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Blockbuster's DVD Deal with Comcast: Desperation and Doomed Technology

In financial trouble and lead by heavily-criticized CEO Jim Keyes, Blockbuster (BBI) has made a deal with Comcast to offer digital customers discounts on its DVDs-By-Mail program. Making a physical deal with a digital medium company, especially while getting hit by both Netflix (NFLX) and Redbox, shows how behind Blockbuster is in the times.

Comcast consumers are not the ideal audience for Blockbuster. Comcast digital cable offers not only high-speed Internet -- for easy access to the digital streaming of Blockbuster's competitor, Netflix -- but digital streaming through Comcast itself. How can Blockbuster trumpet a discount on getting DVDs mailed when consumers can already download movies, exclusive specials and, increasingly importantly, television shows on demand?

Blockbuster should be partnering to get a piece of the digital streaming action. For example, as early as 2005, Netflix started exclusively distributing films. It created an added incentive for consumers to join the then-fledging company: "You can't watch this anywhere else." Though weak right now, Blockbuster still has enough distribution pull to do more exclusive material, as it did with the Weinstein Company in the past. The exclusive material would be an excellent bargaining chip to get Comcast or another cable service to let the company in. A Blockbuster/Comcast partnership should be about the digital world, not antiquated DVDs.

Comcast isn't the big problem, however. The real pressure here is from Blockbuster's old guard and the albatross of a billion DVDs. Sitting on an insane number of movies, Blockbuster would like to make use of its catalog while trying to get with the times. As my BNet colleague Carol Tice reported, Blockbuster already tried -- and failed -- at offering local DVD kiosks a la Redbox. Last year, Blockbuster had a small window of opportunity to stop Redbox, but Redbox's core audience is suburban and rural customers who may not have high-speed internet access -- not digital customers. Unfortunately, between Apple (APPL), Hulu, Google (GOOG) and, well, Netflix, DVDs are dropping in interest for the digital consumers Blockbuster hopes to reach with this deal.

Netflix was wise enough to kill, or at least maim, its sacred cow by shifting from DVD to digital before it had to and, now, introducing Netflix HD content as high-definition becomes standard and a deal with Epix to stream Viacom (VIA), MGM and Lions Gate (LGF) films. For Blockbuster, the Comcast deal is a big step backwards for both consumers and the company.

Photo courtesy of suzanneandsimon.