Blockbuster To Buy Movielink?

The Wall St. Journal is reporting that Blockbuster is in talks to buy Movielink for a reported $50 million. I'm surprised by the low purchase price, since many "Internet companies" sell at much higher multiples, and Movielink would be an incredibly strategic purchase for Blockbuster.

Movielink is a studio-owned service that rents and sells movie downloads, but has not shown much growth over the past 3 years when compared to Netflix and Blockbuster.

By purchasing Movielink, Blockbuster could have a "triple play" (in-store, by-mail, and download), but they will have to add a subscription service to compete with Netflix. They could still leave the rental and purchase options for customers that don't want to subscribe. Movielink does enable you to watch movies when you're not connected -- a nice feature for downloading a movie to view on a plane.

The major problem with this strategy is that Blockbuster appears to be outsourcing their entire online business. The Blockbuster.com website uses Choicestream recommendation technology, and integrating Movielink could be difficult or awkward. Netflix might have an advantage because they have developed the technology and user-interface internally.

Update: Daniel let me know that Choicestream is the recommendation engine for both Blockbuster and Movielink, so this part of the integration should be simple.

Sorry, Mac and Firefox users, but Movielink requires Windows and Internet Explorer.

via Zatz Not Funny.

Comments

[Ricklogic]

The key, out of the gate is that it is a triple play.

Total Access has been powerful for Blockbuster. They added 500,000 to 700,000 subscribers in the 4th quarter and will add over 800,000 in the 1st quarter, 2007. In both cases, they are ahead of Netflix.

Since Blockbuster would now have a download offering that beats Netflix's streaming offering that will further distance Blockbuster from Netflix.

[mikek]

Ricklogic,

The problem is that the current Movielink offering is not a free subscription, but rental and purchase. I'm sure that Blockbuster will run into the same content availability problem that will keep the "free" titles down to a few thousand for now.

I think that Blockbuster will do very well at renting movies online to the customers that don't want to sign up for a $20 subscription. They have 33 million customers to convert to online DVD or rental customers.

I'm still not convinced that many people will purchase movies online, but iTunes has sold more than a million Disney movies, so I could be wrong.

- Mike K

[Aron]

More money tha sense.

btw, I think Alexa is busted. Check out www.google.com/trends for what I think is a more believable measurement of popularity.

[leonardodicrapio]

Sorry, Ricklogic, that's not entirely accurate. I won't debate the 1st quarter numbers (Netflix predicted in late January that they would add 400,000 to 700,000 customers in the 1st quarter).

Netflix added 665,000 PAYING subscribers in the 4th quarter. Blockbuster added between 500,000 and 600,000 PAYING subscribers in the 4th quarter. Blockbuster Online had 2 Million paying customers as of December 31st, 2006. Blockbuster Online had 1.5 Million customers on September 30, 2006, of which 100,000 were on free trials but became paying customers by the end of October 2006. Blockbuster Online had 1.4 million customers as of June 30, 2006, of which 100,000 were on free trials but became paying customers by the end of July.

[Ricklogic]

As with Netflix, the benefit (IF Blockbuster gets Movielink) is PR, initially. As you know, most Netflix subscribers have a very low percent of their queue available as a stream. Netflix is primo at hype and marketing (and exaggeration). So the very short term benefit to Blockbuster is to offset the PR.

The core/key for Blockbuster is still, for now, Total Access. This is what will help them close the gap plenty enough to be seen as a very serious competitor to Netflix. What if Blockbuster has 5 to 6 million subscribers at the end of 2007 and Netflix has maybe 8 million?

Blockbuster is preparing for the mid-term. Download and burn is right around the corner. The approvals and technology have been worked out and some transitional matters are a moderate hold up at this point.

The long held objection\criticism to download by Netflix fans concerning ability to watch downloads on TV has been strong over the years but that will not be such a good objection pretty soon. In addition to download and burn, various things are happening to make inroads into the PC to TV 'problem' and the near future should bring additional solutions (tech moves fast):
#1

http://www.popularmechanics.com/technology/how_to/4213002.html

#2

http://www.redherring.com/Article.aspx?a=21471&hed=AMD+Debuts+PC-to-TV+Chipset#

#3

http://www.multichannel.com/article/CA6419391.html

Plus: #4
LAS VEGAS, Feb. 27 /PRNewswire/ -- Sony Electronics today announced that the company's recently introduced "BRAVIA(TM) Internet Video Link" module will ship in July and retail for about $300.

