Blockbuster defends store/kiosk business model

PHYSICAL: Retailer will move around inventory if affected by studios' vending window

By Susanne Ault -- Video Business, 11/20/2009

NOV. 20 | PHYSICAL: Blockbuster chairman Jim Keyes defended the company’s in-store component to its business model to investors during a Friday presentation at the Morgan Stanley Global Consumer and Retail conference.

The chain has taken heat recently for continuing to believe in its traditional bricks-and-mortar activities. It has been forced to shut outlets while emerging rental technologies, such as Netflix streaming and $1 a night Redbox vending machines have enjoyed surging growth. However, Keyes insisted that Blockbuster’s multi-platform strategy—including in-store operations, kiosks, physical rental by mail and electronic video-on-demand rentals—give the retailer a leg up over rivals.

For example, if studios eventually impose a 30-day delay on new releases at Blockbuster kiosks, similar to the delay directed at Redbox and others, Blockbuster will be in the best position to satisfy consumer demand for titles. Blockbuster plans to shift inventory from its stores to its vending machines in the event of a 30-day window.

“However [these windows] shake out, Blockbuster has an advantage with its own vending machines,” Keyes said at the New York-based event. “If there is a 30-day window, we can use our distribution to move content from the shelves to our vending machines. We have the ability to replenish, managing a hub and spoke system. Our stores can be the hub, and the kiosks our [complementary] spokes.”

Additionally, Keyes believes that Blockbuster’s just launched VOD system will prove more popular than Netflix’s subscription streaming model. He said customers will be able to access more newer releases than through Netflix, due to studio’s different treatment of subscription models. Studios currently offer many titles to transactional VOD services day and date or near simultaneously with their DVD/Blu-ray release. But studios generally offer the same titles much later for Netflix streaming.

“Consumers will see a Blockbuster choice and a Netflix choice on their Samsung Blu-ray players,” said Keyes, “and they will be able to watch Star Trek, [versus] Netflix where they will be watching [the older film] Star Trek: Wrath of Khan. Netflix won’t be able to offer the current movie for another three to five years.”

Keyes is upbeat over Blockbuster’s continued rollout of vending kiosks for opening new major markets, such as Manhattan. The machines’ small size overcomes the challenge of establishing an in-store presence in such a high-priced neighborhood.

“With the kiosk program, you’ll find them at [New York drug chain] Duane Reade, hopefully in the lobbies of buildings, perhaps at banks,” said Keyes. “You’ll see Blockbusters in places where we couldn’t afford the real estate before. And we’ll have a presence in Manhattan for the first time.”

The chain hopes to have 2,500 machines nationwide by year’s end.

“The screaming question from investors has been, what will happen to the stores?” said Keyes. “They will be around for as long as we can keep them relevant, and that is through new and different forms of convenient access to entertainment.”