Blockbusted: Internet killed the video store (Feature)

By Andy Goldberg Sep 23, 2010, 22:47 GMT

Los Angeles - Video rental company Blockbuster, once one of the biggest and most noticeable chain stores on US high streets, filed for bankruptcy on Thursday after years of constant losses.

With its distinctive blue and yellow storefronts, the company was not just another victim of the recession that has forced thousands of other entities to close shop.

Instead, it was a giant whose time had passed, a bricks-and-mortar dinosaur unable to adapt to the new age of Netflix, internet streaming video and video vending machines in every neighbourhood supermarket.

'Blockbuster represents a big cautionary tale to American businesses,' noted MarketWatch.com columnist Jon Friedman. 'Remember, it wasn't quite so long ago that Blockbuster symbolized the future of commerce - employing technology to make consumers' lives easier and more convenient.'

Blockbuster forgot its own lesson, he noted, and 'if other businesses don't recognize this, they'll be in Blockbuster's sorry state soon enough.'

With 3,300 stores across the United States, Blockbuster is still the largest video rental chain in the country, even after closing more than 1,000 other stores over the last two years. It also had thousands more stores in Canada, Denmark, Italy, Mexico, Argentina and Britain.

In its filing, Blockbuster said it had about 1 billion dollars in assets and 1.46 billion dollars in debt. Following reorganization, it will have just 100 million dollars in debt and will have access to a further 125 million dollars to pay suppliers and employees.

Blockbuster said it plans to keep its current stores open while it evaluates its strategy going forward.

Chief executive Jim Keyes said in a statement that the company still held a formidable position in the media landscape with 'a well- established brand name, an exceptional library of more than 125,000 titles and our position as the only operator that provides access across multiple delivery channels - stores, kiosks, by mail and digital.'

But analysts said the company will be hard pressed to meet the myriad threats that have risen up against it over the past decade.

The biggest challenger to its business model is probably Netflix, which launched a subscription service in 1999 that allowed people to choose their films on a webpage and have them sent out via standard postal delivery.

In recent years, Netflix has updated its model to include streaming video through computers, video game consoles, internet- enabled televisions and Blu-ray players, and now has more than 15 million subscribers in the US.

Blockbuster only tried to meet the Netflix challenge in 2004, but the newcomer was already an established market leader generating significant profits.

Blockbuster failed similarly to take seriously the threat posed by video vending kiosks such as Redbox, which offer a much more limited selection of titles at much lower prices than conventional video stores.

Tech website GigaOm pointed out that Blockbuster's early success was founded on having larger selection than any other stores and using computers and scanners to keep track of rentals.

'For many, Blockbuster provided the convenience of a one-stop shop for nearly any video title one would hope to watch,' the website noted.

'But over the years, viewers and viewing habits have changed in a way that made Blockbuster less relevant. It's no longer enough to provide users with a way to get content from a store down the street; nowadays, they want access to that content in their living rooms.'