Tuesday, September 28, 2010

It's All Over, and Yet It Continues

It was expected for months, and last Thursday, it became official: Blockbuster has filed for bankruptcy, citing assets of $1.02 billion against $1.46 billion in debt.

So what does it all mean?

Undeniably, competition has been bad for Blockbuster. Netflix and Redbox have been swallowing a vast chunk of the rental market, due in great part, I think, to their respective outlets -- Netflix's mail-delivery service and Redbox's in-store kiosks. In addition, Netflix offers instant streaming on an expanding library of titles, which itself has become more solvent in recent months due to the increasing ubiquity of network Blu-Ray players and instant streaming discs for video game consoles like Wii and XBox 360. The companies have swiped business from Blockbuster in spite of facing a 28-day window in which new films for the majority of major studios are contractually committed to only renting from Blockbuster, meaning that renters are willing to wait an extra month for the ease and convenience of mail delivery or picking up a disc on their way out of the grocery store. Additionally, On-Demand service from cable and satellite providers is becoming an increasingly viable option for renters, especially since there is no 28-day window for On-Demand service and most pay-per-view films are now available in HD, meaning one could hypothetically access a new video release in Blu-Ray quality picture with the click of a button, for a small fee...and they don't even have to own a Blu-Ray player, or pay a monthly fee to a rental company (those pay-per-view fees start to accumulate fast, though).

For their part, Blockbuster Online utilizes its own mail-delivery service that is almost identical to Netflix, and is planting its own branded kiosks to counter the Redbox onslaught. The former renting behemoth also offers an instant streaming option, although each viewing costs a small fee, whereas the Netflix streaming is included within the monthly fee for standard membership (yet another caveat, though: Blockbuster streams everything, with an emphasis on all new releases, while Netflix's streaming catalog, while expanding, is still limited and doesn't include many new releases). And yet, while Blockbuster has been solid at utilizing the formats offered by competitors, that very fact is, in many ways, representative of its downfall: the company is great at adding the features of its competitors, but unable to break new ground in order to raise the stakes for those competitors. Netflix raised the stakes. Redbox raised the stakes. Blockbuster won't -- perhaps can't -- re-raise. And it has been borrowing itself into oblivion just to be able to meet the standards set by other companies. Now all that borrowing has caught up to Blockbuster.

So what happens now? Well, more borrowing. According to reports, the company has reached a deal with bondholders, led by billionaire NY investor Carl Icahn, in order to rebuild and reorganize. Apparently $125 million has been committed by investors to repay suppliers and employees for the duration of this rebuilding period. Blockbuster Powers-That-Be promise that they will once again be able to achieve solvency, and that there will be a newer, better Blockbuster.

But the Blockbuster Era, such as it was, is over.

No more market domination, no more rental monopoly, no more Blockbuster-as-usual, much as they will work to make it seem that way.

Several Blockbuster stores have been shut down, and hundreds more will follow in the coming months. The number of Blockbuster stores nationwide that is being frequently quoted in the media is 3,000. That number will probably shrink to well under 2,000 by this time next year. More Redbox-style kiosks will pop up all over the country. The mail delivery and instant streaming enterprises of Blockbuster Online will continue in earnest. And over time, we will see how the the former juggernaut intends to survive in this Era of Home Entertainment Access that, at some undefined point, leap-frogged Blockbuster's old model while they were asleep at the wheel.

Wow, what a difference.

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