Redfish, although I agree with your 4 points, I believe that over the longer-term Blockbuster will win its battle with Netflix (Full disclosure: I'm a Blockbuster shareholder).
Lots of people have assumed that Blockbuster would be very slow-moving and wouldn't be able to compete with a fast-moving tech company like Netflix.
However, over the past 6 months Blockbuster has thoroughly impressed me: (1) Launched a competitive online rental service many months prior to its 4th Q guidance; (2) Launched an in-store MoviePass, which allows unlimited in-store rentals. (3) Launched an in-store GamePass, which allows unlimited in-store game rentals; (4) Split from Viacom, giving Blockbuster more operating flexibility;
Not a bad 6 months, in my opinion.
Based on Blockbuster's newfound aggressiveness, I'm willing to give it the benefit of the doubt that it will work the kinks out of its online offering (faster delivery, more recommendations based on rental history, etc.).
I'm also willing to give Blockbuster the benefit of the doubt that it will continue its aggressiveness. Within 6 months, Blockbuster is expected to integrate in-store with online.
Here's my scenario of how integration will work: (1) The price will be approx. $25/month for a 2-at-a-time plan; (2) You want to rent a new release? Go to the store, pick it up, and watch it the same night. No waiting for the post office to deliver it to you; (3) Want a more obscure movie? Go to the website and wait a day or two for it to arrive in the mail; (4) Want to return your movie? Return it to the store and either immediately get 2 new movies or immediately have the next 2 obscure movies shipped out to you; No more waiting a day or 2 for Netflix to acknowledge receipt before shipping out your next movies.
How will Netflix compete with this scenario?
How does Blockbuster make money in a no-late-fee world? First, the per-movie rental fee has decreased substantially, from $3.5 per movie to ($24.99 / # of movies rented). I think that the lower rental price will cause the rental pie to get bigger, both in terms of the # of people who rent and in terms of total movies rented. Second, these unlimited plans should increase in-store traffic, allowing Blockbuster to generate revenue from other sources such as candy sales, DVD sales, etc. Third, with subscriptions, revenue will be much more predictable, and Blockbuster will collect money even if people don't rent that much in a given month (even though there's an incentive to rent as much as you can).
Overall, in Blockbuster I see a company with (1) A Great brand name; (2) Great Cash Flow; (3) Good balance sheet with basically no debt; (4) Newfound aggressiveness; (5) An expected product offering that Netflix will have a hard time competing with; (6) A stock price that offers a great upside vs. downside tradeoff, with investors expecting very little and assuming (wrongly) that Blockbuster will not be able to compete effectively. |
