Can Anyone Save Blockbuster?

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Blockbuster has spent the last year dealing with bankruptcy filings and shedding assets in an effort to turn itself around, but that process is nearly over, as it will finally go up for auction in bankruptcy court next week. The Wall Street Journal reported Friday that ahead of the auction, Dish Network and activist investor Carl Icahn have both submitted bids for the beleaguered video rental company. They will compete with bids by a group of hedge funds led by Monarch Alternative Capital that hold a chunk of Blockbuster debt. But will any bidder be able to help bring Blockbuster back from the abyss?

Blockbuster has tried in vain for years to turn its business around, but many of those efforts have been too little, too late. The firm tried to augment physical rentals with a DVD-by-mail offering to compete with Netflix, but the service failed to catch on with consumers. Ditto for its online video-on-demand service. And though it got into the DVD kiosk game as a counter to Redbox, it has so far failed to slow the growth of its competitors’ $1 movie rentals. In a last-bid effort to create a viable business, Blockbuster has been busy slashing its number of retail locations.

Throughout the years, Blockbuster has been unable to leverage its brand and massive user base to transition its business and embrace new revenue models. In some respects, there was a failure to recognize new markets and capture them before smaller, more nimble competitors could become entrenched. But even when Blockbuster entered new markets, there was a failure to execute and win over users in those markets. It seems that Blockbuster was too tied to its store-based rental service to be able to make an impact with other revenue opportunities.

With a Dish bid, there’s at least the chance of creating some synergy between Blockbuster’s video rental service and the satellite operator’s pay TV service. Dish could sell subscriptions in-store or provide value-added services to current subscribers, and perhaps even create new revenue models that could be realized in its negotiations with cable programmers. But even that might not make sense, given Blockbuster’s inability to turn a profit and the deep debt burden that it is buried under.

The bigger question is whether new investors — and specifically new management — will be able to change that. After failing to steer the ship through troubled waters, Blockbuster CEO Jim Keyes will clearly need to be replaced. But any replacement faces challenges in transitioning a flailing legacy business in a new digital world. Just look at Tim Armstrong’s struggles at AOL or Carol Bartz’s efforts at Yahoo to see how hard it can be to pull a viable business out of the rubble. Without a clear strategy for dealing with new consumer behavior, it’s not clear how Blockbuster will make itself a viable business again.

Photo courtesy of Flickr user Andrew Levine.

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