Friday, February 26, 2010

Blockbuster: Give up.

blockbuster On Thursday, already unstable Blockbuster stock took a 20% tumble when it reported a fourth quarter net loss of $435 million and a 16% decline in one of its key sales measurements. Over the crucial holiday season, the company reportedly increased its advertising budget and added big titles to its library, apparently to no avail. Blockbuster, it seems, is in dire straits, and most analysts agree.

Unfortunately, I have no good news for the company from my perspective. I walked into a Blockbuster a few months ago and felt as if I was in a time machine back to the 90’s. The business model of a video rental supermarket is simply antiquated and increasingly dysfunctional, especially to my generation.

saupload_bbi Blockbuster’s video rental stores are now getting harder to find, too. The company has already closed 1,300 of its locations throughout the country, and BMO Capital Markets analyst Jeffrey Logsdon predicts that it will close another 545 this year. The heavily indebted company (estimates claim it owes around $200 million a year) does not rely solely on its store-generated business.

Blockbuster has made a half-assed entry into the growing kiosk rental industry. This is basically like a snack vending machine, but with DVDs.This is appealing to Gen X consumers for two reasons: first, it allows you to grab a movie on your way out of the grocery store without having to make any other stops. Simply put, it’s more skeptical-785083efficient. Secondly, I don’t have to deal with weird looks from the human cashier at the Blockbuster store when I decide I want to watch Donnie Darko and The Devine Secrets of the Ya-Ya Sisterhood in the same night. Sometimes it’s just that kind of day, ok?

The company has also made entries into the DVD-by-mail service and the instant-access online video markets as well, mimicking its competitor Netflix. It was late to this trend, however, and probably missed its opportunity to use its well-established brand name to take significant market share.

Netflix, Blockbuster’s main competitor, has seen increasing annual revenues over the past five years. Since 2004, annual revenues have grown nearly 400% according to their SEC filings. It has become synonymous to conscious consumers with fast, reliable through-the-mail and online video rentals. It also enjoys a very positive outlook from nearly every major stock rating agency.

What do you think? Can Blockbuster climb out of its own grave, or will its debt and competition continue to shovel the dirt on its head? Please share your opinion.

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