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A Survival Manual for Blockbuster

The rental giant’s decline was written on the wall years ago — except no one was reading the walls.

For industry watchers (not to mention customers), it seemed inevitable that Blockbuster would become the big engine that couldn’t. Not with Netflix, Redbox and television movies breathing down its neck.

It’s not just the recession, either. Or non-loyal customers. It’s the basic lack of stock, customer desires and long-range sales-forecasting. Period. That and little upstart Netflix, which threatens to dominate rental sales by virtue of its easy-come, easy-return mail-in. Not to mention supermarket-based Redbox units (akin to do-it-yourself postal machines) that dispense DVDs like gumballs.

If Blockbuster wants to get back into the game, it needs to do more than compete with mail-in movies and other lures. How many times have you gone to your neighborhood store hoping to find that obscure Henry Fonda flick and leaving with “National Treasure” again?

If you love this year’s fare and new releases still warm from the theater, Blockbuster always has been the go-to store. Especially after squashing the individual stores that struggled to keep loyal customers. Alas, those beloved mom-and-pop video stalwarts bit the dust and only a mighty few brave ones are still out there, struggling in the hinterlands.

So no great surprise when the news recently broke that almost 1,000 stores will be shuttered by 2010’s end. But it should be a surprise and maybe even shocking, considering the previous plan was merely to close 380 to 425 sites in the same time frame.

How did this happen? A number of reasons, many of which were written on the wall years back. Except no one was reading the walls, apparently.

The scent of failure was still hovering in the air as recently as 2008, when bankruptcy seemed imminent. The hope that a merger with Circuit City would bolster sales went bust when the electronics giant itself ended up declaring bankruptcy. Whoops. Another bad choice.

Dallas-based Blockbuster’s regulatory filings depict a head-scratching future plan that might deflect insolvency but sure sounds pie-in-the-sky. Presently Blockbuster runs more than 4,000 stores (606 are franchised). Granted Hollywood Videos, the poor relation, has its own financial problems, and never grew to behemoth size as did its rival rental companies.

Not only does Blockbuster plan to deflate the franchise, it’s now planning to focus on staying open in smaller, city-based stores and scaling down stores’ dimensions. What’s going to happen to the less-populated hamlets whose residents are addicted to literally shopping in person rather than flipping flicks down the mail box? Subscriptions to TV Guide most likely will rise exponentially.

Catching up to Netflix’s domination of mail-ins won’t be an easy trick. Although BB’s Total Access service, with 1.6 million signed up, it pales in comparison to Netflix’s mighty 9.4 million subscribers, according to its 2008 reports. Naturally, Blockbuster executives plan to grow its base and if it offers incentives including better mail-in deals than its chief competitor, there’s a running chance it may fight foreclosure.

But the big change must be felt in the stores, where it’s all well and good to have new releases up for grabs, but not much else available in case you’re looking for any movie more than 10 years old. God forbid you long for a black-and-white flick!

No classics, foreign films, Sundance category or even Indies are decently represented at most stores contacted. Nothing against the teenage-driven demographic, but if Blockbuster continues to ignore the grown-ups who want more than the latest blood-and-guts, blow-‘em-up, apocalyptic or vampire movies, then the lesson will have remained unlearned.

 

And do people really rent entire series of television shows? By the time you pay for all the episodes, you’ll have to mortgage your first-born. But there they are: in Blu-ray, HD, 3D and who-knows-what’s next.

Netflix-by-mail typically stocks all the genres ignored by Blockbuster’s in-store fare. Yes, sometimes there’s a wait list, but you know it’s coming … eventually. And if Blockbuster comes on board in a flashy way, it’s win/win for the consumer, because the price wars will be inevitable.

Even if and when Blockbuster beefs up in-store categories, it had better keep prices competitive if new customers are to be made (and older ones kept). Just-for-fun facts: In 2005 Netflix grew its revenue from $682 million to more than 1.3 billion in 2008. Granted, Blockbuster’s sales topped $5 billion in 208, but remember that was below the nearly $5.9 billion in 2005. Not a good fiscal sign. Rental boxes are planned to grow from about 500 to 2,500 this year with a target of 10,000 by mid-2010.

Blockbuster is still crossing its fingers with its On Demand plans, head-butting with Time Warner Cable and Comcast.

But don’t count out the brand just yet. It simply needs a broad-base future scenario that acknowledges another scary competitor: YouTube, currently in discussion with studios about streaming movies. Good luck with that.

Naomi Serviss has covered Broadway, celebrities, lavish resorts and high-end spas. Based in New York City, she's still hooked on Hollywood.