Willy Wonka and the Blockbuster Factory

Blockbuster (NYSE: BBI  ) CEO Jim Keyes is no Willy Wonka, but when the company took the wraps off its new kiosk at yesterday's annual meeting, shareholders were as starry eyed as Golden Ticket-clutching kids entering a realm of chocolate rivers.

Well, maybe they would have been, if this were still the 1990s.

The new development involves NCR (NYSE: NCR  ) machines that Blockbuster will begin testing at some of its stores. The machines will allow shoppers to dock their portable media players and download digital flicks in just two minutes.

A decade ago, this may have seemed like a bold futuristic push from a company on the cutting edge. Unfortunately, this is 2008, and Blockbuster's vision of the future seems as hokey as Disneyland's Tomorrowland or an episode of The Jetsons.

10 reasons this will fail
There are several things wrong with this approach. In fact, I can think of at least 10 before I start getting dizzy.

  • The system will eventually work with most portable devices, but it's initially limited to Archos devices. Archos makes some cool gadgets, but do you know anyone who owns one?
  • The Archos media players have Wi-Fi. Why am I trekking back and forth to Blockbuster when digital delivery can come to me? Apple's (Nasdaq: AAPL  ) iTouch, SanDisk's (Nasdaq: SNDK  ) Sansa Connect, and Microsoft's (Nasdaq: MSFT  ) Zune also have Wi-Fi capability, while video-streaming smartphones by Apple and Research In Motion (Nasdaq: RIMM  ) can just phone it in when they're not within Wi-Fi's reach. 
  • Speedy download times typically come at the expense of video compression quality. I thought the physical migration from DVD to Blu-ray happened because people cared about quality. How will these downloads look if I want to watch them in my home theater? Or am I limited to squinting at the small screen on my media player?
  • I thought the purpose of winning foot traffic at the store level was to grow incremental impulse-item sales. Folks walking in to use an automated kiosk are unlikely to bother with conventional checkout lines.
  • Blockbuster still needs to get all of the movie studios on board. Until then, it will only disappoint early adopters with a lack of selection.
  • Won't this alienate disc-based renters? If I walk in and see a high-tech kiosk I can't relate to, I'll get the feeling that the old-school model is being phased out.
  • The downloads may be quick, but folks will still take their time in choosing a digital rental. In other words, Blockbuster will need to have several of these kiosks in each store if they don't want to risk turning off users with long waits. The kiosks can't be cheap, either. I pity the fool who bankrolls them.
  • How many CD shops are excelling at selling in-store downloads?
  • Borders Group (NYSE: BGP  ) has shrunk in prominence since it teamed up with the Sony Reader to cash in on the e-book craze. Why will bridging the divide in video by a bricks-and-mortar chain pay off any better than it has in books?
  • Perhaps more importantly, why is Blockbuster strapping training wheels onto its customers by tempting them with digital delivery? Doesn't it realize that its customers will see the light and just pedal away?

One reason this may work
The only reason this kiosk has a shot is that Keyes is calling the shots. He turned 7-Eleven around. He knows how to run a shop. The company's latest quarterly report bears that out, with Blockbuster's merchandising comps soaring 19.7% higher. When it comes to beefing up the company's video gaming initiatives or transforming it into a more mainstream entertainment retailer, there's no one else that I would want at the helm.

But even so, the guy is biting off more than he can chew with these machines. They will take up space and confuse customers. They just won't be a win for Blockbuster. We live in a world of Veruca Salts, while Blockbuster is kicking the Charlie Bucket. Why can't Keyes see where this is heading?

Related Foolishness:

Microsoft and Borders Group are Motley Fool Inside Value selections. Amazon.com and Apple are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletter services free for 30 days. No bulky kiosks required.

Longtime Fool contributor Rick Munarriz enjoys films, but he hasn't stopped at his local Blockbuster in months. He does not own shares in any of the stocks in this story and is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (8)

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  • Report this Comment On May 29, 2008, at 12:39 PM, jsgeorge3 wrote:

    I too had many similar thoughts after hearing about this approach. BB still wants to drive traffic to the stores, but this is not a compelling reason to go to a store. A partnership with APPL would be good here. I can already download movies on my PC via NetFlix. BBI needs to go down that path using existing mainstream technology rather than re-writing the process (purchase new media player, drive to store, download movie, drive home).

  • Report this Comment On May 29, 2008, at 3:08 PM, djjoeyd1167 wrote:

    And his opinion means what hahaha...I am sure he is a shorty! BBI is doing everything right(for once) There is talk that these kiosks will go into other places , like your walmarts...maybe malls..that happens..watch out! They are trying to get the sol rights to mgn, lionsgate for movies(Jim Keys will make that happen)....it will crush netflix! Oh...I looked into netflix for downloading movies...big freakin deal! Most of the movies and shows are junk! Let me say this..I myself , and many people I know still like going to bbi and getting movies..No waiting for the mail to come..easy to drop off...but I do like there online service to..some of my friends decided to with bbi over netflix...thought the service was just as good...if not better! It is funny that Netflix has been doing the online service longer than bbi..but bbi now has almost half as many customers as they do..and there base keeps growing!! Jim Keys is the man(just read about how he turned dying 7elevens around)..And I am dumbfounded at the people who keep betting against him and bbi!!! Boys and girls...bbi is not going away...they have already started to hurt netflix...they were downgraded to day because of bbi hahaha..Next year at this time...bbi will be a $6 to $10 stock!! Could be a lot more...unless we hit $5 gas...then everything goes bad...real bad!

  • Report this Comment On June 02, 2008, at 11:50 AM, tmconsulting wrote:

    I don't know that I would be so quick to condemn BB's efforts. While many digital natives may consider this a waste of effort, there are many more digital immigrants that may like the choice.

    I agree with the previous comment in alluding to the fact these kiosks will begin appearing in multiple high traffic areas. In the world of retail where multi-channel sales is one of the chief and necessary goals, this ability will help solidify and extend the brand in ways that can't be accomplished via the Internet.

    I don't know that this will crush Netflix as I believe there is room in the market for more than one supplier. However, if I were on the board at Netflix I would be asking why we didn't think of this first.

    .

  • Report this Comment On July 15, 2009, at 2:45 PM, DarkReaper wrote:

    Redbox has got this locked down, BBI failed , I thought they were going to launch a counter BlueBox or something similar at their stores instead, a digital walk-in downloads...good luck with that. Reason why their stock is at .64 cents.

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