Tough Times for Blockbuster

[Northern Boy]

Posted Sep 16, 2009 07:29am EDT by Chris Nichols in Electronics, Internet, Media, Products and Trends
Related: BBI, NFLX, CMCSA, TWC, GOOG
Considering the recession and fickle consumer tastes, these are awfully difficult days to be a retailer. For video chain Blockbuster, already no stranger to tough times, it just keeps getting harder.

With the rise of competitors such as movie-mailer Netflix and Redbox, whose flick-dispensing machines can be found in grocery stores all over, Blockbuster is being forced to reset, saying it may close nearly 1,000 stores by the end of 2010 as its once-certain dominance continues to be threatened by rivals.

According to a regulatory filing Tuesday, Blockbuster expects to shut between 810 and 960 locations by the time next year wraps up, a number that would exceed more than one-fifth of its current U.S. shops.

That's quite a step up, or back depending on your perspective, from Blockbuster's previous plan, which anticipated 380 to 425 closings in that time frame. Here's how the corporate office sees it: Blockbuster characterizes 35% of its stores as "core," while saying 47%, or nearly half its total, are profitable, but still "non-core." The remaining 18% aren't turning a profit.

Ugh. That about sums it up at this point. Earlier this year, there were worries that Dallas-based Blockbuster might have to consider bankruptcy before it diffused that crisis. How about 2008, though? Another close call. Back then, it looked at a merger with Circuit City -- the electronics seller that did end up bankrupt. Now, store shutdowns.

The company's filing with regulators show that it's taking a multifaceted approach to its future offerings. Currently, it has 4,356 domestic stores, of which 606 are franchised. With those brick-and-mortar sites it battles against Hollywood Video and others. In addition to shrinking overall, Blockbuster expects to have more of its stores be the smaller city-based variety, with fewer large structures.

Meanwhile, Blockbuster's Total Access service, with 1.6 million subscribers, has a way to go before it can match the 9.4 million users Netflix claimed at the end of 2008. That makes it the undisputed leader of the 12 million-strong estimated market. Not surprisingly, Blockbuster hopes to grow its own base, and with Americans always looking for convenience -- walking to the mailbox beats driving to the store any day -- perhaps it can.

(If you need more evidence of diverging paths, consider that Netflix saw its revenue go from $682 million in 2005 to in excess of $1.3 billion in 2008. Blockbuster is still bigger in that regard, with sales of some $5.3 billion last year, but that was down from almost $5.9 billion in '05. Growth, of course, is what you want, not backsliding.)

How about rental boxes? Right now, Blockbuster has just under 500 dispensers, and it foresees expanding that a whopping five-fold by the end of this year. Then it's really going to crank up the buildout, envisioning 10,000 by the middle of 2010. Even so, Redbox already claims more than 15,000 units today, and you can be sure more are on the way.

Finally, Blockbuster hopes its On Demand offering, where it goes against the likes of Comcast and Time Warner Cable, will ultimately have a presence "in nearly every connected device." Again, doable, but also again, no easy task.

Can Blockbuster solve these riddles? Sure. Trouble is, even if it does, it might soon find itself facing new competition from another front you might have heard of -- YouTube, which has reportedly had discussions with a number of big studios about streaming movies via subscription.

What a difference, indeed.

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