The last 300 company-owned Blockbuster stores are closing and I, for one, am laughing really hard. And no, it’s not because I forgot to return a 15 year-old video and now my $400 thousand late fee won’t be collected. It’s because in the annals of corporate history, the schmucks who ran Blockbuster were greedy morons who will go down in history as a case study in total strategic cluelessness.
I am not laughing really hard that 2,800 people will be out of work- that’s sad. Though I must say, I find it hard to believe those poor folks thought there was still much of a future in brick and mortar video rental businesses in 2013, A.D. I urge them all right now to avoid sending their resumes to the last Barnes and Noble left in town.
But back to the corporate idiots. First and foremost among them is Viacom which bought Blockbuster for $8.4 billion back in 1994. Dish Network would shell out $320 million a couple of years ago to buy the bankruptcy-riddled company. Let’s put those numbers in relief. $8.4 billion versus $.3 billion. That puts the idiots at Viacom right up there with Rupert Murdoch’s trendy acquisition of My Space for $580 million which he would end up selling six years later for $30 million.
So what were the major mistakes? Oh, not much- other than failing to anticipate the major consumer and technological trends of the 21st century. Like digital streaming. Like the concept of on-demand viewing. In 2000, Reed Hastings, the founder of Netflix, offered to merge with Blockbuster and the video rental store executives basically laughed him out of their offices. In 2002, Blockbuster executives were still unsure of the veracity of this thing called the Internet. A “niche” market, they called it.
Viacom’s idea of remaining competitive against new-fangled competitors like Netflix was to create- and this is really original- a video rental business that would ship directly to consumers! Oops, day late and a dollar short. By the way, showing they now understand the new trends of the past 20 years, Dish network just announced they are also killing off the Blockbuster video-by-mail service, which most people also did not know still existed.
But mostly, Blockbuster sucked because they put really cool, independent, often family-owned video rental stores, out of business. They replaced neat, eclectic movie titles at the indie’s with mass-marketed crap. They also sucked because whatever family fun was to be had hitting the neighborhood Blockbuster on a Friday night, was a huge and expensive pain-in-the-ass by Tuesday morning, when you realized you’d forgotten to return the videos on Monday and now ended up owing pretty much the price of the original rentals in late fees. And then you had to, like, drive an actual car through snow storms and monsoons to return said late videos.
At least the nice Blockbuster employees knew their cinema! Oh, that’s right. Most had no clue about the motion picture industry. Well, as you were checking out paying last week’s late fees and about to incur the following week’s penalties, you could also pick up overpriced bags of popcorn, Twizzlers and Raisinets. That was something.
But we really do have a debt of gratitude to pay to Blockbuster. Turns out, Netflix founder, Hastings, forgot to return his copy of Apollo 13 to Blockbuster way back when and owed some $40. It was his fault but he felt so stupid about it that he purposely avoided telling his wife about the late charge. He started thinking about that and found it insane he was willing to compromise the integrity of his marriage over a video store late fee. That same day he went to the gym and realized he was paying about $30 a month for unlimited use of the workout facilities.
Hey, now there’s an idea, he thought- what if somebody rented videos by mail with unlimited due dates and no late fees?
Netflix now has over $3.5 billion in annual revenues. And though they initially botched their transition from a mostly mail-delivered service to a streaming model, they were obviously savvy and smart to see the digital writing on the wall in the first place, and now with the creation of their own content like the Emmy-nominated “House of Cards,” they show they are creative too.
And that’s the difference between those who at least try to envision the future- and those who don’t.
Netflix, once a phenomenally successful company has seen its stock price tumble 35% this week on news that it managed to lose 800,000 subscribers over the past six months and that four different analysts downgraded them because no one can make sense of their business plan. Apple just lost its CEO and resident genius but is riding an I-Phone computer voice and plans for a new TV that just might revolutionize how you watch the medium- all the way to the bank.
Earlier this year, Netflix hiked prices 60% when they decided that’s what you’d have to pay to get both DVD’s sent to your home and get streaming. And they did it rather arrogantly without much of an explanation or even, an “I’m sorry, it’s the cost of bringing you all this great quality.”
Then when they finally did apologize, they announced they were splitting into two companies, Qwikster, which would be the old DVD-sent-to-your-home business and Netflix, which would now be the streaming part. The two companies would keep separate data bases and be basically disconnected from one another- which confused their customers and made them mad all over again, because you’d no longer be able to go to one place to figure out if they had the programming you wanted to watch.
Then they changed their minds and dropped the Qwixter idea and said, nah, we’re going back to what we originally intended.
Meantime, they seem intent on cutting really expensive content deals with companies like Dreamworks in order to be able to provide decent streaming services- except with their current business model charging what amounts to about $10 a month, there’s no way they bring in enough revenues to pay for these content deals. Seems to me you either collect good (and expensive) content, suck it up, and tell your customers it’s going to cost more but its worth it- or you keep being a real cheap monthly service wih average to below-average offerings of old movies and TV shows. But you can’t have both.
It’s all stated best by a guy named Tony Wible with Janney Capital Markets who gave this analysis to his customers, as quoted by Marketwatch.com:
We believe the [Netflix business] model is unsustainable, as the company faces rising costs that it hoped it could pass on to its [subscribers],” who appear unwilling to accept them, Wible wrote to clients. “The company has paid exorbitant prices for content while painting itself as a cheap rental service. Simply put, the company’s brand does not fit with its large/growing content obligations.
