Last Updated May 5, 2010 9:24 PM EDT
Can Blockbuster survive? Maybe so. And one company investor thinks he knows how.
Gregory Meyer, a shareholder who is waging a proxy fight to win a seat on Blockbuster's board, believes the company still has a chance. Meyer's ideas don't come out of left field. He sold his own business DVDXpress to Coinstar in 2007, which is now merged with Redbox. He also proposed that Blockbuster use kiosks for DVD sales back in 2005 in order to save at least $140 million annually. Here are the basics of his plan:
- Blockbuster is now the only large movie retailer to offer new movies the day they are released, a perk that differentiates it from both competitors Netflix and Redbox, who have to wait 28 days before releasing movies.
- By making all movies accessible on all digital mediums -- online, iPad, console streaming and DVD and BlueRay -- and adjusting its pricing to levels competitive with Netflix (NFLX) and Redbox, Blockbuster could capitalize on that advantage. Meyer believes that rental stores will eventually die out and the chain should trim costs by closing stores and saving expenses for leases.
- The chain has over 7,000 stores throughout the Americas, Europe, Asia and Australia. The chain plans on closing at least 500 of those stores this year and replacing many stores with 10,000 kiosks by year's end in order to compete with rival RedBox. Meyer believes store hours should be shortened and the company should consider selling off assets.
There may still be time to save the ailing chain. I would vote for Gregory Meyer. Blockbuster's future is "iffy," and Meyer's past idea (2005 letter re kiosk sales) and most of his current ideas make sense.Meyer is clearly correct that Blockbuster needs to stabilize cash flows and bring cash in cash as quickly as possible if the chain wants to stay out of bankruptcy. That most likely could be done through the sale of some of the companies assets such as its European operations, which have been rumored to be on the block, according to a source.
However, Meyer has to rethink his marketing concept. While Blockbuster does have an advantage of having new movie content 28 days before competitors, the movie studios are keeping price points high, making it hard to compete with the set membership prices Netflix charges, and leaving the chain at a disadvantage. Plus, the farther behind Blockbuster's technology falls, the harder it will be for it to keep up with competitors.
Meyer certainly sees the future of the chain a little differently from CEO and chairman Jim Keyes, who believes Blockbuster is similar to Barnes & Noble -- and he apparently means that in a good way. "If I want to buy an obscure book title, I'll go to Amazon.com. But if I want to browse and see what's new, I'll go to Barnes & Noble," he told the LA Times.
If Keyes is right, though, Blockbuster is probably doomed. B&N is also being squeezed by online retailers with better multi-platform distribution -- especially Amazon (AMZN) -- which is why the book retailer created the Nook e-reader and ramped up online and e-book sales. While Blockbuster may have the largest library of downloadable content and new movies produced by studios, the growth of multi-platform distribution in the past year demonstrates that viewers prefer convenience. That's why profits are sliding at many movie studios. In fact, it is probably only a matter of time before the studios start distributing the content online themselves.
The good news for Blockbuster, though, is that with Movie Gallery and Hollywood Video out of the picture, it doesn't really have competition on the video store front -- at least for as long that market lasts. What the chain has to do is stay ahead of the game by making content as accessible as possible, building as many partnerships as it can and watching its competitors to keep abreast of what consumers are demanding such as video price points, streaming video subscription memberships and video games and movies on demand. Technology and consumer demands are evolving at a rapid pace, and retacompanies in retail are now inevitably going to have to evolve to keep up with these trends or face the consequences.