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!

Add New Comment

0 Comments