You don't need to rent a copy of Terminator at your local Blockbuster (NYSE:BBI) to know that the automatons are taking over.
In fact, you may not even have the luxury of a face-to-face rental if Blockbuster closes your neighborhood store, replacing it with one of thousands of new automated rental kiosks.
Blockbuster has seen the future, and it's all about fewer stores and more Redbox-esque machines.
In an SEC filing, Blockbuster concedes that it plans to close between 810 and 960 stores between now and the end of next year. There are another 275-300 locations in the process of lease mitigations or termination efforts, and they, too, may be shuttered.
A humbling retreat? Not so fast. Roughly 35% of Blockbuster's stores contribute 80% of the chain's EBITDA (approximately operating income plus depreciation), so those top-performing locations likely won't go the way of their slacker peers.
Blockbuster also has Coinstar's (NASDAQ:CSTR) Redbox in its crosshairs. The DVD rental giant may have fewer than 500 kiosks out in the wild right now, but it expects to have a fleet of roughly 10,000 machines by this time next year. Redbox, meet your blue box rival.
Blockbuster's move may seem like a no-brainer, but it's trickier than you think. Blockbuster can't compete with Redbox unless it matches the $1 nightly rentals. But doing so may disrupt the value proposition of conventional in-store rentals.
Kiosks will also generate a growing pool of tired titles to dump out of its machines, but Blockbuster may have a plan for that. Its blueprint for survival calls for converting as many as 300 other stores into outlet locations, just in case you have hankering for a used copy of the third installments in the Mummy or Matrix series.
Blockbuster also plans to grow its Total Access business, but Netflix (NASDAQ:NFLX) hardly needs to worry. Blockbuster claims to be profitable in this segment, with 1.6 million Total Access subscribers. However, it wants to be both "highly profitable" and have a "growing subscriber base." In the past, these goals have been mutually exclusive for Total Access. It grew only when it was slashing rates and liberally dispensing flicks and games. Unless "buy Netflix" is part of the strategy, expectations appear high here.
Blockbuster's final strategy involves broadening its digital distribution. This is a toughie. Selling flicks via cyberspace pits Blockbuster against the cooler Apple (NASDAQ:AAPL) and the more e-proficient Amazon.com (NASDAQ:AMZN). It also has to compete with cable companies including Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC), which already have their pay-per-view boxes and customer billing information in place.
The future won't get any easier for Blockbuster. For creditors' sake, let's hope Blockbuster means it when it borrows a quote from Schwarzenegger, and promises it'll be back.
