Blockbuster needs to be innovative

This post is in response to Jon's post where he explains that Blockbuster might soon close their doors due to some stiff competition from online DVD rental stores and also from smaller niche market DVD stores. I have always thought that Blockbuster had done really well since I see store on almost every other corner, I can think of three different Blockbuster locations within 5 miles from my house. So I decided to investigate this a little further and found that some parts of what Jon had said was true, but I found that Blockbuster is being cautious to protect themselves and that they were not going bankrupt.

From an article on CNNMoney.com, Blockbuster's spokesperson Karen Raskopf, said that they had hired a law firm called Kirkland & Ellis. Now this law firm is known to specialize in restructuring and bankruptcy and when Blockbuster made this announcement, their stocks fell 77% on the NYSE on Tuesday. Karen stated that Blockbuster simply hired Kirkland & Ellis to help with their ongoing finance and raising-capital initiative. From the NY Times, Karen added that they were not intending to file for Bankruptcy and they had also spoken to some investment banks regarding the restructuring of their credit line.

Jon makes a valid point when he says that Blockbuster has been struggling to keep up with online rivals such as NetFlix. This is where I see that Blockbuster needs to more innovative. Blockbuster had just signed a deal with CinemaNow that allows Blockbuster to stream movies over the internet. This is a step in the right direction, but Blockbuster had done this just to keep up with NetFlix who already had a similar service in place. Blockbuster now also face even more competition such as the big cable and satellite companies that allow you to order your movies on demand. In my opinion, Blockbuster should cut some of their expenses such as labor costs and property costs, which their competitors do not have. Blockbuster employs a staggering 8000 people worldwide compared to a mere 1200 employees working at NetFlix. I feel that it is time for Blockbuster to adjust their image and realize that in store rentals are a thing of the past.

Secondly, from another article in the NY Times, Blockbuster stated that their fourth quarter revenue fell by 12% and this was due to a decline in movie rentals, a smaller store base and negative foreign currency exchange rates. Even though it is hard to simply increase movie rental sales in the curent economy, Blockbuster could certainly take steps to hedge against their foreign currency risks. The way I see it Blockbuster needs to keep the cost of their risks to a minimum, or at least consistent and they can certainly do this through hedging contracts.

In conclusion, I feel that Blockbuster can certainly make it out of their current economic downturn through being a well managed and an innovative company. Home movies are still in high demand as it is one of the cheapest ways that people entertain themselves. In a time where money is tight, people will most definitely substitute more expensive dinners and going to the movies by staying at home and watching a rental from Blockbuster. They just need to make sure that they bring us the next best thing in home entertainment before NetFlix does.