Blockbuster CEO 'Confused by Fascination' With Netflix
blog.wired.com
blog.wired.com
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.
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. :)
'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.
And this is why Netflix's share price is a good 15 times higher than Blockbuster's right now
The fact that the CEO is confused really is obvious in the market as well as in the interview.
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"?
NetFlix has become the premium rental service. RedBox is the budget service. Blockbuster is getting squeezed out of the market from both sides.
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.
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/)
Hm. An interesting idea is to have reviews of movies stickered on the cases.
(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..)
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.
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
Typically, CEO's hire their board and gives them lots of options to essentially align with the CEO.
Once I wrote this, out of curiosity, I checked who's on the board of Blockbuster. Interestingly, a one Carl Icahn is on the board. (http://www.reuters.com/finance/stocks/companyOfficers?symbol...)
Also, the CEO made $5 odd million last year(http://www.reuters.com/finance/stocks/officerProfile?symbol=...).
I know that schools sometimes do it (or they used to, before the RIAA went rabid), however, as do (did) day-care facilities.
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!
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.
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.
Imagine how Keyes would respond on Amazon's release of Kindle, lest sold books online or having a vast catalog.
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, 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.
As far as I know, they didn't play public screening fees, but different jurisdictions have different laws.
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.
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.
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.
There are lots of these types of sentences by CEOs that just show they don't understand their target market...
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!
This chart explains it all: http://finance.google.com/finance?chdnp=1&chdd=1&chd...;
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?
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.
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.
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.