Shortly after Elm Street-based Blockbuster reported its second-quarter stats Thursday evening, chairman and CEO Jim Keyes hopped on an investors' conference call to explain, yet again, what ails the former video-rental giant. The usual, of course: Netflix, shitty movies, the used-DVD and gaming market, slow transitions to digital delivery and its downloading kiosks, not to mention a heap of debt accumulated during The Second-Greatest Depression. Keyes remains optimistic that Blockbuster will pull out of its tailspin, and the company's reworking its revenue-sharing deals with studios and distributors to keep the doors, virtual and brick-and-mortar, open, but his rah-rah is tempered by more bad news ahead: "We must be realistically conservative about the remainder of this year."
But his biggest enemy is Redbox, whose kiosks are sprouting like weeds ever since Dallas-based 7-Eleven, Keyes's old company, decided to plant those monoliths in front of every single location. Warner Bros. yesterday became the latest studio to warn Redbox (and Netflix) that it ain't pleased with its fer-cheap business model and that it won't be providing new product for a month. You can almost hear Keyes giggling in the full transcript over on Seeking Alpha as he focuses, repeatedly, on Redbox's physical limitations and potential legal battle with Warners (it's already suing Fox and Universal over new-release limits.) Because, sure, customers would rather pay a buck for a rental. But what happens when they can't get it?
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While the consumer certainly enjoys the value of $0.99 movies, we are concerned that from the cost of production through the expense of retail distribution, $1 per viewing is not a sustainable industry model. A recent USA Today article, for example, said if consumers figure it's only worth $1 to see a movie at home instead of the $4.50 or so charged by rental chains and video on demand, then it could cripple the economics of today's movie business.
A second challenge is in-stock availability. The physical limitations of a kiosk will prevent 100% in-stock availability on hot new releases, something the customer comes to expect from Blockbuster. ... A previously announced policy by Universal, a recent announcement from Fox, and a new announcement literally within the last hour by Warner just this afternoon referenced creation of a unique vending window which we believe is complementary to Blockbuster's multi-channel approach. A vending rental window would enhance the complementary relationship between Blockbuster stores and Blockbuster kiosks.