<<I am truly amazed at the number of closed Blockbuster locations out here. Just yesterday, another closed one. There is one open now for where there used to be 10. Is this the pattern everywhere>>
Hi Lizzie,
A few comments before addressing your question:
(1) I'm very pleased with BBI's release today that it met Q3 debt covenants and that its SSS are down only 1% YOY compared to 11% for the industry.
(2) While BBI's SSS went down only 1%, Movie Gallery / Hollywood Video's SSS went down 8-10% during Q3.
Points (1) and (2) highlight an important trend, one that I outlined back in March 2005 when I shorted MOVI in the $29s.
Message 21311138
Message 21440243
The trend is that Blockbuster is stealing and will continue to steal market share from both Movie Gallery and Hollywood Video. As online continues to grow, Blockbuster Online will steal customers from both Movie Gallery and Hollywood Video.
As an aside, it's important to note that because of the start-up costs involved ($400MM+), the online market will likely continue to be a duopoly between Blockbuster and Netflix. Both companies should be able to exploit their market position, and prices should creep up over time.
In addition to stealing competitor's customers via its online site, Blockbuster will also be able to steal share from Hollywood via its stores. In many markets, Blockbuster stores are located literally steps from Hollywood stores. And over the past year, Blockbuster has increased its value proposition substantially.
At this point, I don't know why anyone would go to Hollywood Video, when Blockbuster (1) is located next door, (2) Offers No Late Fees, (3) Offers in-store subscription models, and (4) offers online subscriptions.
Contrasting BBI's SSS decline of 1% with Movie Gallery / Hollywood's SSS decline of 8-10% makes the trend clear.
So while the industry is in overall decline and you'll see store closings, the irony is that Blockbuster will likely benefit tremendously from this trend. This is because Movie Gallery / Hollywood Video will be the first to go, leaving Blockbuster with a brick-and-mortar monopoly.
As an example, assume that 100 people in a neighborhood rent movies in-store. 50 go to Hollywood Video and 50 go to Blockbuster. Because of industry decline, 100 in-store renters dwindle to 80. But if Hollywood goes out of business, Blockbuster goes from having 50 customers to all 80. |
