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.
