IS blockbuster busted?

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VHS:blockbuster vs. DVD:Netflix

This is the GRE (Graduate Record Exam) analogy I would use for movie rental companies Blockbuster (NYSE:BBI) and Netflix (Nasdaq:NFLX). The popularity of VHS tape made the success of Blockbuster, as I read from Wiki, the first Blockbuster movie rental store was established in Dallas in 1985 (24 years ago). By similar token, the popularity and technology bring huge success to the “all you can eat” DVD by mail service provider Netflix.

Blockbuster logo

Blockbuster did not stand still. They got rid of the infamous “late fees”, replaced all the good old VHS tapes with much slicker DVDs, even tried the Total Access (combining DVD by mail and at store), but it appears they are still losing a lot customers to Netflix. More recently, the Redbox and Movie Box, those help-yourself (a dollar per rental) kiosk show up in McDonald, Walgreens, grocery stores, and people like it because it’s both cheap and convenient. But they also add salt to the injury of Blockbuster.

So, the quesion is, is Blockbuster busted? Does it have any chance to bounce back? A piece of interesting news is recently Redbox engtaged a war against some movie studio. The reason: obviously while Redbox is enjoying its popularity and makes money from $1 per rental, movie studio is losing revenue both from higher cut from Blockbuster and DVD sale.

Interesting stuff. We know business is a big eco-system. Like the recent beleagued newspaper industry and music industry, movie industry is also under tremedous stress, esp. considering the declining DVD sales in this recession. People are becoming more thrift in terms of buying DVDs, $1 per rental is just too good a deal. At some point something got to give. Just like Murdoch said he is going to charge fees for web access on his newspaper (NY Times, WSJ), movie studios will have less incentive to produce if it can not make money from it. DVD rental and sale is a big portion of their revenue (and profit).

Something is already happening in movie industry. Today Disney (NYSE:DIS) announced the deal to buy Marvel Entertainement (NYSE:MVL). That’s one way to do it: cut cost, and create synergy. Meanwhile, I expect movie studios will do something about the DVD rental.

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