Couple of thoughts:
(1) The importance of Walmart is not its 75K subs; it's the elimination of a low-priced competitor. To that end, both NFLX and BBI benefit from reduced competition.
(2) It's clear that the online rental market will be a duopoly going forward, unless a new entrant is willing to spend $400MM+ to launch. Walmart is now out of the picture, and Amazon will likely enter via partnership as well.
(3) The Netflix / Walmart partnership makes it more likely that Amazon will partner with Blockbuster. Netflix seems committed to pointing DVD sales over to Walmart. This leaves less room for Netflix to partner with Amazon.
(4) Blockbuster and Netflix should take advantage of their duopoly position and raise prices. The ideal scenario for Blockbuster: Blockbuster raises its 3-out price to $18.99; Netflix follows suit by raising its 3-out price back up to $21.99; Blockbuster follows suit by raising its 3-out price to $19.99/$20.99.
Not only would a $20 price point generate an additional $60MM of cash flow per year for Blockbuster assuming a static subscriber base of 1 Million, but it would also shift the online vs. in-store ratio in favor of renting in-store, where Blockbuster makes the most money.
(5) At this point, there's no need for Blockbuster to substantially discount its online service, as Blockbuster's value proposition is easily on par with or beats Netflix's. BB Online is the best place to rent New Releases. In addition, BB Online provides great in-store coupons (2 free rentals, Buy 1 DVD get the other free, etc.). And BB Online offers anti-throttling, allowing users to report DVD issues within 3 days as opposed to NFLX's 6 or 7 days.
Given that Blockbuster seems to benefit as much as Netflix from recent events, I'm surprised that BBI hasn't moved up as well.
Disclosure: Still long on BBI, but added a rare short position on MOVI. MOVI/HLYW currently trades at a $2 Billion market cap, a 10% premium to BBI's $1.85 Billion cap. This despite that MOVI/HLYW generates only 40% of BBI's revenues ($2.5 Billion vs. $6 Billion) and has no growth initiatives, online or other. BBI should trade at a 25%+ premium to MOVI/HLYW, not a 10% discount. |
