A Blockbuster closing

The Blockbuster closed in our town last week, in the “out of business” sense.  I heard a lot of folks attribute this to the popularity of Netflix.

About a year ago our post office (looks like the one in Mayberry RFD) put a sign above their “Out of town” mail slot, saying “Please put Netflix envelopes in the “Packages” drop box.”  Apparently Netflix has gotten so popular that the post office has had to make an adaptation just to handle the volume, and the reflection of the shift in consumer behavior couldn’t have been written more plainly.

But the more I think about it, Netflix didn’t single-handedly kill our Blockbuster.

About six months ago our (only) supermarket got one of those “Redbox” DVD rental kiosks, and slowly it’s taken over the activity at the front of the store.

People are lined up at it all the time, and when I thought it was just a stand-alone machine, I didn’t consider it all that novel until I realized that you can reserve movies, at an individual machine, over the internet. That’s when I thought “this is really cool.”  No wonder folks are jammed there, they’re going to the store anyway, and they can get their movie too, and reserve what they want.  Wow.

So, I did a quick Google search on “Redbox Netflix” and this was the third citation, the headline says it all: Blockbuster CEO: Redbox, Netflix “Not On Radar Screen” as Competition.  The article was from December.  And this is a publicly traded company.  How in the world does someone say this?  What detachment from the customer (and reality) does that broadcast?  It certainly provides a more grounded understanding of why our local Blockbuster went down the drain.

But while Netflix may have pushed Blockbuster to the brink, Redbox may have sent them over the edge.  Not because Redbox was targeting Blockbuster: they were collateral damage.  It’s Netflix who’s in the cross-hairs of Redbox.  And the best part?  Netflix paved the way for Redbox to hollow them out.

How?  Netflix fundamentally changed consumer behavior.  Until they arrived you were at the mercy of your local video store: you had to actually make a separate trip there, choose from their inventory,  and had to remember what you came in there for.

Netflix created a whole new behavioral model of how you rent and experience movies and tv shows.  Infinite inventory to choose from, your own queue on a website, and they mail your movie to you.  How simple, how convenient.  And as I wrote earlier, a change in behavior like this takes time – like a decade.

Convenience is nice, but where Netflix really grabbed hold of people was by also embracing people’s existing behavior: they don’t return movies on time.  Eliminating late fees was the rallying cry that created incredible word of mouth.  And started that hollowing effect for Blockbuster.

So how does this apply to Redbox?  Well, they just applied Netflix’s playbook:  focus on consumer behavior and where the economic leverage is.  They recognized most people rent the current releases, and thanks to Netflix, they also expect to be able to use the web to choose as well as know they’ll get what they want.  Critically, they also realized that having the movie mailed to you meant for many consumers just not having to make a separate trip to get  it.

So Redbox embraced this existing behavior in a clever way.  They just  rent the top movies from a vending machine located in a supermarket.  You can reserve your movie over the web.  So you get what you want, with no special trip.

And the fact it’s a kiosk also means expectations are automatically set that the selection is limited.  This reflects a nuanced understanding of consumer psyches, while dramatically reducing the complexity of inventory management.

And while convenience is nice, where Redbox really gets its leverage is with the economics, just like Netflix did with Blockbuster.  $1 per movie.  Sure there are late fees, but at this price it makes Netflix seem expensive and really tough for digitally delivered movies to pencil out from a margin perspective.  Ouch.

So, against this backdrop, it’s hard to fathom the statement from the Blockbuster CEO.  He’s right, Netflix and Redbox really weren’t on his radar screen.  He wasn’t even in the same business, wasn’t even in the fight.

And if I were Netflix, I’d be working my bankers, hard, to figure out how to acquire Redbox.

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One Response to “A Blockbuster closing”

  1. Peter U Says:

    I have been similary shocked at how busy that red machine is and never thought about it until I read your Blog.

    I think this also points to an interesting problem with the current model of service in business today as well. That a machine that provides no service, other than reserving and dispensing (cheaply), can easily compete with a store that usually had 2 or 3 employees theoretically “serving” the customers.

    In actuality though, the human beings in the Blockbuster provided no service. If I had a movie request, the employee was unresponsive because they had no interest and possibly no means to bring in a particularl movie into the store. If I had a movie question, they had no knowledge of movies (other than being able to review Spring Break Daytona sequal #24). They also never had resources to look up information such as a movie review book or possibly a computer console set up with useful movie resources that the customer could use.

    I once asked at this same Blockbuster if they had the original movie M.A.S.H. and the employee had no clue what I was talking about or that an original movie existed. I wouldn’t necessarily expect a 19-year-old university student to have seen an old movie such as this, but I might expect if I was going into a store that’s entire reason for existance is to rent movies to have employees who had a knowledge, interest, and possibly even a passion for movies.

    Will Barnes and Knobles eventually just become an automated Red Box? Will urgent care centers soon dispense a diagnosis and medication prescription from an automated Red Box?

    Interestingly, our local hospital has a machine very similar to the Redbox DVD machine for dispensing common Emergency Room medication prescriptions – pretty much everything is automated . . . as a pharmacist, I see this as poor medical service for the customer – poor medication counseling, inadequate checking for drug interactions and appropriateness of drug and dose for the patient, but it does serve the needs of the customer in a way that the current health care model cannot (we don’t have many available 24-hour pharmacies, or certainly not convenient ones).

    All very interesting stuff.

    thanks for the blog post


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