June 03, 2008

Motley Fool Shoots Down Blockbuster/Keyes Idea

We saw the article on readwriteweb about blockbuster but the writeup on Motley Fool is much much better analysis of why the video download kiosk announced by Blockbuster is much more likely to fail than to succeed. The incremental foot traffic is reasonable but also the alienation of customers that already feel like the video store continues to trudge towards obsolescence.

Willy Wonka and the Blockbuster Factory
By Rick Aristotle Munarriz May 29, 2008 Comments (2)
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Blockbuster (NYSE: BBI) CEO Jim Keyes is no Willy Wonka, but when the company took the wraps off its new kiosk at yesterday's annual meeting, shareholders were as starry eyed as Golden Ticket-clutching kids entering a realm of chocolate rivers.

Well, maybe they would have been, if this were still the 1990s.

The new development involves NCR (NYSE: NCR) machines that Blockbuster will begin testing at some of its stores. The machines will allow shoppers to dock their portable media players and download digital flicks in just two minutes.

A decade ago, this may have seemed like a bold futuristic push from a company on the cutting edge. Unfortunately, this is 2008, and Blockbuster's vision of the future seems as hokey as Disneyland's Tomorrowland or an episode of The Jetsons.

10 reasons this will fail
There are several things wrong with this approach. In fact, I can think of at least 10 before I start getting dizzy.

  • The system will eventually work with most portable devices, but it's initially limited to Archos devices. Archos makes some cool gadgets, but do you know anyone who owns one?
  • The Archos media players have Wi-Fi. Why am I trekking back and forth to Blockbuster when digital delivery can come to me? Apple's (Nasdaq: AAPL) iTouch, SanDisk's (Nasdaq: SNDK) Sansa Connect, and Microsoft's (Nasdaq: MSFT) Zune also have Wi-Fi capability, while video-streaming smartphones by Apple and Research In Motion (Nasdaq: RIMM) can just phone it in when they're not within Wi-Fi's reach.
  • Speedy download times typically come at the expense of video compression quality. I thought the physical migration from DVD to Blu-ray happened because people cared about quality. How will these downloads look if I want to watch them in my home theater? Or am I limited to squinting at the small screen on my media player?
  • I thought the purpose of winning foot traffic at the store level was to grow incremental impulse-item sales. Folks walking in to use an automated kiosk are unlikely to bother with conventional checkout lines.
  • Blockbuster still needs to get all of the movie studios on board. Until then, it will only disappoint early adopters with a lack of selection.
  • Won't this alienate disc-based renters? If I walk in and see a high-tech kiosk I can't relate to, I'll get the feeling that the old-school model is being phased out.
  • The downloads may be quick, but folks will still take their time in choosing a digital rental. In other words, Blockbuster will need to have several of these kiosks in each store if they don't want to risk turning off users with long waits. The kiosks can't be cheap, either. I pity the fool who bankrolls them.
  • How many CD shops are excelling at selling in-store downloads?
  • Borders Group (NYSE: BGP) has shrunk in prominence since it teamed up with the Sony Reader to cash in on the e-book craze. Why will bridging the divide in video by a bricks-and-mortar chain pay off any better than it has in books?
  • Perhaps more importantly, why is Blockbuster strapping training wheels onto its customers by tempting them with digital delivery? Doesn't it realize that its customers will see the light and just pedal away?

    One reason this may work
    The only reason this kiosk has a shot is that Keyes is calling the shots. He turned 7-Eleven around. He knows how to run a shop. The company's latest quarterly report bears that out, with Blockbuster's merchandising comps soaring 19.7% higher. When it comes to beefing up the company's video gaming initiatives or transforming it into a more mainstream entertainment retailer, there's no one else that I would want at the helm.

    But even so, the guy is biting off more than he can chew with these machines. They will take up space and confuse customers. They just won't be a win for Blockbuster. We live in a world of Veruca Salts, while Blockbuster is kicking the Charlie Bucket. Why can't Keyes see where this is heading?

    Posted by staff at June 3, 2008 01:06 PM