When attached to a compatible Sony television, the module will enable access to Internet video programming, including high-definition content, from providers like AOL, Yahoo! and Grouper, as well as Sony Pictures Entertainment and Sony BMG Music.

[leonardodicrapio]

i haven't watched a watch more than a few minutes of a watch now movie on my television yet (or the desktop or laptop in the house). but i did connect the laptop via s-video output and from the headphone jack output (converted by special wire to the two audio inputs) to the auxiliary inputs on my receiver last night to watch a television show i had downloaded. laptop sits pretty nicely on one of my front speakers (obviously not the center channel).

[Ricklogic]

Looks like I goofed on the 4th Qtr subscriber #'s. Laziness.

[Firstlawofnature]

Just for starters and yes for the short-term at least this has got to be a dilutive deal. They might buy a money losing operation for $50mm in cash and stock. This is before they attempt to integrate it with the existing double play which will add even more costs. Given the punk level of earnings to begin with it could at the margin suck a decent chunk out of 2007 profits. Of course if this is such a nice business why have the studios been trying to dump it for years?

[Edward R Murrow]

To buy or to build, that is the question. Cisco and Microsoft have done very nicely using the buy part of the equation.

Maybe the cachet from the sale of the non-core Australian business will be used to purchase the core download business of Movielink.

[type-cast]

"Total Access has been powerful for Blockbuster. They added 500,000 to 700,000 subscribers in the 4th quarter and will add over 800,000 in the 1st quarter, 2007. In both cases, they are ahead of Netflix."

Total Access has only been successful in the way a fire sale would be successful. They've gained subscribers and stock value, but they are sinking into debt and losing profit. So, how does this put them ahead of Netflix? I'm sure if Netflix allowed users to get 2x more movies for the same money, they could double their subscriptions. The fact remains it's a bankrupt, unsustainable strategy. Even their own employees know this. The bubble will one day burst. Enjoy it while it lasts.

http://www.ihateblockbuster.com/

[Ricklogic]

Anyone who thinks that Blockbuster is going away is delusional. I don't know what to tell you. Blockbuster can manage through their debt. They have financial management that is far superior to anything that Netflix has.

Blockbuster had to shake things up and then make adjustments to optimize the economics. First speed up the scale, shut Netflix up a little, then make adjustments. If Blockbuster provides the options of mail back or bring to store and they give a good value with the number of DVD's user's are getting, they can raise prices for those who want the benefit of Total Access.

The market likes Total Access, the press likes Total Access, and the members like Total Access. Netflix does not have Total Access. You can not get a DVD from Netflix on Sundays or holidays. Blockbuster has a competitive advantage.

They inherited a lot of debt and have, and will continue to, make the adjustments to handle the debt. Icahn has run way more complicated companies. Blockbuster is getting nice cash flow out of non-core operations that they have been selling. If the U.S. market is by far the biggest in the world for video rental and it makes sense to you for Netflix to only be in the U.S., isn't it sensible for Blockbuster to zero in on the U.S. market?

@ Ricklogic

"They have financial management that is far superior to anything that Netflix has."

netflix... operating with profit and no debt, blockbuster, operating with no profit and huge debt. wanna run that superior financial management bit by us one more time?

You are just as biased as the hardest of the hardcore Netflix fanatics, and as soon as you realize that, you'll have a much more objective view of the issues here. Blockbuster is doing a lot of things right right now, undoubtedly, but Netflix is the groundbreaker and innovator, and Blockbuster will continue to look to them to lead the way.

[leonardodicrapio]

"Anyone who thinks that Blockbuster is going away is delusional. I don't know what to tell you. Blockbuster can manage through their debt. They have financial management that is far superior to anything that Netflix has."

Delusional? Hardly. Blockbuster has to turn a lot of levers to make BBOTA profitable. Management thinks they are providing an $8-$12 value to customers that they want a piece of. Management says the exchanges cost $2 per month. If Blockbuster Online went to $19.95 they might not have many defections, but I doubt they could raise the price to $24.95 without a lot of defections. IMHO the majority of people would rather pay $4 per movie once or twice a month than pay $25 per month.

Maybe Blockbuster can manage through their debt, but you have to admit that all that debt could be a big competitive disadvantage. I suppose Blockbuster's management is far superior because they managed to turn a $6 Million loss for the company last year into $5 Million in executive bonuses? Or because Blockbuster has close to $1 Billion in debt while Netflix is sitting on $300 Million in cash?

"They inherited a lot of debt and have, and will continue to, make the adjustments to handle the debt. Icahn has run way more complicated companies."

