Interview: Blockbuster CEO: Skeptics Aside, Confident Of Phys...

The at-home is dominated by VOD and Comcast (NSDQ: CMCSA).  Netflix, Amazon (NSDQ: AMZN) and Apple (NSDQ: AAPL) together are very, very tiny fraction of the $3 billion market right now.  Really, where all the money is, is in store.  There’s a $25 billion industry in store.  There’s an $8 billion industry by mail and we’ve got a healthy piece of that.  Vending, kiosk and online are nowhere yet.  They’re just barely starting.  So, when we pull back on our by-mail, it’s only because we realize we were driving all the growth in by-mail.  We said, ‘You know what we’re doing? We’re taking people out of the $24 billion in store segment and we’re forcing them into this smaller by mail segment. We’re spending a ton to do that. Why don’t we just stop trying to buy customers with advertising and banner ads and everything else and let’s just show our customers the advantage of going cross channel,’ because the big advantage versus Netflix.

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It has a server on board and it has full capability to do digital download and that’s critically important because as this transition occurs from vending to digital download, there are going to be many customers that want both.  I want a DVD for my kids to throw in their DVD player in their room, but I want to download a movie to take on the airplane with me on my Archos device or on my PC.  We’ll be able to provide that flexibility of use occasion that our customers have

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Those who are only in one segment will only be able to satisfy one use occasion

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Imagine in the future the ability to have the entire library captured on a kiosk.  Some of the stuff is very, very slow moving and it takes a lot of very expensive real estate. So, think of it as a satellite system for stores that extends the reach of Blockbuster and makes it more convenient for our customers to get DVDs.

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Is there any real urgency for us to go out there and create a whizbang set-top box?  No

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Are we interested long-term in being in that space?  Sure

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Our product is in the VOD window so it’s much newer, much more robust title selection.

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The idea is that as a customer, for example, I use in store, I use by mail, I’m going to jump on an airplane, I load a couple of movies on a PC and I can watch them on the plane.  I may be at home and I don’t feel like going to the store to exchange the total access DVD. So, it really is just another use occasion, another point of access for our customers to have convenience and assortment in what they want to watch.  Now, if I’m a Netflix customer, I can watch-watch now, but it’s a very different product assortment. I’m not going to have a convenience of seeing VOD titles in a subscription environment.

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his is a fascinating area for me.  I’m amazed at the metrics that the external world is using to measure success in this industry.  When was the last time you watched 10,000 movies, you know?  I don’t care how many movies are available to me. As my personal taste as a customer, I want to watch the new stuff so whether we have 10,000 movies or 200 movies it doesn’t matter if I don’t want to see any of the movies that we have.  So, our assortment is heavily weighted toward newer releases and mainstream staple titles.  We can also supplement that if we wish with a longer tail so we could add another 10,000 movies if we choose to acquire subscription content to Movielink.com or Blockbuster.com, which we probably will over time, but realistically, today we believe that the bigger demand is for the newer titles.

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  So, we believe that we have a much more rich content base in Blockbuster.com for digital download than a pure subscription offering. We could beef up our title count and add thousands and thousands of more titles, but we think the most important thing is the quality of the assortment versus the quantity.

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lockbuster Media, not Blockbuster Video which is the old form of retail that we had, but Blockbuster Media is looking forward into the future saying: ‘What I really want is a solution.  I would like to come to a place where I can get my hardware and my software and somebody to show me how it all works in an easy way. I want a place that will satisfy my desire for convenient access to media any way I want.’ That’s Blockbuster.

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What you’ll see us doing is slowly expanding our assortment of consumer electronics opportunities to bring in the hardware and be able to sell solutions. 

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Now, back to your original question, technology is the secret sauce in the transformation of Blockbuster. Imagine in the future someone walking up to you in the store and you’re admiring that Blu-ray player.  They’re able to sell you the PS3 player off the floor and then show you on a handheld tablet PC an assortment of 10 different TV sets that are all 1080p-enabled and bring up the transaction right there, swipe your credit card right on the spot like you would in an Apple store, and have that TV installed tomorrow.

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What we think the role is that impulse purchaser, the person who is less price sensitive, the person who sees that beautiful 42-inch display who says, “You know, I’m a busy person.  I’m just going to get it.” Thankfully, that’s a huge portion of the customer base. 

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You’re buying solutions and you’re paying a pretty good premium for the convenience of that product working and the solution being readily available.  As a retailer, that’s where we’re heading.

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