
Blockbuster CEO 'Confused by Fascination' With Netflix - cstejerean
http://blog.wired.com/business/2008/08/blockbuster-ceo.html
======
jrockway
_"I've been frankly confused by this fascination that everybody has with
Netflix," Keyes told Rafat Ali, in an interview with PaidContent.org._

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.

~~~
cujo
I'm a bit confused by it too. What does Netflix have/do that BB doesn't?

~~~
mechanical_fish
No leases on brick-and-mortar stores.

No retail employees.

A first-mover advantage in the online space.

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.

And, of course, Netflix also has a different CEO.

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h34t
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.

(all numbers taken from the CEO's own chart-graph of stagnation, at
<http://www.flickr.com/photos/13736953@N00/2762004788/>)

~~~
omouse
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.

~~~
abossy
"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.

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cmos
wow. He should be fired. Immediately.

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...](http://findarticles.com/p/articles/mi_hb6695/is_200201/ai_n26423260)

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

~~~
rms
>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.

~~~
irinotecan
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?

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alaskamiller
Wired couldn't pick the money quote, but it's really this:

 _This is a hypothetical one. Would you be ever interested in buying Netflix?_

 _Keyes: Not really. Netflix doesn’t really have or do anything that we can’t
and don’t already do ourselves. So, there’s really no advantage in buying._

And the reason why Keyes won't is because BBI is worth only $288 million while
NFLX is worth over $2 billion. Way to bluster through, Keyes.

~~~
macebobo
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.

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netcan
This article's a bit unfair.

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.

He refers to this: <http://www.flickr.com/photos/13736953@N00/2762004788/> (He
segments the market across 2 axis (medium - store/mail/internet/kiosk & method
- rent/buy/subscribe)

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.

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richtaur
CEO and "confused" in the same sentence is a bad thing. If anybody should know
WTF it should be that guy.

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stcredzero
The lesson: if the market confuses you, you are out of touch with it!

~~~
byrneseyeview
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.

~~~
stcredzero
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.

------
huherto
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.

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joanou
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.

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gibsonf1
The biggest difference from a value perspective: Late Fees.

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joao
How does one get a top CEO job and is just clueless?

There are lots of these types of sentences by CEOs that just show they don't
understand their target market...

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aditya
Wow. Is anyone reading the article or just going on with Netflix fanboy'ism?

This chart explains it all:
<http://www.flickr.com/photos/13736953@N00/2762004788/>

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!

~~~
subwindow
I honestly can't tell if you are serious or not.

This chart explains it all:
[http://finance.google.com/finance?chdnp=1&chdd=1&chd...](http://finance.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chdet=1218744000000&chddm=157581&q=NYSE:BBI&);

~~~
aditya
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 :-)

~~~
subwindow
"The reality of the business" is that in the past year, Blockbuster has lost
$70M, while Netflix has made $60M.

~~~
aditya
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?

Am I missing something?

~~~
jonknee
> Am I missing something?

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.

~~~
aditya
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?

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weegee
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??"

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keyes
netflix.confuses.me