Blockbuster inherited debt? How? I'm not a Blockbuster historian, but I believe their debt is their own doing.

Icahn doesn't run the company. Antioco does. Antioco has been with Blockbuster since at least 1997. Antioco was with Blockbuster back when they made the Broadband deal with Enron.

[Edward R Murrow]

Regardless of who the innovator is, who has what in the bank, who owes who how much or what happened back in the '90s, Wall Street is loving the trajectory that Blockbuster is on right now and the YTD stock price graph reflects this fact. If Blockbuster does pull off the triple play with Movielink then the Street could reward Blockbuster even more.

Henry Ford was the innovator of the car. How many people believe that Ford offers the best value today? Businesses evolve and when things fall into place for them, they get rewarded; it's pure capitalism.

wallstreet is giving blockbuster a golf clap. they have a long way to go before they are loved.

[Ricklogic]

Who believes that Netflix will have 20,000,000 subscribers like Reedy says?

Anyway, who is more important to the studios, Blockbuster with $5.5 billion of revenue or Netflix with $1 billion?

Reed created a good space, mail DVD's for the price of a stamp. No doubt. They have $400,000,000 of cash. Reed and Jay (Hoag) own about 23% of that cash. If they don't burn cash and they keep this thing alive for a year or two, they could get to some serious cash - who knows, they could walk away with $150 to $200 million, their share, at the time when it is all over for Netflix. They are not thinking about you. It's all business. And they can walk away with some serious coin by not thinking about you or taking any big business risks like trying to compete in the download space against BitTorrent, Joost, Apple, etc. Did you see that Fox is going to do their own sales of downloads? Guess where things are going.

Why are the studios making major deals with BitTorrent, Joost, and a bunch of other companies but not Netflix? Think.

[leonardodicrapio]

Blockbuster was a $23 stock five years ago; now it is a $7 stock. That is a 70% decline in five years.

Netflix was a $7 stock five years ago; now it is a $23 stock. That is a 230% gain in five years.

"They have $400,000,000 of cash. Reed and Jay (Hoag) own about 23% of that cash. If they don't burn cash and they keep this thing alive for a year or two, they could get to some serious cash - who knows, they could walk away with $150 to $200 million, their share, at the time when it is all over for Netflix. They are not thinking about you. It's all business. And they can walk away with some serious coin by not thinking about you or taking any big business risks like trying to compete in the download space against BitTorrent, Joost, Apple, etc."

...whereas Antioco et al are in this for the community service and charity angle, of course. real sweethearts, those guys.

[Ricklogic]

I do not own Blockbuter.

I think Netflix was a really good idea.

I'll never understand why Netflix managers behaved like slimes when they had it made just playing it straight.

So, bottom line, I have a very big dislike of Netflix management!!!

And I am pro download and VOD - I think that Netflix and Blockbuster are becoming extinct in the next 6 months to 3 years. Just depends on how fast tech moves and it does tend to surprise on the upside.

[ondemandnow]

Looks like ChoiceStream also offers personalization and recommendation technology to Movielink so if the deal goes through I doubt there will be integration problems..

http://www.forbes.com/2007/01/10/media-directv-video-tech-media-cx_lh_0110ces-choicestream.html

[FrankLev]

Rick: "They have financial management that is far superior to anything that Netflix has."

Sam: "netflix... operating with profit and no debt, blockbuster, operating with no profit and huge debt. wanna run that superior financial management bit by us one more time?"

Sam,
Sounds like Blockbuster is exactly where Netflix was a couple of years ago. BTW their debt is quite small in relative numbers.

At that point blockbuster's reptuation was low among users and netflix high. now the opposite is happening.

[leonardodicrapio]

"And I am pro download and VOD - I think that Netflix and Blockbuster are becoming extinct in the next 6 months to 3 years. Just depends on how fast tech moves and it does tend to surprise on the upside."

Hasn't MovieLink been around for at least 3 years? The biggest name in the pay download space is Apple, and their selection of movies is still fairly limited. I don't think their appleTV is going to be a run-away hit, and I don't see much value when I can get a DVD movie for less at DeepDiscount.com with free shipping.

VOD has been around for at least 5 years.

[Ricklogic]

I'm pretty clear on what you like but then I see that there are almost 100,000,000 households with cable and that there is greatly increasing activity in the download space. And I ask myself, should I focus on what Leo is doing if I want to understand the market or should I look at the big picture. You know, what the vast majority is doing and is likely to do going forward.

