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Summary:

Today’s news that Blockbuster is filing for bankruptcy should surprise no one, but are Blockbuster’s troubles a sign that all large brick and mortar retailers of content –- be it music, movies and yes, even books –- are eventually doomed?

Today’s news that Blockbuster is filing for bankruptcy should surprise no one, both because its financial problems have been common knowledge for a while, and because Blockbuster has been digitally inept for years in what is clearly a digital era.

Its digital stumbles are legend at this point: From the seeming lack of concern among management to too little, too late efforts to go into digital despite a nimble and fast growing competitor in Netflix, there’s no doubt the company, which at one time had a commanding market share and a huge lead in both time and resources, seemed to never get out of digital first-gear despite a long history of false-starts.

But are Blockbuster’s troubles a sign that all large brick and mortar retailers of content — be it music, movies and yes, even books — are eventually doomed? If you look back, signs point to yes. In fact, the death spirals of brick and mortar content retailers have come in waves. First there was music, when Tower Records, which in the ’80s and ’90s had established itself as the leading U.S. music store, shut its doors. Three years later, Virgin Megastores — the biggest music retailer after Tower had left the scene — closed up shop.

The next wave was video, and in 2010, it seems that having actual physical stores felled businesses hard and fast. First there was Movie Gallery, and now the king of movie rentals is going broke.

Is it just digital? In part, yes, but one certainly can’t discount, well, the discounters. The continued growth of  the three-headed monster of Wal-mart, Target and Costco no doubt played a factor, but I’d argue the transition to digital amplified the competitive threat from the discounters. As digital becomes more important, discounters can make music, video and content a bigger loss-leader by adjusting prices as needed, since the bulk of their sales come from clothing, food and pretty much anything else.

If deadly combo of discounters and digital put the big guns of the brick and mortar, music and video retailers into Chapter 11, are all physical media retailers, such as booksellers, next? Maybe, but it’s not exactly a guarantee.  The trouble for brick and mortar media retail is determined both by how fast the transition to digital takes, and how proactive the retailer is in establishing a digital beachhead.

Blockbuster fumbled and fumbled, and ultimately, it was too far behind, as the adoption of video-on-demand and Netflix proved to happen too fast. Barnes & Noble appears to be trying to forge a digital strategy much faster (and more cohesively) than Blockbuster did, and while e-reader sales have hit the hockey stick in a big way, some would argue print books aren’t going the way of the dodo bird nearly as fast as the physical media did in video.

Still, I expect Barnes & Noble to see significant challenges in coming years, particularly since Amazon will likely dominate e-book sales, at least in the near term. As with Blockbuster, the combination of a nimble digital rival and costly brick and mortar real-estate weighing down the actual product ties a retailer down. And we all know that what happens when you when you tie a brick to something: it sinks.

Related GigaOM Pro Content (sub req’d):

Evolution of Over-The-Top Video

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  1. The only digital strategy from blockbuster was putting their streaming on Windows Mobile 6 phone, a platform that has only been kept alive the last 3 years by corporate users. Have they not heard of the iPhone or Android platforms?

    Virgin and Tower had the same problem, they charged way too much for cd’s. By charging $3-$4 more for each item than you could buy them at Best Buy or Walmart. Portable MP3 players killed these stores, sure you could buy a CD still but the first thing you do when you get home is rip it and put it on your iPod.

    Blockbuster could sell a lot of DVD’s if they actually sold them at or below market price instead of $23.99 for a movie I can get at Best Buy for $16.

    I have been a longtime Blockbuster online rental customer and I liked the fact that I could take the mailed DVD into the store and exchange for a free rental, this is the only reason I have stayed with them. When Netflix started streaming videos I figured that Blockbuster would follow shortly but to only stream video to an obsolete Mobile OS makes no sense. Have they not seen the success that Hulu has had? Blockbuster could have been a very strong 3 headed monster, online mailing, streaming video and in-store exchanges along with the candy and reasonably priced merchandise but they have failed at all of it unfortunately.

    I will be sad when Blockbuster does go out of business completely because I do enjoy going to the store and picking out movies and games. I understand that the shareholders are upset, but why did you buy any stock to begin with? The people who will really lose are the employees that will no longer have a job when they start the next round of store closures.

  2. I’m pretty sure, if you need to buy bricks and mortar in less-than-contractor quantities, you will still need to go to a physical building supply center for the forseeable future. Once they come up with machines that can “alchemically” convert household trash to simple goods, then all bets are off.

    1. @Yacko – I didn’t suggest the entire world is going virtual. Of course wholesale suppliers of product will be around, but content itself is seeing a big transition of total share to bits. Those selling physical media to consumers – if they don’t have a diversified product line (like a Target) – are going to struggle as more and more of the the product they share is sold over wires or the air rather than off of store shelves.

    2. And of course, reading your comment again – I see you were being facetious. Completely disregard my comment (even if it’s true :)

      1. Somewhat facetious, maybe a bit Firesign Theaterish.

        “I didn’t suggest the entire world is going virtual.”

        But I am. Who knows what we will need to physically buy in an information connected world. There are already efforts to “manufacture” things from raw materials via a “printer”. Maybe that device will become more pervasive in homes than a third car. The information to describe and make the product will be the valuable part. 50 years from now we may be very surprised at how pervasive this fledgling start at virtualizing physical objects has become. I believe we are barely looking at the beginning of this trend. The scheme will be applied to everything (with varying degrees of success) just because it it is an exploitable business niche for new, hungry, tech savvy companies.

      2. See the GigaOm site for the following article two days later than this one:

        http://gigaom.com/2010/09/25/want-to-build-something-cool-just-hit-print/

        A big virtual market for a large variety of items without the retail middleman will occur. And in 50 years it will seem like “alchemy”. Even Target and Wal Mart will have shrinking markets.

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