It’s hard to imagine Blockbuster (PINK: BLOCK.A), a company whose one-time prosperity was tied to the rental of physical media like DVDs and VHS tapes, could become the home video industry’s phoenix and rise from the ashes. After more than half a decade of precipitous revenue declines and store closures, their business eroded first by Netflix‘s (NASDAQ: NFLX) mail rental business and later the rise of download and streaming rentals, Blockbuster finally declared bankruptcy last September. Despite the relative health of some of the company’s subsidiaries—Blockbuster UK reported that profits were up more than +21% this year, despite the woes of its parent company—Blockbuster’s core business looked unsalvageable.
That isn’t stopping the company from making one last push to regain relevancy in today’s home video market. Blockbuster CEO Jim Keyes announced today that the former rental giant is putting up $20 million for its first major marketing campaign in three years. The money is coming from the $125 million in “debtor-in-possession” (DIP) financing Blockbuster was approved for last October. This week, a federal judge gave Blockbuster the okay to put nearly one-fifth of that funding towards resurrecting its brand awareness.
The thrust of Blockbuster’s new campaign will be reminding customers that Blockbuster’s remaining retail stores have many films from Universal (NYSE: GE), Warner Bros. (NYSE: TWX), Sony (NYSE: SNE) and Fox (NYSE: NWS) up to 28 days earlier than competitors like Netflix or Coinstar Inc. (NASDAQ: CSTR) subsidiary Redbox Entertainment. Blockbuster maintains its exclusivity on some major film releases due to the high price of individual rentals in comparison to subscription-based services like Netflix’s and low cost rental kiosks like Redbox’s, a pricing discrepancy that has troubled major movie studios for some time.
Pushing exclusive rentals through the companies surviving retail outlets might encourage some foot traffic for Blockbuster, but it will not grow their business or position them to survive in the coming years. In order to make their rental business relevant again, Blockbuster will need to sacrifice the high-priced physical rentals that have kept their retail chains attractive to movie studios like Warner Bros. and Sony. Without a competitive instant streaming service that can offer both competitive pricing and selection that counters Netflix’s current offering, Blockbuster is merely postponing their inevitable extinction. Any new streaming initiative from the company would also need to be dramatically different than the streaming services launched last March. Offering a streaming rental app on Microsoft (NASDAQ: MSFT) Windows Mobile and Google (NASDAQ: GOOG) Android-based smartphones simply isn’t enough to compete with Netflix. Blockbuster needs to shut down more stores—it’s expected to close as many as 800 of its 3,425 retail outlets—and focus on adapting to the digital market.
Blockbuster also needs to find a way to benefit from the successful Blockbuster Express kiosk business. While Blockbuster Express doesn’t have the penetration of Coinstar’s Redbox rental kiosks, it’s still a profitable business, albeit one that only provides Blockbuster itself with licensing revenue. As of now, Blockbuster Express remains a fully owned subsidiary of NCR Corp. (NYSE: NCR), so Blockbuster’s new advertising push to raise brand awareness may end up benefitting another company more than themselves. Unless they readjust their plans, Blockbuster will end up liquefying its assets just like Movie Gallery Inc. did last April.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
