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Maybe the Blockbuster animals are discussing high-def formats too
HD DVD dealt a major blow with Blockbuster brush-off

Few corporations have the sort of influence on the movie industry that that Blockbuster Inc. has, and the rental juggernaut is about to exert its influence on the high-definition format war. Blockbuster will be taking sides with its announcement that it plans to rent only Blu-ray Disc movies in 1,450 stores next month, according to the Associated Press.

This news comes as a significant blow to HD DVD, which is currently fighting against Blu-ray Disc for market dominance. Blockbuster has been renting both high-definition formats in more than 250 stores in the U.S. and Canada since late last year, and claims that its consumers were choosing Blu-ray movies more than 70 percent of the time.

"The consumers are sending us a message. I can't ignore what I'm seeing," Matthew Smith, senior vice president of merchandising at Blockbuster, told the AP.

Blu-ray Disc has been ahead of HD DVD title sales since the beginning of 2007, though that some attribute that not to one format being more popular than the other, but rather more new titles have shipped for Blu-ray Disc this year. The greater availability of titles for Blu-ray contributed to Blockbuster’s decision to pick only one next-generation format.

"When you walk into a store and see all this product available in Blu-ray and there is less available on HD DVD, I think the consumer gets that," added Smith.

The North American HD DVD Promotional Group viewed Blockbuster’s move as short-sighted and skewed by the early success that Blu-ray enjoyed thanks to its stronger release schedule.

"I think trying to make a format decision using such a short time period is really not measuring what the consumer is saying," said Ken Graffeo, co-president of the group.

Blockbuster said that it will continue to rent HD DVD titles at its original 250 pilot stores for high-definition movies, though it is unclear if it will continue to carry new releases or rent out its existing inventory.

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Ridiculous
By CorrND on 6/18/2007 8:37:23 AM , Rating: 5
I can understand devoting more shelf space to Blu-ray if the rental numbers are better, but how is it a good business decision to tell people that only own an HD-DVD player that you don't want their business at all?




RE: Ridiculous
By paydirt on 6/18/2007 8:45:02 AM , Rating: 3
It's possible that people who are easily offended would take it that way, but it's not like HD-DVD owners throw out their regular DVD player.

People can still rent HD-DVD's from Netflix. I wonder if Blockbuster's online rental system will still offer HD-DVD?


RE: Ridiculous
By CorrND on 6/18/2007 8:50:35 AM , Rating: 3
Good point regarding DVD rentals. They're not throwing away all the business of HD-DVD adopters.

I just don't see how it's an advantage to Blockbuster to not stock HD-DVD.

What do they have to gain by not renting HD-DVDs?


RE: Ridiculous
By shanegl on 6/18/2007 8:55:48 AM , Rating: 1
It costs them less. They obviously see from their numbers that BR has the advantage. By focusing on BR alone they can reduce costs and actually provide a boost to BR by giving people on the fence more confidence in the company.

I'm sure they won't be too worried about alienating HD-DVD owners, since there's so few of them at the moment anyway.


RE: Ridiculous
By shanegl on 6/18/07, Rating: 0
RE: Ridiculous
By CorrND on 6/18/2007 9:04:40 AM , Rating: 3
I don't see where the savings would come from. Blu-ray and HD-DVD cost essentially the same and to Blockbuster, a rental is a rental (i.e. it costs Blockbuster the same to rent a DVD, Blu-ray disc, HD-DVD or video game). Stock your shelves according to rental rates.

I do see your point regarding Blu-ray confidence, though. They could see this as an attempt to hasten the format war. If one format wins, the whole movie industry -- player manufacturers, movie studios, movie theaters, rentals stores -- will end benefit.

That said, I don't think one format will win. Hybrid players are the answer.


RE: Ridiculous
By chick0n on 6/18/07, Rating: -1
RE: Ridiculous
By CorrND on 6/18/2007 9:16:25 AM , Rating: 2
Come on, that's not how it works!

From Blockbuster's perspective, they have shelf space and they have items to put on it. If you put an HD-DVD there, you pay that price. If you put a Blu-ray disc there, you pay their price. If they cost virtually the same (and they do), there's no cost difference and no savings.


RE: Ridiculous
By mmoramarco on 6/18/2007 9:58:28 AM , Rating: 5
It's not so much that Blockbuster will be saving money (in terms of expenses). They will still have to buy the Blu-Ray discs (or HD-DVDs had they gone that way). They will also still have the same overhead expenses (rent, electricity, etc.). There might be some cost savings in terms of inventory management, though giving the number of titles they carry, this is likely to be minimal.

Rather, Blockbuster's move is designed to generate larger revenue. That is, if Blockbuster can rent a Blu-Ray movie 6 times a month or they can rent a HD-DVD movie 3 times per month, then assuming the rental costs are the same then Blockbuster's return is greater on the Blu-Ray movie.

Ultimately, the move is not designed to reduce costs, but rather improve their revenue and return on invested capital.

As for the idea that Blockbuster will be getting rid of their HD-DVD customers, this is not inherently a bad thing on Blockbuster's part, assuming that all of their expectations and calculations are correct on the finance side of things.

The adage that the best business move is to keep the customer happy is not correct. Rather, the best business move is the keep the right customers happy (i.e. the ones that drive the most revenue/income). Blockbuster ahs determined that the loss of their HD-DVD customers is less then the benefits of keeping their Blu-Ray customers happy.

