You're Too Late, Best Buy

Best Buy (NYSE: BBY  ) will finally toss its hat into the digital video ring when it launches its new streaming service next week.

The retailer was fashionably late last year, when it announced that it would acquire the CinemaNow service, partnering with former owner Sonic Solutions (Nasdaq: SNIC  ) , whose technology would power its platform.

What seemed like a dumb idea then looks even dumber now.

Best Buy is hoping to rent digital flicks for $4, and sell permanent downloads for roughly $15 apiece. Those prices aren't all that different from what Blockbuster (NYSE: BBI  ) and Amazon.com (Nasdaq: AMZN  ) have been trying to do for several quarters -- and those companies haven't exactly set the digital realm on fire.

Bulls will argue that Best Buy has certain chain-specific advantages. It can promote the service within its stores, and bundle home theater systems with pre-paid rentals.

So how is Best Buy's scorecard on that front? The company teamed up with TiVo (Nasdaq: TIVO  ) for a strategic alliance last summer, yet the DVR pioneer continues to shed subscribers. Best Buy acquired Napster two years ago, yet Best Buy is still an afterthought in digital music.

Sure, Best Buy sells a ton of DVD and Blu-ray discs. Now, it can tack on digital copies through CinemaNow, and all will be perfect … right?

What's that? Wal-Mart (NYSE: WMT  ) teamed up with Time Warner (NYSE: TWX  ) four years ago to do this with the DVD release of Superman Returns, and it was retail kryptonite? Uh oh.

Piecemeal rentals won't work in a climate where studios ensure that rental prices stay more or less the same across multiple platforms. Quite frankly, it's probably just a matter of time before studios laugh off these middlemen distributors and begin offering their films directly to consumers.

Either way, Best Buy's pay-by-the-movie approach won't work. The only company doing digital rentals right has 14 million subscribers, offering couch potatoes unlimited streaming of its growing digitally licensed catalog at no additional cost to its DVD rental service. Best Buy is late in crashing a party that never really had a chance to get started.

Longtime Fool contributor Rick Munarriz can lose hours browsing the gadgets at a consumer-electronics store. He owns shares in Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On May 19, 2010, at 3:19 AM, Zappoman wrote:

    Comparing Netflix's online service to Best Buy's CinemaNow online service is like comparing harcover books to paperback books and saying no one will ever buy hardcovers because paperbacks are cheaper. Netflix streams old movies for cheap. CinemaNow streams and downloads new releases for more. Will people pay more for instant access to new movies? We'll have to see how it plays out, but at least get your facts straight and your apples and oranges clear before foolishly comparing services that cater to very different usage models.

  • Report this Comment On May 19, 2010, at 12:35 PM, TMFSpiffyPop wrote:

    The comparison seems very fair to me. If it's like "apples and oranges," I guess I would just say "they're both fruit."

    Looked at from the consumer's perspective, I think most people say, "I want to watch a movie tonight," not "I want to watch a movie released in the past 28 days" or "I want to watch a movie from more than a month ago." The consumer has a choice in terms of both convenience and affordability. Not only that, but as consumers we like to make as few choices as possible, so you have to look beyond the one-off decisionmaking and ask yourself which is the best, most sustainable -- almost brainlessly sustainable -- option. That's why Netflix has already outscaled its competition -- all competition in this space, Best Buy included. They viewed it from the consumer's viewpoint, not from the industry's or retailer's viewpoint. In closing, apples and oranges are both fruits. :)

  • Report this Comment On May 19, 2010, at 5:37 PM, Zappoman wrote:

    Sticking with the fruit analogy, it all depends on what you want. If you only want an orange then you don't care about apples and bananas. If you say "I want to watch a movie tonight" and you aren't picky about which movie, then Netflix has the upper hand if you're already a subscriber (in other words, you watch enough movies that it's worth paying Netflix $9 to $57 a month). But if you say "I missed that new George Clooney movie in the theaters, but I can watch it at home tonight" then Best Buy/CinemaNow has the upper hand because you won't find it on Netflix streaming. Or if you say "I love Galaxy Quest -- I want a permanent copy I can download and stream to watch over and over on my digital devices" then systems like Best Buy/CinemaNow and DECE hold the most promise. (You can rip a DVD copy, but then you've entered an arena of disputed legality.)

    If life's a fruit salad there's opportunity for more than one fruit to be in the party.

  • Report this Comment On May 20, 2010, at 7:08 PM, TMFBreakerRick wrote:

    Zappoman, the comparison wasn't to Netflix -- even though that IS the model that's working at the moment. Blockbuster, Amazon, Apple, and even Wal-Mart are doing what Best Buy wants to be doing.

    How's that working out for them? It's following the wrong herd. It's just a fruity strategy.

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