Meantime, Apple sold about 4 million of it’s new I-Phones a week after launch, mostly because of one added feature- Siri. This is the friendly computer voice you can interact with that looks stuff up for you and offers suggestions, tips, reminders, etc., etc. You can even talk dirty to Siri, though her sense of humor is such that all you’ll get back is words like “dirt and compost.” For the record, I have not tried this but so I’ve read.
And I see today that the “next big thing” Apple is up to is the launch of Apple TV. This would be a smart television that with a few easy, typically Apple-like steps, would allow you to see what’s available to watch without having to wade through category after category of Cable TV, Netflix and Hulu menus. And, of course it would incorporate a Siri-like application so you could ask your TV what’s on or have it find you the program you want to watch.
With their on-again, off-again, customer-belligerent and confusing business strategies, one of these two companies is coming off like New Coke on steroids. The other seems to be confidently pursuing its climb toward global domination. I’m going with the ghost of Steve Jobs over the seemingly aimless and perplexing strategies of Netflix CEO, Reed Hastings.
I’m getting dizzy reading all the contrasting views from business analysts trying to make heads or tails of what Netflix is up to. My conclusion: unless they figure out the content piece of their streaming services, they’re cooked.
First, they angered their customers by unapologetically raising their rates 60%. Their stock price tumbled and they managed to lose a million subscribers. Then this week, Netflix CEO and co-founder, Reed Hastings, sent a belated e-mail apologizing for all the arrogance and announcing the company would be split in two. Setting the PR debacle aside, the strategy is quite the riverboat gamble.
Netflix will now be streaming the TV Shows and horrible movies you’d never see in theatres that you can access on everything from your lap top to your Xbox 360. Qwixter is the new name for the DVD-delivery service that was the initial business model that put the company on the map and helped bury Blockbuster and similar companies that charged the outrageous late fees for movie rentals that Netflix didn’t.
The services will be completely separate, from billing to menus to websites. You’ll no longer be able to go to one place to figure out whether the video you want to see is streamed or available by mail delivery. Terribly inconvenient and done so on purpose. They apparently see their future in streaming not the resource-intensive mailing and processing of DVD deliveries. They seem to think Netflix, the streaming model, will survive and thrive and the DVD business will sink of its own weight and eventually go away.
I think they’re right about the DVD’s. Not so sure they’re right about the streaming. If you think for one second you can give up cable TV, FIOS or dish services and still watch streaming movies you’ve actually heard of for 7 bucks a month, you’d be sadly mistaken. Netflix and Starz failed to renew the deal that provides about 20% of the streaming content and the few movies they have that are worth watching. That content will be gone as of early next year.
And Hollywood cheered. The folks who make our motion pictures would prefer to make money from a public that will pay anywhere from 5 to 8 dollars through their cable systems for a single movie. They are not so keen on having their product made available to an outfit that allows unlimited monthly viewing for the price you’d pay for one on-demand cable TV movie.
So who is going to work with Netflix to provide any decent content? Where in the world are they going to get it? Streaming would work if you had the same variety you have with the DVD deliveries. But it doesn’t have that variety and it never will.
Netflix was about the DVD’s delivered to your home that you could keep as long as you wanted. It was genius. But it’s hard to see any scenario in which the streaming portion of Netflix will ever be more than garbage in and garbage out. And that’s too bad because I’m rooting for these guys and their ability to make movie-viewing an affordable proposition. Unfortunately, I’m afraid the old axiom is applicable here. You get what you pay for.
Is Pay-TV going the way of the dinosaurs? High unemployment, rising costs, poor service and increasing on-line viewer choices have officially begun to put a dent into the Pay-Television business. For the 1st time ever, the numbers of subscribers to cable TV, satellite and telecom services are down.
It’s not all economic, but this lingering recession may have been the match that started the forest fire. It’s not hard to figure out. When you get home after HR has just handed you your walking papers and you sit down to do your new jobless budget- what’s one of the first things to go? Cable. Satellite. Fios.
But everybody manages a way to keep their internet access. Hello Hulu. Hello Netflix. Play Stations, Wii’s and X-Box’s put the shows and movies you want to watch on the big TV; the lap-top does the same and also serves as the portable alternative.
I say it’s only partly economic because it isn’t just the ever-increasing monthly bills for Pay-TV services that rub people the wrong way. Folks with dishes are fed up with losing their service every time it rains or the wind blows. And the only time anyone actually wants to watch a commercial is when the Super Bowl’s on. The old lament of 500 channels and nothing to watch is truer than ever; it is amazing the amount of drivel on cable/satellite/fios these days.
I would expect battles, particularly between cable companies and content-providers to escalate into full-blown wars. Pay TV is not in a position to keep pricing customers into oblivion. They are going to have to reduce the costs of their services to consumers if they’re to remain viable. More and more they will have no choice but to stand up to TV and Cable networks and their increasingly exorbitant demands for increases in their percentage of cable subscriber fees. As their game of chicken continues, inevitably, one or two or three networks just won’t be available on some cable systems anymore.
Somebody is going to have to figure out how to innovate their way out of this spiral, but I think it has definitely begun and you can mark the 2nd quarter of the year, 2010 as the moment Pay TV began its descent. The full implications of it all are mind boggling.
But if someday CNN, Fox and MSNBC disappear- somebody’s going to have to tell me about it because it will have been years since I watched that crap.