Blockbuster Reveals New Plans at Analyst Event

Blockbuster held a multi-hour discussion with analysts earlier today, and Blockbuster CEO James Keyes revealed some of the changes he has planned for Blockbuster.

Keyes scoffed at the claims that they have abandoned the war with Netflix. The following slides were meant to be funny, but demonstrate how they see the battle for marketshare.

Keyes noted that the Total Access and "No More Late Fees" programs, initiated by the previous management team, were good ideas, but the execution "left something to be desired." The average rental fee went from $3.60 to $2.79, and days out increased from 3.6 to 5.0. They need to better serve their 20 million customers (5 million in-store Reward "subscribers"), and he believes that they are potentially missing out on DVD sales of blockbuster movies (Shrek is expected to be 80% purchase vs. 20% rental).

Blockbuster isn't raising prices, yet, nor are they eliminating late fees, but they have to find a way to increase turnaround and rental revenue. He believes that they need to take better advantage of the locations, brand, and 2 million daily customers. He's reorganized so that he's only 3 layers above store managers, and he's encouraging them to be creative. They're considering selling related products like soundtracks (think High School Musical) and toys (Transformers) next to the movies on the new release rack.

The new strategy is "Convenient Access to Media Entertainment," and he talked about "True Total Access," delivering content through the computer, TV, phone, and kiosk (Blueboxes?). Keyes is envious of Apple's $4,000 per sq. foot retail sales, and intends to sell Sony's PS 3 at stores this holiday season. Possible new store designs were shown, with a central checkout (to better increase catalog rentals), and a 7-11 style soda station.

We also got a sneak peek at an integrated Blockbuster and Movielink service, which will enable Blockbuster to deliver more than 6,000 digital movies and TV shows.

Keyes and his team have ambitious plans, and it will be interesting to see how well they can execute on these ideas.

Comments

[eazyguy52]

While I have bought a few used DVD's at Blockbuster, I have seldom bought any new ones unless they offered a bunch of free coupons with them or some other type of deal. And now I've pretty much restricted myself to buying classics, or movies I know I will view several times but I don't buy them at Blockbuster. Come to think of it, any time I've been in a larger Blockbuster store I seldom see anybody perusing the New DVD's For Sale section. And if I were intent on buying a video game system, Blockbuster would be the last place I would even think of going to.

They're sale prices on new DVD's are some of the highest around, sort of like what you would pay at Sam Goody's or FYI.

Anyway, at least they're putting some effort into show and tell with the nifty graphics.

[borisb]

The new Blockbuster managment does not seem to online intuitive. also the retail environment they are going into is very poor as oil presses higher.

[gir]

"They need to better serve their 20 million customers"

I always loved double-speak.

[swampyfox]

I stopped going into BBV when the required I use a Major Credit Card to secure an Xbox 360 Game Rental and would not take my Visa Check Card. Wanna better serve me? Get this worked out and I will come back through your doors.

[jdsully8]

"They're considering selling related products like soundtracks (think High School Musical) and toys (Transformers) next to the movies on the new release rack."

sounds a lot like sam goody (or those other stores at the mall) that sell that stuff.

[Firstlawofnature]

The guy has an impossible job. There is little margin in consoles unless they are hot in which case you get a poor allocation, selling DVDs for margin when walmart sells them for no profit and amazon sells them without taxes ain't easy, CDs/soundtracks are shrinking big time.

There's no silver bullet here. Reinstate late fees after movie gallery dies and try to generate as much cash as possible. If the CEO can turn BBI around, he is truly a miracle worker.

[Old Timer Too]

Well, Keyes certainly is going to try his best to bring BB back into profitability. He admittedly knows nothing about the entertainment industry (when he took over the center seat) and I feel that gives him an advantage as long as he ignores the traditionalists.

As to abandoning the war with NF, don't ever think that will be the case. It may look like BB is going elsewhere, but Keyes is looking at this as survival and that is a battle. The problem is that he is fighting a war with previous decisions that has cost the company untold thousands, if not millions, of potential income in lost and angry customers. And, he done some of that himself with some of his own poorly executed plans to get rid of the albatrosses in the on-line rental programs. But, Keyes isn't me and so he managed to get me a bit on the frustrated side of things.

I will give him credit for some good moves and one of those is to get rid of at least one level of management and combine operations.

As to sales of used and new DVDs, Blockbuster will sell very few new products if they overprice them. Selling, for instance, Ratatouille (single disc version) well above Wal-Mart's "regular" price just won't work. Not when there is a $5 difference! I have purchased exactly one title from them and that was only because they had the best price over Wal-Mart, Amazon, and everyone else, even with their ridiculously high shipping and handling fee and local taxes thrown in.

