What are you doing, Blockbuster (NYSE:BBI)?

The DVD rental giant is taking a bold -- yet ultimately stupid -- jump into the set-top box market with this morning's debut of the MediaPoint digital media player.

The compact, Wi-Fi-enabled device allows couch potatoes to purchase digitally-delivered rentals. Movies are downloaded -- not streamed -- but typically begin within 30 seconds after order confirmation.

The price is right
Blockbuster knows that it's behind in this game, so it is pricing its box aggressively. It is giving the player away at no additional cost to those who prepay $99 for 25 rentals (or $3.96 a pop). Sure, Blockbuster could just as easily have sold the box for $99 and included 25 free rentals, but it's going with the better marketing message to set itself apart from the set-top rental boxes that companies like Apple (NASDAQ:AAPL) and Netflix (NASDAQ:NFLX) are selling.

Subsequent rentals will set movie buffs back between $1.99 and $3.99 a flick. These are competitive price points relative to video-on-demand offerings from most cable providers, even if there are some quirks along the way.

Unlike a VOD rental through your cable provider's set-top box, Blockbuster's box uses progressive playback in downloading your movie. This means that you can only pause or play your movie if you watch it immediately. If you want to be able to rewind or fast-forward the rental as you can through VOD, you will have to wait for the entire download to be completed.

MediaPoint can store up to five flicks in standard definition and two in high-def, though most of the currently available 2,500 titles on the service are not in HD. The weak capacity isn't that big of a deal since these are temporary rentals anyway. Purchases must be watched within 24 hours of when playback begins, though the box can store an unwatched rental for up to 30 days.

A view to a kill
By now, you have probably figured out many of the reasons why Blockbuster's set-top box will flop. I'll walk you through them just the same.

Its biggest flaw is that it's a tweener. Anything that it leans on to market itself, someone is already doing better.

  • 2,500 titles! Well, Netflix is up to 12,000 titles, offered at no additional cost to existing subscribers.
  • Progressive playback is more reliable than live streaming! Yes, but it blows compared to what VOD currently offers.
  • Streamed Netflix titles are rarely the new releases the masses covet! I hear you, but then we're back to VOD.

One can argue that not everyone has digital cable or satellite television to access VOD, but how many of those "have not" homes have the broadband connectivity required for Blockbuster's solution?

There is also the marketing coming back to bite Blockbuster. Folks are paying $3.96 apiece for their first 25 rentals, but what happens if some of those are the older $1.99 catalog titles? I saw nothing about crediting accounts in the 49-page manual. The last thing that Blockbuster needs is another deceptive marketing scandal.

Jurassic Park
Just about the only thing working in Blockbuster's player is the timing. Coming out just before the holiday shopping season is huge. And since it's a completely a la carte pricing plan, it's not as if you're giving someone a cell phone or a TiVo (NASDAQ:TIVO) that is tethered to a monthly plan. You don't have to be a Blockbuster subscriber, member, or even fan to enjoy the box with its 25 pre-paid rentals. In short, it'll move a few units at first, but how likely is Blockbuster to score the subsequent rentals needed to justify the subsidized MediaPoint hardware?

Netflix isn't about Roku's box anymore. Subscribers can stream it through several existing home theater appliances like Microsoft (NASDAQ:MSFT) Xbox 360s, TiVo DVRs (later this year), and LG and Samsung Blu-ray players.

Blockbuster is also competing against style king Apple and dot-com juggernaut Amazon.com (NASDAQ:AMZN) in piecemeal digital rentals, who themselves haven't set the world on fire with their efforts.

In short, Blockbuster is late to the game with something redundant, unnecessary, and ultimately inferior. For what? Does anyone know where Blockbuster sees itself in three years? I sure don't. I'm not sure Blockbuster does either.

Instead of encouraging foot traffic in its stores, it is shooing people away to their couches. At a time when video game merchandise sales are boosting in-store productivity, it is just aping Netflix and Comcast (NASDAQ:CMCSA) in celluloid. Why isn't it setting itself apart, by taking Gamefly on and offering up video game rentals by mail to threaten Netflix? Why not truly transform its selling space to control the one time that it does have a captive audience?

Watching Blockbuster right now is like watching a freshly ordered MediaPoint rental. It can't go back in time to its glory days. It can't fast-forward for a glimpse of what the future brings. All it has is a stubborn pause button at its disposal.


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Longtime Fool contributor Rick Munarriz was an early Blockbuster subscriber, but hasn't been in a store in ages. He owns shares in TiVo and Netflix. Rick 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.