In my opinion, this is simply good business practice. As I said though, it all depends on if Blockbuster predicitionsa and expectations are correct. If HD-DVD wins and Blu-Ray loses, Blockbuster will not be in an enviable position. However, if Blu-Ray wins, Blockbuster will be a step ahead of their competition (in terms of an all Blu-Ray infrastructure and sufficient supply).


RE: Ridiculous
By CorrND on 6/18/07, Rating: 0
RE: Ridiculous
By hubajube on 6/18/2007 12:01:59 PM , Rating: 3
Like you said, shelf space needs to be filled. If you're a business owner, which would you prefer? $60 from Bluray rentals or $80 from both Bluray and HD DVD rentals? As a business owner, I'm only interested in making money, not playing politics.


RE: Ridiculous
By Final8ty on 6/21/2007 6:14:36 PM , Rating: 2
More likely that 60$ BD as all copies of a title are all rented out & 80$ with HD.
But 100$ with just BD because you now have more copies per title on a format that has the higher demand.


RE: Ridiculous
By Munkles on 6/18/2007 12:27:37 PM , Rating: 3
"The adage that the best business move is to keep the customer happy is not correct. Rather, the best business move is the keep the right customers happy (i.e. the ones that drive the most revenue/income). Blockbuster ahs determined that the loss of their HD-DVD customers is less then the benefits of keeping their Blu-Ray customers happy."

Ive got to admit I think this is an incorrect statement. Its a well proven statistic that an unhappy customer will tell 10 people about their negative experience and a happy customer will tell only one person about their positive experience.

By brushing off hundreds of thousands of potential customers, you are actually potentially losing MILLIONS of customers.

I agree you cant make everyone happy all the time, but if your idea is to simply brush of people who arent dumping masses of dollars into your revenue stream, then you are DEFFINETLEY not the kind of employee I'd want working for me. That kind of attitude seeds long-term brand resentment and hurt, and thats something not easily regained.


RE: Ridiculous
By mmoramarco on 6/18/2007 1:46:08 PM , Rating: 2
I think you misunderstood what I meant about keeping the right customer happy. I am definately not advocating angering your customers. Rather, the ability to segment customers is a fundamental practice of businesses.

If you look at different grocery stores of the same chain around any given geography, you'll notice that many stores carry different products based on the consumer demographic (i.e. some stores will carry many more expensive bottles of wine while other stores will carry very little wine).

There is nothing wrong with this. This is what I perceive Blockbuster is doing. They are merely segmenting their consumer base. I agree, it is far more difficult to do with a current consumer population that already frequents ones store/chain because. as you said, this will likely infuriate some customers leading to a backlash.

The easier solution would have been for Blockbuster to start out only carrying Blu-Ray. This would have had the same effect as their current plan, without the backlash you are worried about. However, Blockbuster added both formats to their stores so they'll have to be extra careful in the execution. Perhaps they can offer their HD consumers coupons for free rentals or something. Blockbuster will likely come up with some marketing program designed to minimize to the backlash (whether it'll work or not is a complete unknown).

Blockbuster's move is a terribly risky one. You're right in that Blockbuster could be alienating a great many customers (though I'm not sure how many people rent HD-DVD or Blu-Ray from Blockbuster). I would argue that Blockbuster simply calculated out its potential risk and returns and determined that this was the best course of action.

There is nothing wrong with ignoring millions of customers. Look at the likes of Neiman Marcus or Saks. They cater to a very small segment of the population yet make significant profits.

If Blockbuster executes their plan poorly, then you are most likely right, they will lose many customers due to the negative experience. However, if Blockbuster can mitigate that negative experience, this could be the right move (depending on Blockbuster's assumptions).

Best Buy attempted something like this a while ago.

http://online.wsj.com/article_email/SB109986994931...

Their implementation strategy was not to turn away the "devil" customers as the article describes, rather Best Buy would just not implement the programs that drive the "devil's" demand and foot traffic to the store. Thus, the argument is that Best Buy would decrease the bad customers without giving them negative experiences.

This is what Blockbuster has to do and what I'm advocating for. There is nothing wrong with losing the wrong consumers from your business as long as it's done in the right way.


RE: Ridiculous
By greenchasch on 6/18/2007 1:49:51 PM , Rating: 1
> "There is nothing wrong with ignoring millions of customers."

They aren't ignoring millions. BD and HD-DVD combined are only a few tens of thousands of customers. And BB is being paid quite well by Sony to ignore almost half of them.


RE: Ridiculous
By CorrND on 6/18/2007 2:22:24 PM , Rating: 2
It may not be millions -- though it could be, depending on what percentage of PS3 users you believe are playing BR movies -- but it's definitely measured in 100s, not 10s of thousands.


RE: Ridiculous
By hubajube on 6/18/2007 2:07:48 PM , Rating: 2
quote:
There is nothing wrong with ignoring millions of customers.
Well, which is it? Ignoring or "segmenting"?


RE: Ridiculous
By Munkles on 6/18/2007 2:11:03 PM , Rating: 4
mmoramacro,

Thank you for rebutting in a very intelligent manner :)

I do most certainly understand what you mean about segmenting your market, and how the kno