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Blockbuster is closing a fifth of its U.S. stores. The video's largest DVD rental service is gearing up for a hard stand against rapidly advancing competitors, Netflix and Redbox.  (Source: Norwood News)

Part of Blockbuster's fall has been due to the rise of Redbox, a kiosk rental service that has seized close to a sixth of the U.S. DVD rental market. The service's 18,000 kiosks offer 1-day DVD rentals at the bargain bin price of $1.  (Source: Rainy Day News)
Rental outlets are being killed by online content, vending machines, and mail rentals

Video juggernaut Blockbuster, long outmaneuvered and outsold competitors.  But the industry giant rocked the rental industry last week, when it announced that it would be closing 960 of its 5,000 U.S. stores.  Overnight Blockbuster, which also maintains 3,300 international stores, fell from a industry icon to a victim of a changing market in the minds of many.  The writing, however, has been on the wall for some time now.

Blockbuster is also changing some stores over to used DVD outlets.  In total its filing stated that as many as 1,335 to 1,560, mostly in the U.S. will close or be changed.

Blockbuster did get some good news.  Sources indicated Friday that it managed to raise more money that it had hoped for in a private debt offering.  The company, with the help of J.P. Morgan Chase, managed to secure $675M USD, when it only had expected $340M USD.  With those assets Blockbuster will be able to both pay off its $572M USD in maturing debt and carry out plans to open 2,000 rental kiosks by the end of the year, followed by a planned 7,500 more in 2010.

In the end, Blockbuster is still the market's biggest player, but it faces the danger of falling behind two leading competitors -- Redbox and Netflix -- as the market shifts.  Barry McCarthy, CFO of Netflix applauded his competitor's decision saying it was a smart move.  He stated, "Blockbuster has been battling a headwind trying to right-size their capital structure.  And it looks like they have made some important strides in making that happen. So congratulations for them."

Netflix, meanwhile continues to charge ahead.  The company is up to over 11 million subscribers and is forecasting third quarter earnings of $419M USD, up 23 percent from a year before.

Also enjoying new success is Redbox, a vending machine-style rental service that offers 1-day video rentals for $1 (customers pay $1/day for each additional day they rent it).  The company now has over 18,000 active kiosks, a 13.8 percent marketshare, and $344M USD in profit for the first two quarters of the year. 

Some studios -- Universal, Fox, and Warner Brothers -- are fighting the service, refusing to enter new-release distribution contracts with it for fear that its low prices will undercut their profits.  Redbox is suing them, and meanwhile is buying DVDs through retail channels to provide key new releases.  The company says this hiccup will do little to stop it, and that it expects sales to double by the end of the year.

Blockbuster's increased online presence can certainly combat Netflix, and its 10,000 kiosks will provide some challenge to Redbox.  But as it comes late to both of these games, the question remains whether it will be able to outcompete the younger rivals that currently dominate them.  Being king of chain video certainly brings Blockbuster much profit for the time being, but as the industry increasingly shifts towards mail rentals and vending, its ability to compete in these markets will be critical.

Other factors will play a critical impact on the future of the video distribution industry.  Executives at Google-owned YouTube are rumored to be in talks with executives from Lions Gate, Sony, Metro-Goldwyn-Mayer and Warner Bros over a distribution scheme that would stream $3.99 DVD-quality rentals over the video sharing service.  ITunes and Amazon already offering growing rental schemes.  And free video may be the greatest threat of all, with sites like Hulu using advertising revenue to pay for a plethora of streamed TV shows and select movies.

The Blockbuster shaking up is only the latest in this fast evolving market.  Rental video stores are slowly riding into the sunset, but clinging to part of the market.  They still lead the market and won't disappear overnight, but streamed rentals, kiosks, mail rentals, and free advertising-driven content seem poised to eventually eclipse the tried-and-true format.



