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What would save Blockbuster?

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By AceInMySleeve
December 10, 2007

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This is just conjecture. Of course, anything that BBI does impacts Netflix and vice-versa so this is relevant here. Also, I am curious what opinion you might have of the following plan: is it competitive to other solutions on the market for customers? Would it be sufficiently profitable?

I believe that, or maybe its just wishful thinking, Keyes is aiming to develop a different type of Total Access strategy. One that is still a subscription format, but that can be pushed from within and without the stores without blowing the whole company up (as Antioco's vision of it was). I also think he likes per-day pricing.

Here is a potential product along those lines:

15$\month subscription gets you:
1 out unlimited by mail
1 out unlimited from store back catalogue and new releases over 4 weeks old
1$\day new release rentals

Beliefs
1) A large percentage of the population is not happy with a purely by-mail solution. It lacks immediacy and the new release satisfaction is low. New release satisfaction is low because Netflix chooses to downplay those titles for cost reasons (customers are only paying 25 cents a day for service), tend to have long waits on these titles (cost again), and because new releases are often an impulse buy.
2) A large percentage of the population will not be happy with a pure kiosk solution. This is because kiosks have only 50-75 unique titles, potentially have availability problems on the top titles, and have a number of quirky usability issues. Really, if prices were the same, I think customers would prefer the store experience. When they have a kiosk in the grocery store or Wal-Mart or McDonalds they will also use that at cost to the store, but I think this aspect has the potential to grow the overall market significantly rather than just steal market share.
3) 15$ is about the sweet spot I believe for mainstream outlay for rental product. It is just a touch higher than Netflix's current ARPU which is in the 14$ range. It is approximately equal to the average in-store customer outlay (BB says in-store customers generate 10$\month in gross, and they have 66% margins).
4) Back catalogue is highly elastic to price, but cost is not highly variable to usage. That is, a 1-out unlimited in-store program for back catalogue essentially costs the same regardless of how many movies a customer rents. It is the cost of depreciation of an old title over a month (probably 1$-2$ at the very most). Blockbuster doesn't have to pay postage on each turn.
5) New releases are monetized and less prone to abuse, unlike the current Total Access, but are priced competitive with the kiosks on an incremental basis. I suspect there is something magic about 1$\day from the customer's perspective.

Is it inconceivable that Blockbuster can offer new releases at the price of 1$\day under such a program?

Consider the following:
1) Movie Pass was priced at 28$ for 2\out. That's less than .50$\day and the structure of that program is such that product is always out. I'm not actually sure what the status of this program is, its not heavily promoted (that's not the point though).
2) EOLF allows for up to 30 day rentals for less than 6$. How long is a new release kept out on average already? I know I keep mine for 5-7 days. Blockbuster might be getting barely over 1$\day as it is... They claim right now that they are receiving 2.79$ per rental and averaging 5 days out (which is 58 cents a day) but this includes Total Access and it would be more relevant to see the in-store customer statistics.

So, do you think this would be popular? Would it be profitable? Neither or both?