As to the used stuff in the stores, I do make purchases when I can combine three or four titles of marginal films (that I might not be willing to buy new) for $5 to $7 a title (4 for $20 or 3 for $20). Any problems and BB was quick to replace the one damaged disc/refund the price.

Now, as to actually buying soundtracks, etc., well, there's a rub. The good old RIAA needs to get their act together before BB can be successful in that department, and get the retail price of the CDs down to $10 or less. Selling the same performance you can buy on DVD for more than the DVD is just plain dumb in my book. I'll buy the DVD first and never even think about picking up the CD. With lower prices on soundtracks BB would have a good chance to make that work for them.

I don't know if this is part of the plan or not, but Keyes needs to consider volume and making a small profit on everything they do. That should suggest raising prices in some areas and dropping them in others. Whether BB will or not remains to be seen. There are a lot of things they can try and some of them are likely to be successful. Others are likely to be duds and not the kind with milk in their name.

I wish them well, but one of the biggest things they need to do is to fix what is currently wrong with the system. That means getting the site to work quickly with all the current browsers and bringing back plans that will satisfy more peoples' needs, even if it means higher prices for those plans.

[Old Timer Too]

Oh bother, said Pooh. "He done some..." Uh-huh. He did it.

[noe638]

I just don't see BB being able to execute on all those facets of their business. Although they all relate to movies, they are all tricky components to execute and price.

Their strategy calls for kiosks...hello BB, this is RedBox calling...nice of you to join us.
They are also going to test pricing to try to get the new releases returned earlier...how about $2.50 for a two-day rental and $5 for 5 days?
They want their stores to get smaller...all while adding dvds for sale, increasing point of sale offerings and merchandising of products related to movies. BB is going to have to figure out how to totally revamp their stores.

BB is still trying to answer a lot of questions and it seems like they haven't really figured out any of them, which usually means spending a lot of time and money. I don't have much confidence that they will ever get it right.

[Edward R Murrow]

One change they should be able to make almost immediately that would restore some goodwill would be to offer more than just a 3 out program. I would gladly pay to go back to my 4 out program. A 4 out/7 in store exchange would be perfect for me. Obviously, they would need to price the increased programs to make a profit.

Although, one thing about the 3 out/5 exchange program that I'm on is that I don't feel like I'm being throttled now by BBO. For example, I dropped off a movie the other day, got one off the shelf which opened up a slot in my queue and a movie shipped to me the very next day. That's a pretty cool customer experience.

[Laddy]

It isn't uncommon for me to exchange at the store at 10am on Tuesday and get new movies from BBO in the mail the next morning. It doesn't happen everytime, but at least 75% of the time if the in-store exchange is by 11am. I exchanged 3 this past Tuesday and had three new ones by mail at 9am Wednesday. I'm served by St. Louis which is 120 miles from me. Where I most run into problems in return by mail. Sometimes they get back in 2-3 days and sometimes I have to report them as lost in the mail to get new disks shipped. I also notice that it takes forever sometimes for the movies I exchange at the store to actually get back to the center to get removed from the queue. I have no idea what's going on with that.

[OdomZ]

Laddy, you go to Blockbuster at 10:30am and exchange movies? Not only does that sound like a pain in the butt but my Blockbuster doesn't even open until 11:00am-- plus it is enormously inconvenient as I work 5 days a week.

Netflix is so much quicker and more convenient that it isn't even funny. Plus having the Watch Instantly deal is cool.

[corey3rd]

After being recently been trashed by Keyes, I can safely say that this CEO Goober knows nothing about customer service.

Sure he's jealous of Apple's per foot action, but when I bought my G-5 at the Apple store, i paid for plenty of square inches. Does he really expect Blockbuster to start moving $3,000 computer systems? Plus there aren't a dozen Apple Stores in the average town.

This guy's vision for Blockbuster extends as far as the rip cord on his golden parachute

my response to Keyes is up at Kevin Smith's Quickstopentertainment.

[Scott]

"Netflix is so much quicker and more convenient that it isn't even funny." - OdomZ

In all fairness, you are comparing 2 different plans; ie, Netflix you return by mail, BB you return at the store. BB offers the exact same plan as Netflix, whereby you return your dvd by mail. To that extent, Netflix is not "so much quicker and more convenient". If one chooses a TA plan, as Laddy has, then it's obviously worth the trip to the stores for them. Still, they don't HAVE to return to the store. Both Netflix and BB offer the same type of plans excluding TA.
If you want to compare both services being equal in terms of how fast they ship out your next dvd after receiving a returned dvd through the mail, that's different. I have horror stories about both companies on that. :)

[jsmorganny]

Judging from Keyes background, definite he intends to maximize the value per square foot of store space. Need to get more people into the store, keep them wanting to come back, hold them there for longer so they can buy more stuff. This is not necessarily about DVD Rentals anymore.