seats, and also servers that deliver you drinks and popcorn or whatever you want (prior to the movie starting).
I could definitely see blockbuster going that route. Setup a couple private screening rooms and let people book them for their friends/family/co-workers. Then as you say, make a point of showing them how reasonable it would be to make that kind of experience a reality in their own home, but only before and after the film.
I seem to recall they had stuff on in the background while you browsed, but I don't know if they had to pay for that right or if the movie distributors paid them, or neither. But I suspect if a commercial establishment started having "theater" showings, they might be violating the license agreements of the videos.
I know that schools sometimes do it (or they used to, before the RIAA went rabid), however, as do (did) day-care facilities.
Maybe NFLX should buy BBI and fire Keyes! Heck, it is only slightly over $2 a share! It's amazing the arrogance Keyes displayed in the interview and how folks like this are able to stay in power even though BBI stock has been tumbling since mid-2002.
If you read the interview (kinda long) the quotes' are a little out of context. At least they don't really represent the jist of his arguments.
Sure, the business model is built on artificial product life-cycles, content-container hybrids that are unnecessary and market segmentation that is being aggressively created to wring as much out of a new flick as possible.
But given that environment, his arguments are reasonable. They want to focus on the big market - Physical Store. VOD subscriptions, he sees as a small market indefinitely. VOD buy/rent he sees as a long term direction so.
The point about new releases sounded a little more along the lines of:
The new release market is more substantial. We have chosen to focus on those. We can, if needed support the long tail.
It's a bit cheap taking shots at everyone & anyone in an anachronistic business. What do you expect them to do throw the business out the window & start over? The in store market still exists.
There are plenty of times when being confused and 'out of touch' is better than pretending to know what's going on when people are being irrational. This is probably not the case with Blockbuster, but they don't have the resources to emulate Netflix. Their best bet is to hold on to a gradually declining customer base, and eventually liquidate.
You don't have to know what's going on when people are being irrational. (And besides, we're being irrational almost all the time.) You only have to know how to charge us for being irrational.
From a consumer point of view. I hate going to Blockbuster because it takes me a long time to choose a movie. I would like to have the catalog online. Mark the movies that I have already seen. Mark the movies that I may like to see someday. Being able to make an online reservation, and on my way home pick it up at the counter.
I quit BlockBuster in 1998 after a dispute. I asked the clerk for scissors and cut up the card in front of him. Since then, I been very happy with Netflix, its convenience, and efficiency. Rarely it has problems and has responded well when they occurred. I am fascinated by the BB CEO being so out of touch.
Netflix is one segment of Blockbuster's entire getting media to consumer's strategy. Looks like the B&M folks are here to stay, no matter how much we love digital delivery!
He's right, Netflix is a small blip on their radar!
I was being serious -- do you really believe what the market thinks of Netflix vs Blockbuster (ie. suits on Wall Street) or what the reality of the business is (my chart vs your chart, if you may :-)
Fair point. But the in-store rental market appears to be almost 10x as large as the market netflix/apple/amazon are in.
So, BB needs to be more efficient with its B&M business but that doesn't mean netflix is smoking them. Especially if we're to believe BB that the market Netflix is in is 1/10th the size of the whole pie. So what if Netflix corners the entire market?
Yes, the retail rental market is plunging and has tons of fixed costs. The online retail market is surging and much higher profit potential (no retail space, much much fewer employees, etc). Additionally the fixed costs for the online rental market are dropping, namely servers and bandwidth, but also the hardware to make set top box devices.
What's so good about Blockbuster that I'm going to get off my couch and drive to a store if I can get the same product instantly with little more that moving my remote? They have a serious problem looming.
Ah, I see. You're saying that the online market is growing and eating into the B&M market, that makes sense. Do you have any sources to back this up other than your personal observations?
The short answer is yes -- you're missing profit. Doesn't matter how big a market is if you can't make money.
The long answer:
Let's both start businesses selling Miracle Fruit. Assume they cost $1 to produce no matter how many we buy, and the market will support a price of no more than $3.
I start a Netfruits.com mail-order company, sell 500,000 berries/year and absorb $1 each shipping/handling. Total size of this "online/mail market for Miracle Fruit": $1.5 million. My profit: $500,000 (I make $1 per sale).
You open up 200 retail stores and sell 15 million berries per year, but must absorb $2.10 each for retail overhead. Thanks to the fact that you exist, the total size of this "retail market for Miracle Fruit" has become $45 million (who knows, maybe with enough retail stores the market could be this big). Your loss: $4.5 million (You lose $.10 per sale).
For your investor report, you create a fancy chart about how you are the biggest retail game in town, and I'm just a tiny blip on your radar.
But you'll still lose money.
So, you'll probably do what the Blockbuster CEO is doing -- change your retail model. Sell something else, because obviously Miracle Fruit alone can't support the costs of your retail network.
That's why he's planning on flooding Blockbuster stores with TV's and blu-ray players. Because the existing business model doesn't work anymore. There's no profit.
But if he can figure out how to leverage the one thing Blockbuster has that others would find hard to beat -- physical coverage -- then maybe he can turn the business around.
Since Blockbuster is losing money and Netflix is making it, it's not just the suits deciding the reality of the business. Anyone can make a chart putting themselves in a good light.
The reality is the movie industry is changing and Blockbuster's model is being left out. The last movie I rented was on iTunes, it was way more enjoyable than getting in the car and going to look through the selection of a local store. I don't ever see going to a video rental store again.
I've been with Netflix since 2004, and tried Blockbuster Online a couple of times but always went with Netflix. The reason? Better selection, better website, better customer service. I thought the in-store renting deal with Blockbuster would be a plus, since there is a store within 5 minutes walk from my home, but while in the store, I asked myself, "what the hell am I doing here??"
Translation: "I am not qualified for my job. I know nothing about my industry, or what my customers want. I get a nice paycheck though."
I'm frankly confused as to why a CEO would think that being confused about his competition would bring him more business.