Blockbuster CEO's Netflix Knocks Bounce Back

Netflix Blockbuster

We've already told you how to survive the contract war between Blockbuster and Netflix--now Blockbuster CEO Jim Keyes (who since joining the struggling company in 2007 has seen its stock plunging to around 30 cents a share and revenue plummeting $1 billion to $4.06 billion) helped fill in the gaps of our argument in an interview today with the LA Times, explaining that Blockbuster's store-based model is still viable, and that Netflix's subscription model is not effectively meeting customer demand.

Keyes argued, in a not-so-subtle series of snaps on Netflix, that Blockbuster has many advantages as a bricks-and-mortar business, including its recent deal with studios that gave the company a 28-day advantage over Netflix for when its customers gain access to new releases. While he admitted that Netflix has a "wonderful Internet service," he said he believes it's only good for "older titles and television."

"If I want to buy an obscure book title, I'll go to Amazon.com," he says. "But if I want to browse and see what's new, I will go to Barnes and Noble." It's an odd analogy, seeing as how Amazon is America's largest online retailer, boasting the world's biggest selection of books. Is he actually implying Netflix is the Amazon of the movie world?

"You tell me," he later bluntly demanded. "Do you want to watch The Blind Side or Herbie Goes to Cancun?"

Jim Keyes Jokes aside, Keyes' argument is seriously flawed when it comes to subscriptions models not meeting customer demand. He contends: "The subscription model does not translate effectively to what our customers want to see when they want to see them." But the logic is arguably backward. Customers would much rather have Netflix's model, but with Blockbuster's studio contracts. If Blockbuster's steep revenue declines (especially compared with Netflix's sharp revenue gains) are not evidence enough of this, then look to customer satisfaction: Netflix has ranked #1 in customer satisfaction (followed in 2009 by Amazon, which fits perfectly with Keyes's analogy) among e-commerce sites for five years straight, according to ForeSee Results. Moreover, online retailers often outperform brick-and-mortar stores in customer satisfaction.

Ultimately, there is nothing inherent in Blockbuster's model that appeals to customers--only something inherent that appeals to studios. Big movie companies gain more profits from Blockbuster's bricks-and-mortar approach, and therefore are more apt to give Blockbuster the advantage. But it's inaccurate to say the subscription model is not translating effectively "to what our customers want." The Blockbuster CEO should have said that it's not translating effectively "to what our studios want."

In a final jab at Netflix's streaming service, Keyes says that his wife is a big customer of Blockbuster-on-demand, a service which requires users to pay for each download (basically, an advanced Blockbuster-style pay-per-view). Keyes does not see this in any way as less convenient than Netflix's streaming service, which is unlimited and comes free with subscriptions. He even adds that because his mother-in-law is in town, that she and his wife have been busily watching two movies per night "by just pushing the button on the remote." Assuming his mother-in-law stays for five nights, they're spending close to $30 (two movies per night at $2.99, for five nights). That's about three months of a Netflix subscription!

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8 Comments

  • Brent B

    If BB had done all of this a lot earlier, things might have been different, but now they seem like someone who comes really late to a party and shouts, "I'm here everybody!" Nobody really pays attention to that person. They just seem desperate.

    @ferenstein, brick and mortar is only an advantage if it is near where you live and/or shop regularly. I'm not going to fight socal traffic and drive miles out of my way just for a movie.

  • Gregory Ferenstein

    Good comments, all. But, what about the brick and mortar advantage? There is some kind of competitive advantage when customers can pick up a movie the day they want it, yes?

    --
    @ferenstein

  • Debra Sharp

    And Joseph Hansom probably told Henry Ford that customers won't like going that fast with scenery being nothing but a blur.

  • Steve Shlivko

    Very true about the registers.

    The only positive thing blockbuster had going for them was the fact that you could pick up some snacks to go along with your movie night. Too bad for blockbuster, but there's no longer a need for that now that fresh direct's around. Obviously preaching to the choir here, but my experience with netflix has been phenomenal...hell, if netflix started shipping popcorn with the dvd's, I'd pay a hell of a premium for that! (Someone from Netflix, please take note!)

    On another note, Keyes talks about the perks of having a brick and mortar shop but does blockbuster really have any left? I live in prospect heights and the nearest kiosk is out in Bed-Stuy. I think there are only like 10 to 15 of those drop offs in all of Brooklyn! Come on Blockbuster, if you want my money, you're going to have to make my life a little easier -- and safer.

  • Stuart Boyle

    In my opinion, Blockbuster still has a lot of residual goodwill due to years and years of charging late fees. Also, I got tired of waiting in line when they had 4 registers an only 1 or 2 were being manned. On a Friday or Saturday night they should had all 4 registers running, not 2.

  • J Brown

    If a movie is that "must see" I would go out and pay a few bucks and buy the movie or I would have already seen it in the theater. I can wait 28 days. I am getting my money's worth on Netflix not only receiving disks in the mail but by watching streaming movies both on my Wii and on my pc. By the way if you watch on your pc (mac I am sure as well), you also get Starz channel streaming for free, add that to the cost of membership....Blockbuster is just trying to take another stab and failing again...

  • Matthew Jansick

    After reading this post I decided I should at least check out Blockbuster's "On-Demand" service. I was promptly greeted by the classic "Does not work on a Mac" message. Back to Netflix I guess. It works on My Mac. My xBox. My Wii. My...

  • Paul Viel

    Keyes is dead wrong and I'd buy stock in Netflix before Blockbuster any day of the week for the convenience Netflix provides. Blockbuster can make all the deals he wants with the studios for a 28 day headstart I still will get my movies from Netflix when they are available. Any movie I think is a "Must see right away" I'll go to the theater. Blockbuster is a good storebut the model can't compare with Netflix and their great service and turnaround. If I want older movies and some indy movies I can often get them online from Netflix at no extra cost.