When Disney's (NYSE: DIS ) High School Musical 3: Senior Year hits stores on DVD next year, Blockbuster (NYSE: BBI ) will be ready. The entertainment retailer will naturally be selling and renting the teen flick. However, it will also be stocking the soundtrack and the video game, as a one-stop Zac attack shop.
With my sincere apologies to Howard Stern, Blockbuster truly wants to be the king of all media.
Rolling with the changes
Blockbuster was a DVD rental chain when everyone wanted to make it a Blockbuster night. Now that the soccer mom is striking yoga poses on Wii Fit and teens want Jay-Z concert tickets, Blockbuster is still a hub for borrowed celluloid, but it is morphing into so much more.
I spoke with CEO Jim Keyes earlier this week, and he shed some light on the company's plan to thrive, long after the desire to rent Kangaroo Jack on DVD fades away.
"A retail environment will survive indefinitely," he said, reflecting on both Blockbuster today and 7-Eleven -- which turned around under his watch earlier this decade -- in the past. "As we demonstrated at 7-Eleven, if you replace declining categories like tobacco with things that people want to buy today," you will remain relevant.
DVDs aren't exactly tobacco. There are no surgeon general health warnings on optical discs, even though one can argue that they should be on most of the recent Eddie Murphy flicks. Keyes' point is simply that Blockbuster will evolve to showcase hot media trends.
Let's play a game
One big push at Blockbuster has been to embrace the video game market. It's paying off. Video game merchandise sales soared 30.7% at the individual store level during the company's latest quarter. That compares quite nicely with the mere 1.8% uptick in comps at niche leader GameStop (NYSE: GME ) .
At a time when GameStop is trying to build bigger stores to make more room for the bulky band simulators that are the flavor of the moment, Blockbuster has the room to spare. It's easy to see why Viacom (NYSE: VIA ) sent out 500 Rock Band demo units so Blockbuster can feature the game in many of its stores.
Another reason for the logical push into video games is that Keyes believes that gaming console hard goods will outlast physical DVDs.
"If you think downloading movies is challenging, downloading Guitar Hero is going to be even more challenging," Keyes says. "We're moving into the video game business in a much bigger way because it's got a longer timeframe before digital download is truly mainstream and seamless."
I disagree at this point. I see the huge ecosystem that Microsoft (Nasdaq: MSFT ) has built through its Xbox Live marketplace. I refer to this year's hottest selling game -- Take-Two Interactive's (Nasdaq: TTWO ) Grand Theft Auto IV -- and how a pair of episodic installments will only be made available as exclusive downloads through Xbox Live.
Keyes doesn't flinch. Take-Two CEO Strauss Zelnick actually sits on Blockbuster's board of directors. Zelnick is working with Blockbuster "proactively to find a way to leverage both the digital download capabilities and the physical stores."
It also doesn't hurt that gaming has become a staple for more than just pimply teens. As creative music and lifestyle titles light a fire under non-traditional gamers, they are the type more likely to be at a Blockbuster this weekend than trading in used gear at GameStop.
"We've got 60 million customers that have been with us, day-in, day-out, for years," Keyes points out.
Blockbuster circa 2012
In the next three to five years, Keyes expects just half of the store space to be dedicated to rentals. He's already making sure that it's more than just soccer moms coming in to rent Legends of the Fall. The recent deal with Live Nation (NYSE: LYV ) makes select Blockbuster locations the exclusive physical ticketing agent for the concert promoter's in-house ticketing department.
It's just one more way to get media-hungry patrons through the door. Whatever the media entertainment equivalent of the Big Gulp or Slurpee will be, Keyes will be sure his company's got it.
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