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False
By BrandtTheMan on 9/21/2009 9:12:18 AM , Rating: 3
quote:
Also enjoying new success is Redbox, a vending machine-style rental service that offers 1-day video rentals for $1 (customers must return the video the next day or pay $25 to own it).


That is completely false. You can keep it for multiple days but you will be charged an extra $1 per day+tax. You don't have to pay $25 for the second day.




RE: False
By Hiawa23 on 9/21/2009 9:28:28 AM , Rating: 5
I have been a member of Netflix since day 1 & have not step foot in a Blockbuster for atleast 5 years. As I passed BB stores I wondered how do they make money with all the comp hey face with online, I guess I now know. Netflix is all I need.


RE: False
By FITCamaro on 9/21/2009 9:41:11 AM , Rating: 2
I only go to Blockbuster to rent games now. When Netflix starts renting video games, it'll be over for Blockbuster.


RE: False
By Hiawa23 on 9/21/2009 10:01:22 AM , Rating: 3
Gamefly has been awesome for me for games, as their keep it & store prices are unmatched, & Netflix is perfect with movies getting to me next day, so Blockbuster is not even on my radar.


RE: False
By corduroygt on 9/21/2009 10:30:45 AM , Rating: 2
I joined gamefly last week only to cancel it today with over 40 games in my Q and a lot were available now, and they failed to send me anything. If you want to play games for cheap, there is unfortunately no other option than flashing your dvd drive.


RE: False
By MrBlastman on 9/21/2009 10:59:36 AM , Rating: 5
Or waiting six months to a year for the price on the game you want to play to come down to a more affordable level.

Get a life. People work HARD to develop those games. A lot of them have families to feed and bills to pay. Many of the games might suck, but they aren't all stinkers and the good ones deserve your coin. The bad ones? Why bother wasting time playing the.

I'm in no hurry nor have been for a long time to buy games right when they come out. Sometimes I do it, but it is rare since I pay a high premium for them. I have a huge pipeline of games that I've bought that I still have not played through so as is I can easily afford to wait months before I buy a new one--and pay quite a bit less.

The key is though... pay. I'm being fair and equitable to the developers. There are many times where I'll pick one up on Steam's weekend deal where they are 50% off or more.

You don't have to pirate a game to get them on the cheap. Oh, correction, what you are doing is for free.

Also, with all the mod content out there (if you are a PC gamer), you can literally play for YEARS for "free" (after buying the parent game) with all the wonderful mod content available. I've been playing through the Freespace series as of late and enjoying every minute of it in Direct X 9+ graphical glory (it is Open GL but you get the idea, it looks amazing), full HOTAS support, Track IR head tracking etc. It is A-List, and I bought it it 10 years ago.


RE: False
By Cypherdude1 on 9/24/2009 2:09:40 AM , Rating: 2
I have been renting movies for many years, starting with VHS. I started renting from BlockBuster Online in 2005. I then tried Netflix in May, 2008, while still enrolled with BB. Both services are the same when it comes to receiving their shipped DVD's the next day. However, there are two big differences between the two:
1) Netflix is always one day faster, shipping the same day they receive the previously rented DVD. Netflix has a quick turnaround time. BB always waited until the next day to ship the next DVD. There is no valid reason why BB waits until the next day to ship their DVD's.

2) Netflix has a bigger inventory of DVD's which are immediately available, especially Premium cable series such as HBO's "John Adams" starring Paul Giamatti.

I quit BlockBuster Online after 1 month of trying Netflix. Out of curiosity, I logged into my dormant BB account and added "John Adams" to the BB Queue. It didn't say "Available" until weeks after I had already rented the entire series from Netflix. I have been with Netflix for over a year. I prefer using Netflix over going to a retail store or Redbox because all I need to do is add more titles to my Queue. When I'm done, all I need to do is drop them in the mail and wait for the next set to arrive. With Redbox, you must go to the store before it closes to return the DVD. Otherwise, you'll be charged for another day.

