27/2/2018 From Blockbuster to turkey - Blockbuster files for bankruptcy

Newsbook

Blockbuster files for bankruptcy

From Blockbuster to turkey
Blockbuster, a video-store giant, gets caught between "clicks" and "mortar"

Newsbook Sep 23rd 2010 | by The Economist online

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27/2/2018 From Blockbuster to turkey - Blockbuster files for bankruptcy

IN THE early days of the commercial internet, it was often predicted that pure e-
commerce sites would begin to struggle as bricks-and-mortar stores moved online.
“Clicks-and-mortar” stores, which could reach consumers both on the internet and
on the high street, were thought to be inherently superior. Surely Blockbuster
would be able to crush Netflix, an online service that rents DVDs through the post?
Surely Barnes & Noble, a bookseller, would easily see off Amazon?

As it turned out, they could not. Shares in Barnes & Noble have slumped over the
past few years as those of Amazon have soared. The British arm of Borders, another
media retailer, went into administration last year. And on September 23rd
Blockbuster filed for Chapter 11 bankruptcy protection in New York. The firm, once
owned by Viacom, a giant media conglomerate, aims to reduce its debts by about
$900m. It is likely to close some of its 3,000 American stores. (The company's non-
American operations and franchised outlets are not affected by the bankruptcy
filing.)

The growth of Netflix, a technologically

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savvy company with a vastly superior
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website and an attractive subscription
model, was hard on Blockbuster. But the
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decidedly low-tech Redbox, owned by

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27/2/2018 From Blockbuster to turkey - Blockbuster files for bankruptcy

See more Coinstar. Redbox rents films for one dollar

a night through kiosks in drug and grocery
stores—a 1950s technology applied successfully to a new medium.

Netflix is a long-tail company. Its vast selection of DVDs means consumers with
rarefied tastes can indulge their taste for Satyajit Ray films and Italian comedies.
The firm is promoting the online streaming of older films, which subscribers will
increasingly be able to obtain through internet-connected television sets. Redbox,
in contrast, focuses on big films and recently-released DVDs. Blockbuster thus faces
a “clicks” competitor that offers an enormous
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12 weeks for $12of films and a “mortar”
competitor that specialises in hits. Life in between is tough.
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There will be no gloating in Hollywood at Blockbuster's struggles. Although the
film studios greatly prefer to sell DVDs than
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12 weeks them,
$12 they would rather rent
through Blockbuster than through Netflix or Redbox. Warner Bros estimated in
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December that it makes $1.45 when a free
a film notebook
is rented from a bricks-and-mortar store.
It makes $1.25 from a subscription rental, and just one dollar when a film is rented
from a kiosk (most people keep their dollar-a-night kiosk movies for two nights).
And Blockbuster sells DVDs as well as renting them.

Hollywood wants to persuade consumers to rent films as videos-on-demand

through their cable and satellite boxes. On each of these Warner Bros earns fully
$3.50. To goose demand, studios now release some films as videos-on-demand
before bringing them out on DVD. The worry is that the growth of two low-priced
alternatives will persuade couch potatoes that films can be had cheaply. Netflix and
Redbox have severely wounded Blockbuster. The next battle will pit them against
the cable companies.

Read on: Old-media firms are firmly in control as internet video takes off
(http://www.economist.com/node/16944911)

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