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Summary:

*Blockbuster* may not be teetering on bankruptcy, but the movie retailer is so cash-strapped that it can’t afford to move forward with its p…

image*Blockbuster* may not be teetering on bankruptcy, but the movie retailer is so cash-strapped that it can’t afford to move forward with its plan for a flashy redesign of all its stores — something CEO Jim Keyes acknowledged that it needs to do to stay competitive.

Last year, Blockbuster (NYSE: BBI) started revamping stores in states like Texas and Nevada, trying to grow from just selling DVDs and movies into a full-scale entertainment retailer. Dubbed “Rock the Block,” the concept stores featured everything from latte counters and kid-friendly video game hubs, to tech lounges selling flat-screen TVs (via The Dallas Morning News). The company had transitioned all of its stores in Reno, Nev., but according to Home Media Magazine, Keyes said the economy was forcing it to put the brakes on expanding to other cities. Analysts say postponing the redesign could save Blockbuster between $65 million to $75 million in store remodeling expenses.

But Blockbuster needs to do something to stay relevant, given that competitors like *Netflix*, Redbox and GameFly (for video games) continue to gain market share with their mail-order, on-the-spot and digital distribution services. Keyes conceded that Blockbuster had a great deal of competition, but called digital downloads the “shiny new toy” and pooh-poohed Netflix’s subscription business as “one small segment” of the industry. He also argued that the company’s business represented about $1 billion in annual revenue for the studios, money even media conglomerates like *Sony* and *Fox* couldn’t ignore given the current economy.

Photo Credit: Steve Brandon

  1. I've said it before, but I'll say it again, Blockbuster needs to do two things if they want their business to survive. First, they need to get kiosks on the ground ASAP. It may not produce the same revenue, but the machines are profitable within 9 months even at a $1 per DVD rental. Problem is they've got no cash, so the answer is to sell kiosk franchises.

    Believe it or not there are a ton of investors who want to own their own kiosk, but no one in the marketplace has created an affordable high quality solution with a national brand to satisfy this demand. Let outside investors fund the kiosk expansion while Blockbuster clips pure gross profit margins by licensing their name. Second, in order to compete with Netflix's long tail and with the $1 kiosk rentals, Blockbuster needs to be able to guarantee movie availability for at least 50,000 films at their store locations. Without taking over empty Circuit City locations, the only way they could squeeze that much entertainment into their current square footage is to adopt a burn on demand business model.

    Let customers reserve films online and then pick them up or let them wait at the store while you're burning the DVD. They can still keep inventory on hand, but put a server and a dozen PCs into every store and let customers wait 5 minutes if they want the film that they came to the store to actually see. As leases expire, they could move exclusive DVD burning stations into places Safeway, Long's or Ralphs. Just like Starbucks has been able to lease a small amount of square footage in grocery stores to sell coffee, there's no reason why Blockbuster couldn't do the same and then burn movies while customers shopped.

    I'm not sure why they haven't adopted either solution, but doing nothing won't solve their problems. It may be convenient to blame declines in revenue on a weak lineup of titles, but the reality is that consumers are moving past the DVD and unless Blockbuster can improve the value proposition (kiosks) or offer consumers a more satisfying store experience that they can't get elsewhere (unlimited supply and instant gratification), they won't be relevant in the future.

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