One interesting thing about Redbox which you may not know is you can reserve a DVD online before you go to the machine. Go to their website for this: www.redbox.com . Online, you can also see which titles are available at each machine and which are out of stock. Each machine has an amazing 178 titles to choose from.


RE: False
By FITCamaro on 9/21/2009 10:47:53 AM , Rating: 2
The issue with gamefly though is its cost. If you don't have time to play the game, you're throwing away the $15 a month. I'd rather have merged service of movies + game rentals. I have the 3 movies at a time plan with Netflix. Would be nice if they offered games and 1 game = 2 movies out. Or even 1 game or 3 movies. That way I choose what I want.


RE: False
By kattanna on 9/21/2009 10:55:28 AM , Rating: 2
agreed. i just canceled the gamefly service because i simply dont play the consoles i have, Wii and 360, enough over my computer to warrant the extra cost. was a neat service though and if i was truly more of a console gamer, its an awesome service.


RE: False
By Jellodyne on 9/21/2009 5:12:18 PM , Rating: 2
Gamefly is dirt cheap compared to buying $60 games. We can agree that if you don't have time play games it's a terrible service to subscribe to.

It would be nice if there were a merged game/video service. There reason there's not is movies cost only $20 new, and there's not a huge classes of them with a 1 year shelf life (Madden, etc)


RE: False
By quiksilvr on 9/21/2009 9:52:16 PM , Rating: 2
If you don't have time to play that month, then just cancel the membership and start it up when you have the time. They don't charge you extra and the first month is 9 bucks. Only the months after are $16. IMO that's a pretty sweet deal for one game at a time as many as you want.


RE: False
By zerocool84 on 9/21/2009 7:40:41 PM , Rating: 2
I didn't like Gamefly at all. It took them 2 weeks to send me another game after I sent one back. I canceled right away but Netflix is always great.


RE: False
By Quijonsith on 9/21/2009 10:20:26 AM , Rating: 1
You're absolutely right. I won't pay the rediculous rates BlockBuster charges for movie rentals when I can use Netflix for one low monthly fee. Too bad Netflix doesn't rent games. I guess I'm stuck paying Blockbuster crazy cash for video game rentals.

If only some company would come out that rents video games the way Netflix rents movies...

I know, I shall start this genious company. I shall patent the idea of mail order video game rental and call the company..."GameFly"

...
...
...

Oh, wait...


RE: False
By callmeroy on 9/21/2009 12:26:35 PM , Rating: 2
I bought my condo that I live in now 8 years ago, there was a block buster down the street the whole time (well until recently) that I lived there. I think in those 8 years I rented maybe six times from them.

Now I used to buy DVDs there more than I rented (Best Buy kills them for buying movies as well -- but my nearest best buy is a 20 minute drive and is in a hectic shopping center, versus the block buster was a 10 minute drive in a much less congested area).

Well I have no option anymore -- must go to Best Buy for my movie purchases, my block buster that I passed by all the time for 8 years -- its done....its actually be re-born as a Dunkin Donut location...kind of funny if you knew my area...there's already about 6 DD's within a 2 mile radius of my house....


RE: False
By nafhan on 9/21/2009 10:09:35 AM , Rating: 2
Me too. I always seemed to be a day late returning Blockbuster movies. I'd end up paying over $20 a month to watch 2 or 3 movies. I could practically go to the theater at that price...
With Netflix I'm paying about $15 and watching about 6 DVD's a month plus the random "watch it now" movie or TV show.


RE: False
By nafhan on 9/21/2009 10:05:21 AM , Rating: 2
True. However, once you hit the 25 day/dollar mark, you get to keep the movie, and stop accruing charges. It's a nice business model that works for the company and makes sense to the consumer.

Personally, I think the Redbox selection is a little aggravating. On the rare occassion both of my Netflix movies are in the mail and I am in the mood to watch a movie, it seems like any movie I'm interested in seeing is checked out at all 8 or 9 Redbox kiosks within reasonable driving distance.


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