The Wii has been out since November and is projected to be in 30% of households by 2011. That's how something grows when it is really hot. Netflix is not really hot.

I am not talking about you and what you like or think. There are hurdles but VOD is on an increasing growth rate and download is on an increasing growth rate. Even without you or your blessing.

[vio]

"Blockbuster was a $23 stock five years ago; now it is a $7 stock. That is a 70% decline in five years.

Netflix was a $7 stock five years ago; now it is a $23 stock. That is a 230% gain in five years."

Of course. The stock market is all about growth. If you're consistently growing, the stock market will quite literally give you a blowjob. This doesn't change the fact that Netflix, nearly 10 years in it's life now, is still small fries compared to Blockbuster. These numbers are constantly being brought up, but I supposed for a thickheaded Netflix fanboy like yourself, it's necessary.

Netflix: 6.3 million customers
Blockbuster: 33 million customers

I can only begin to imagine what a fanboy like yourself would be spewing forth on this blog if Netflix instantly aquired 33 million customers. You'd probably be posting nonsense like "Netflix is the most powerful force in the history of video rentals!!!!"

It's kind of laughable that not too long ago Reed Hastings was boasting about 20 million subscribers, which we all know they'll never get anyway. So Netflix even at their peak would still be smaller than Blockbuster. Interesting huh? I love how reality becomes severely distorted when you're on a growth spurt. American business at it's finest.

[leonardodicrapio]

Slingcatcher is supposed to be coming out around the middle of 2007. It is supposed to sell for under $200.

I saw a Toshiba laptop on sale (at OfficeDepot.com?) about two weeks ago for $350 after rebate (it was $550 minus a $200 rebate).

I don't see much value in a $299 appleTV with delayed availability later this month(which only plays ITunes videos) or even the Netgear Digital Entertainer HD (EVA8000) for $349.99, which is also not available yet.

I will likely wait to purchase any of these (a Slingbox/Slingcatcher combination box will likely come out towards the end of the year or beginning of 2008).

But Netflix could always partner with one of the manufacturers. It will probably cost Sling Media less than $100 to build a SlingCatcher. Buy.com was selling the Slingbox AV for $126 recently (it has a $180 list price).

Netflix could always buy SlingCatchers in bulk and sell them at their (Netflix's) cost or subsidize them (to whatever degree they desire) for paying Netflix customers, with their (Netflix's) intention being to increase customer satisfaction (decreasing churn) and/or to reduce their (Netflix's) postal bill.

[leonardodicrapio]

I am one of Blockbuster's 33 Million customers. With the exception of this month (when I have been in the Blockbuster store approximately 5 times -- leaving empty handed once), I have been to a Blockbuster approximately 3-4 times in the last 5 years (since I have been a Netflix customer).

What does it matter if you have 33 Million customers if you can't turn a profit and are straddled by debt? And I wouldn't count Netflix out of getting to 20 Million customers in 5 years (or to 33 Million customers in 10 years).

It's yet to be seen if Blockbuster Total Access doesn't cannibilize their existing in-store sales. And none of the Blockbuster seem to acknowledge the approximately 1,000 franchise stores in the United States who are not necessarily happy about BBOTA (regardless of whether or not they are participating).

[leonardodicrapio]

"With the exception of this [past] month..." when I have trying BBOTA on a 4-week free trial...

[leonardodicrapio]

"And none of the Blockbuster [faithful] seem to acknowledge the..."

[Edward R Murrow]

"wallstreet is giving blockbuster a golf clap"

I think that golf clap can be treated with some penicillin and a pitching wedge.

[gir]

Hey, thanks for the info on the SlingCatcher. First I've heard of it.

I'm especially interested in this:
"Sling is currently discussing partnership opportunities with both large and small content owners to create and deliver their offerings directly to the TV via the SlingCatcher. The add-on storage capability (via hard disk drive attachment) could be utilized for direct delivery of such content."

Hope they're talking to NetFlix. IMO, taking the PC out of the delivery equation is the killer-app for downloaded video.

[Edward R Murrow]

Oh no, NYASTB (not yet another set top box).

I remember when Antioco suggested Blockbuster would be pursuing a set top box, people on this forum wrote in what a horrible idea that would be. Can't wait to see if people will remain true to their original postings or if they're going to flip-flop like a cheap politician.

[tardissauce]

Ricklogic-"The Wii has been out since November and is projected to be in 30% of households by 2011. That's how something grows when it is really hot."

I really hope(for their sake) Nintendo has something better than the Wii out in 2011.

Is is possible to put posters on ignore?