What Is Blockbuster Thinking?

We’ve got reports of Blockbuster Video trying to buy Circuit City, possibly announcing a set-top box, and some serious changes in stores. So “What Is Blockbuster Thinking?”

I remember the days where Blockbuster Video was the place to get any video you really wanted. Sure, this was when VHS was the popular format and selection mattered, rather than this hungry beast that Blockbuster has become — at least in the store.

We tried the Blockbuster online service years ago in it’s infancy, and while we’re now Netflix subscribers, it’s pretty simple why the service didn’t work well for us — it was too slow and didn’t have the titles we wanted.

Now, we hear the online service has improved, but the stores have definitely declined. It’s rare to find what you’d like to watch at a brick-and-mortar Blockbuster, since everyone simply rents the newest releases — and the few “classics” that every store keeps in stock.  Selection alone ruins most stores, since Netflix and even Blockbuster’s online service can hold more copies of any movie at a centralized shipping facility, rather than buying two copies for each store in a three mile radius.

Beyond selection, the stores themselves have tried to “kitchen sink” buy including more food, drinks, and candy selection and offering new, unwatched DVDs for sale amongst the literally hundreds of resell copies. It may seem to have some good theory, especially for folks who’d like popcorn, soda, Junior Mints, and a copy of Alvin and the Chipmunks; but for film fans looking for a copy of The Magnificent Seven might be out of luck. That’s not great business, especially if you’re banking on repeat customers…

So if their in-store business is decreasing, and running the online business is more profitable, why are they bidding for Circuit City? If the intention is to further their penatration with “a game-changing retail concept with a sustainable competitive advantage,” (said Blockbuster Chief James Keyes) and fight Apple’s iPod+iTunes concept by offering the media you want next to the device you want, then Blockbuster is going to have to innovate, rather than catch up with the market.

Digital distribution makes sense for media companies, but not consumers…at least not yet.

Blockbuster’s push for a new set-top box forgets that most Blockbuster customers have at least one DVD player and maybe a computer…but not the $200 it would cost for them to buy another piece of equipment. Let’s face it, the Apple TV hasn’t sold well enough to be a success (in fact, they had to build a second version to entice people to buy it) and Amazon’s Unbox hasn’t quite dented the market. So if they truly want to build another competitor, they’ll need to bring some great service to the table, too.

Which leads us to wonder why they aren’t playing with someone else’s service. Every other device out there (Apple TV, Vudu, Tivo) could benefit from better selection of Blockbuster, and since the big ‘buster won’t be giving out free movies, they’d still get a cut of the profits…so why not offer up the selection to someone else’s device?

In essence, Blockbuster is trying to maximize profits by having many channels of content, but they’re playing the game wrong. Focusing on what is important to consumers (price, selection, and ease of use)  would do better for their game than buying the second largest electronics stores and trying to crowd the market with a device that they’ll have to build.