Blockbuster Won’t Survive: CEO Says “Conservative Approach” Required For Digital

Eight months ago I wrote a post entitled “Ten Years Later, Blockbuster Still Lacks A Digital Media Strategy” where I outlined some of the ways that Blockbuster has faltered with their strategy for the digital distribution of movies. After the post, I heard from some angry shareholders who wanted to argue with me about how the company would turn it around and I received a call from Blockbuster directly who wanted to brief me on their digital media strategy.

While it was great to hear directly from the company on what digital initiatives they were working on and their pitch to me on why things would get better for the company, I’m afraid that eight months later, things have only gotten worse. While I don’t doubt that some of the folks working on the digital media strategy at Blockbuster get it, if you just look at some of the things Blockbuster’s CEO said last week on their earnings call, you can clearly see that the company simply doesn’t have the right culture to be successful with digital.

When asked different questions about Blockbuster’s digital strategy, CEO Jim Keyes responded by saying things like, “these times demand a conservative approach,” and that the company “will proceed cautiously as to how aggressive the company should be.” For a company that has almost no digital offering today, those are some pretty scary statements. The last thing Blockbuster can afford to do is stay at the same slow pace for a digital offering roll-out that they are at now. For all the talk of what Blockbuster is actively working on, I still don’t think they have a single successful deal involving digital they can talk about today. Of course, some will say that they have already signed deals to get their platform on to TVs and mobile phones, but so far, those deals are meaningless.

Six months after making a big PR splash that Blockbuster’s platform was now available on TiVo, Blockbuster only has a total of 26 HD movies available and just under 1,000 movies all together. To put that in perspective, Apple has more than 2,500 HD only movies available via iTunes. How can Blockbuster think they are going to make any traction in the market with a catalog of 26 HD movies on a platform that has less than 1.5M stand-alone subscribers? YouTube and Netflix content on the TiVo platform has to date only streamed a few million videos in total, or as TiVo put it “millions and millions of streams” – and that’s content that is free.

Of course one of the major arguments I heard from some shareholders the last time I wrote about Blockbuster was that Blockbuster’s big advantage is that the vast majority of their customers rent new releases. Apparently they felt I didn’t “get it” since they seem to think that gives Blockbuster a huge advantage in the market. While they are right in that about 80% of Blockbuster’s rentals are from new releases, show me one instance how that has helped them on the digital front? If Blockbuster has all these new releases, why are only 26 movies available in HD on TiVo? And for all the shareholders who think Blockbuster is going to be on fifteen or twenty million devices by the end of this year, that’s just not realistic.

Another deal I hear some shareholders talk about is the one with T-Mobile where Blockbuster will be the exclusive movie download experience embedded on the upcoming HTC HD2 smartphone in the U.S. While that sounds nice, there are a couple of major problems keeping this from being a big deal. For starters, consumers have already shown us that they don’t want to download full-length movies to their phones, let alone pay for that content. Not to mention, the movies will only be available to download on the phones via WiFi and from folks at T-Mobile I have spoken to, they hope to sell a “few million” HTC HD2 phones over the next eighteen months. That’s not enough of an install base to make any real impact on Blockbuster’s business. Oh, and I should also mention that in Blockbuster’s PR release with T-Mobile the company said that, “This will be the first download and multi-screen mobile movie application for Blockbuster and is part of the Blockbuster multichannel offering to connect customers with more than 100,000 movies, television shows and games.” Well if 100,000 is the number they are aiming for, they are currently at 1% with their movie inventory on TiVo.

Listening to Blockbuster’s earnings call last week, you really get a good feel on just how confused they, or at least their CEO is. Additional answers to questions included statements like, “As for the competition, we’re not worried. The Blockbuster brand is so well-known. Netflix is much more longtail. We’re known for hit movies. So this is all very good to us.” Other statements included, “Netflix has said that it is not interested in going into mobile. So we think we’ve got a nice head start in mobile.” Why do companies seem to think they can be successful in every market just because they have a “well-known brand”? Having a well known brand in retail does not automatically carry over to digital. Not to mention, the company has one announced deal in the mobile space, for a phone that has not yet even been released, but they think that gives them a “head start”? And would someone please tell Blockbuster’s CEO that it does not matter if you have a “well-known brand”, it only matters if that brand is connected to a service or product that consumers feel is valuable. One could very easily use the example of Toyota, which has a very well-known brand, but not for a good reason.

In an interview on CBNC last Thursday, Blockbuster’s CEO said, “we don’t think we’re late on the digital side” and he also made the comment that when it comes to digital, “there is very little actual traffic today.” Apparently he missed the press release from Netflix and Microsoft from last year that said in the first three months of Netflix being on the Xbox platform, Netflix streamed 1.5 billion minutes worth of videos. That’s not a number you can argue with. You have to shake your head wondering how or why Blockbuster’s board would want the CEO speaking on digital when clearly he’s not aware of what’s going on in the market. Just watch the CNBC interview, (the link to the video is no longer active) listen to the direct questions asked and then listen to all of the fluff and marketing provided for answers. If Blockbuster does in fact have a real digital strategy like the CEO says, where is it? Has anyone seen them present it in public? Is there a slide that showcases what they are working on? I got some details from Blockbuster eight months ago when they were nice enough to walk me through it, but most of it was from a high-level with no real details other than to reinforce they want to be on as many devices as possible. Well isn’t that everyone’s digital media strategy? While no company is under any obligation to share their game plan with the market, for a company that has no creditability on Wall Street or the industry when it comes to a digital strategy, you’d think they would go out of their way to prove otherwise.

I didn’t see it get a lot of press but it was interesting to see that last week, Blockbuster quietly brought back late fees on video rentals in their stores. While that may help their core business, it’s not going to do anything to help their digital offering. I have a Blockbuster store 6 blocks from my house, yet I use the Redbox machine that is right across the street from them in the grocery store. If I wanted to use a Blockbuster Express machine, I’d have to drive about 15 miles away since Blockbuster won’t put machines in any locations close to where they have a store. As a result, they leave me no choice but to use Redbox.

While I am not a shareholder in Blockbuster or any other public company, some of their shareholders sure are adamant about the stock. One of the funniest comments I got was from a shareholder who wanted to convince me that the brick and mortar stores would always do better than digital due to the “experience” it provides. He wrote, “many consumers still find it fun to rent DVDs at a physical store instead of getting movies in the mail because of the experience of walking into a store where there are lights and other videos to look at and the whole experience“. Maybe that’s true if you’re a five year old, but if that’s the biggest thing Blockbuster has going for their brick and mortar business, then don’t be surprised when their lights go out sometime soon.