Blockbuster Struggles as DVD Renting Gets Easier

By: Timothy McFarlin | Published: May 25th, 2010 | Category: Bankruptcy

When Netflix launched in 1997, it faced a rather large mountain to climb in terms of making a mark in the video rental business. With large Blockbuster and Hollywood Video stores everywhere, the notion of mailing disks seemed, at the time, foreign—yet very convenient.
In 2004, Netflix’s annual sales were $500 million—only its second profitable year since ’97. Soon, Blockbuster would also introduce mail DVD rentals and would gain nearly 2.1 million customers. As well, their new website brought in just as many subscribers as Netflix, six years ago. By the end of ’06, Blockbuster had 2.2 million subscribers; in the second quarter of 2007, Netflix lost 55,000 subscribers from its previous quarter.

Presently, Blockbuster is fighting to keep its stock price above $1, as its existence on the New York Stock Exchange, hangs on for dear life. Blockbuster investors have been warned bankruptcy is possible, despite the fact Blockbuster has 25 million subscribers who prefer to visit their stores, at least monthly, in-person to rent DVDs.
Blockbuster’s biggest competitor, prior to Netflix, was Movie Gallery Inc. and back in February, they filed for bankruptcy for the second time and are in process of shutting down its nearly remaining 2,414 stores, including all Hollywood Video outlets. As well, earlier this year Blockbuster made deals with Fox, Sony and Warner Brothers for exclusive rights to rent out newly released DVDs, within the first 28 days. This was a big deal for Blockbuster as new releases make up roughly 80% of their revenue.

In 2009, the rental market’s $6.7 billion intake, was substantially lower than its $8.3 billion in 2002. And any remaining video stores share more than half of this revenue with DVD kiosks and mail rentals. It is projected by 2014, the number of video stores in the US, will drop below 5,000. In 2002 there were 26,000 stores and 14,000 last year.
Blockbuster reported a $558.2 million loss and is currently asking lenders to renegotiate its $1 billion debt.

Today, Netflix has approximately 14 million subscribers who stream videos on-demand; Apple’s new iPad allows Netflix subscribers to stream video and there are a now a wide variety of ways to watch movies without even having to subscribe to a service such a Netflix. Netflix said over 50 million homes in the US are able to watch videos on-demand through Xbox 360 and Wii gaming module systems.

In effort to save its life, Blockbuster, with NCR Corp., in effort to keep up with competitors, will introduce 10,000 kiosks by the end of this year, and collect royalties from NCR while closing roughly 1,000 stores. Redbox, a kiosk DVD rental company, reported a 70% increase in revenue within the first three months of this year.

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