The Circle of Life
Is it just me, or does every retail concept have a defined life cycle that gets shorter and shorter? Retailers go from red hot to irrelevant faster than ever before. No retail category is left untarnished. It is eat or be eaten. Nowhere is this more apparent than in the DVD rental category. The pace of change is staggering to watch.
I'm old enough to remember the days of VHS tapes and having a fascination with the ability to rent first release tapes at local mom and pop retailers. It was new and exciting. This was a cottage industry for many in the early '80's. Lots of money was being made, both in movie rentals and sales, and it attracted investors with financial clout - like Wayne Huzienga, the mastermind behind Blockbuster. Their big box entry proved to be the first in a series of category killers in the VHS/DVD segment. "Make it a Blockbuster Night" was synonymous with family entertainment plans. Blockbuster ruled the day as hundreds of mom and pops shuttered their doors - unable to compete against them on price, selection and sheer volume of the latest releases. The going was good for Blockbuster for a decade as more and more stores popped up, but the success was fleeting.
In every retail category, there is always an underbelly looking to be exposed. By the '90's, DVD's ruled the day and Netflix saw the opportunity to expose the convenience flaw in the Blockbuster offering. Bringing DVD's back on time was the ultimate hassle, especially if you never got around to watching the movie. Blockbuster thrived on late fees; consumers loathed them. Netflix' business model of through-the-mail DVD's was targeted directly against this niche and today accounts for close to 30% of the DVD rental business. Now Blockbuster was exposed and starting to feel the pain that they inflicted on the mom and pops. Survival of the fittest is the game retailers play, day in and day out.
Yes, Blockbuster fought back by entering the DVD rental-by-mail game, but being second to the party doesn't work in retail. Netflix owned the consumer mind space and the market share. Netflix ruled the day now! They had their day in the sun, albeit a short lived one for about ten years.
The newest killer looming at retailers and locations throughout your community is Redbox with the omnipresent red kiosks that offer the latest release DVD rentals for a mere $1.00. Redbox is tapping into price and convenience consumer wants and needs with multiple locations - from supermarkets and fast-food restaurants, to even having a presence with the retail category giant,Wal-Mart. It adds up to significant market share as Redbox and its vending rivals now have 19% market share. Redbox is changing the way the game is played and everyone is scrambling to play catch-up. Blockbuster is coming out with 500 Blockbuster Express machines. They'll need to go a long way to replicate Redbox' statistics of 80 transactions a second on Friday nights - the very night Blockbuster used to dominate!
Traditional rental store outlets still have 45% share, but it is rapidly dwindling. Blockbuster plans to close 20% of their retail stores next year and take their Blockbuster Express penetration from 500 machines to over 10,000. The DVD rental category is taking on a new face and shape. Much like many retail categories, what works today won't tomorrow. It is about being distinct rather than extinct. No category illustrates that more than DVD rentals. The circle of life in retailing is cruel and unrelenting. Enter at your own risk.
Interesting stats on Redbox, I wouldn't have guessed that much success. I think Netflix is doing a good job staying ahead with their new "Watch Instantly" offering. Now, you can watch movies through an Xbox or similar device immediately after you add it to your queue. Not only that, it allows you to store a whole library of movies for any length of time. Can renting movies get any easier?
I found it quite upsetting when, a couple weeks ago, I tried to go to Blockbuster with my girlfriend to rent a particular movie she had in mind, only to discover that the store had closed down. Fortunately this particular Blockbuster location was situated in the same plaza as a Stop & Shop which houses two Redbox stations. Red Box did not offer the movie we were originally hoping for but we did settle for a couple horror movies for $1 per DVD per day. It seems to me that (in general) when the latest trends surface, some quality is usually sacrificed for a greater quantities. In this scenario, I would consider the in-store Blockbuster experience to be of a higher quality than a quick stop at a Redbox inside Stop & Shop, because Blockbuster offers a huge variety of movies that can easily satisfy my girlfriend's and my unconventional taste in movies. Redbox does not currently offer such a variety, but on the other hand, it does allow you to get your movie fix without having to make that one extra stop, and for cheaper. These days, it's safe to say that convenience and pricing are the most important factors for the DVD rental industry.
Redbox's breakthough is being where the consumer already is -- supermarkets, McDonald's restaurants -- to eliminate the need for a "special" trip to the video store. They've got late fees of their own, however, drawn down automatically from your credit card. That, along with limited selection and issues with defective discs that are inevitable as they gain popularity, may ultimately limit their growth.
Blockbuster, meanwhile, has failed to capitalize on a distinct advantage it has over Netflix -- a benefit the "clicks and mortar" effect brings to its mail-order service. Even if you live in the same town as a Netflix distribution center, the quickest you can hope to replace a disc is the second day after you mail it back. The same is true for mail-order fulfillment with Blockbuster discs, but Blockbuster also allows you to return your mail-order discs at a store -- and to take one rental disc with you when you go. A membership that lets you watch one more movie on a rainy weekend than Netflix's does is pretty cool, but Blockbuster hasn't done much to explain it. Maybe they should, especially if they extend the same courtesy to their Blockbuster Express machines.
The more Blockbuster can position itself as "your video source everywhere," and honor the same membership for rentals via mail-order, in-store, and at convenience vending machines, the greater its ability to anticipate and meet customer desires. They may need to marshal that and more to combat the nifty new preference-prediction algorithm Netflix recently awarded a $1 million prize.
All this skirmishing over disc-dispensing is likely to be moot in another decade or so, however. (The circle turns again.) Apple is already distributing TV shows and movies in HD via its iTunes store, and pay-per view is becoming more pervasive as well. Blu-Ray (and the presumably even-larger sizes of its super-hi-def movies) will likely delay the full viability of pure-digital file distribution, but that's clearly the way things are headed. Netflix is ahead of Blockbuster in jockeying for position in this arena, and that may be its saving grace in the end.