Blockbuster Struggles To Stay In Movie Rental Game

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A pedestrian walks by a Blockbuster store in San Francisco last week. i

A pedestrian walks by a Blockbuster store in San Francisco last week. Competition from Netflix and rental kiosks is threatening the video rental chain. Justin Sullivan/Getty Images hide caption

itoggle caption Justin Sullivan/Getty Images
A pedestrian walks by a Blockbuster store in San Francisco last week.

A pedestrian walks by a Blockbuster store in San Francisco last week. Competition from Netflix and rental kiosks is threatening the video rental chain.

Justin Sullivan/Getty Images

Digital downloads are making it easier than ever to catch a movie, and that option is leading some people to wonder about the future of old-school retailers like Blockbuster.

For Laura Roberts, Blockbuster is almost a guilty pleasure. It's usually where she goes to pick up something not so highbrow.

"This is why I come to Blockbuster — for things like this," she says, referring to the movie 2012 at a Blockbuster in Los Angeles.

Roberts used to also get movies by mail from Blockbuster, but she switched to Netflix because it offers free streaming and Blockbuster doesn't.

Shifting Habits

Roberts is exactly the sort of on-again, off-again customer Blockbuster needs to see more often.

The company is struggling. In a regulatory filing last week, it warned that it may have to file for Chapter 11 bankruptcy protection.

The way people rent movies is changing. Many people stop at rental kiosks inside grocery stores. Many get movies online. Blockbuster's storefront model can seem old-fashioned, especially within the entertainment industry.

But Blockbuster Inc. CEO Jim Keyes doesn't see it that way.

"We are the only multichannel provider — in stores, by mail," he says. "We also have Blockbuster Express vending machines. And we also have Blockbuster on Demand, our own digital solution, direct to your television or mobile phone."

Compared with Netflix, Blockbuster has more new movies available for streaming. But for now, Keyes says, physical DVDs are the most important.

"Mainstream America is pretty slow to change," he says. "We do expect for at least five years, maybe even 10, there will be a viable marketplace for DVD rental and retail."

"The studios very much need Blockbuster out there," says David Bank, an analyst at RBC Capital Markets. Movie studios like Blockbuster because they get a cut of each rental. With Netflix, terms aren't so generous.

Warner Bros. recently asked Netflix to hold off on renting its DVDs until they had been out for a month. In exchange, Netflix got the right to stream more Warner movies. Bank says that was smart.

"Netflix is sacrificing a little bit of the present for the future. Blockbuster can't afford to play that game," he says.

Blockbuster gets those same Warner DVDs right away, with no waiting period. This week, it's flaunting Sherlock Holmes, which Netflix won't have for a month.

Supply And Demand

Instant gratification is a big plus for customers like Dom Ayeros and his fiancee, Anne Capello. They ditched Netflix for Blockbuster a year ago because they were sick of waiting for the mailman.

"There's a lot of days when you are movieless with them," says Ayeros, who watches five movies a week with Capello.

Now, they mix and match Blockbuster's by-mail service with in-store rentals. Their plan costs $16.99 a month. For that, every month they can watch all the movies they want, as long as they never have more than three out at one time. The Netflix three-DVD package costs the same. To keep prices that low, it'll take competition. So customers should hope both companies thrive.

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