Blockbuster CEO Jim Keyes on Competition From Apple, Netflix, Nintendo, and Redbox

Part II of Fast Company's interview with Blockbuster CEO Jim Keyes.

Blockbuster Netflix logos

Blockbuster has been taking lots of flack for the company’s poor earnings, shareholder in-fighting, and inability to combat the success of Netflix and Redbox. Blockbuster CEO Jim Keyes, whose brash style we recently analyzed, spoke with us about what he is doing to turn the struggling video-rental giant around. Part I of our interview focused on Keyes's views on the board of directors battle with Greg Meyer. In part II, Keyes speaks candidly on Netflix, Nintendo, and Blockbuster’s chances of success.

Fast Company: What do you admire about Netflix?
Jim Keyes: I admire what they’ve built. It was a brilliant idea to do DVDs by mail. We emulated that and created a comparable system. They also have a world-class search engine that is bar-none better than any search engine out there. We have a good search engine, but it’s not as good as theirs.

Another thing I admire is that they are true to their core. They could’ve tried to offer new releases, but they recognize that 80% of their business is long-tail content. They’ll do better by trading off new releases for better cost of goods. Our business is just different—our subscription service is a convenience for our customers, but it’s not the core.

One of the big advantages that Blockbuster has is its 28-day exclusive window over new releases, but in the company's recent earnings call, analysts were told that this has failed to pick up any traction among customers, partly because Blockbuster does not have enough money for an aggressive ad-campaign. Is this why you've been so vocal in the press?
PR is free. Why wouldn't we? How often does a company get a material, tangible point of differentiation? If 60% of the demand for movies is in the first 28 days, and we now are the only national chain able to offer this advantage by mail, online, and in-store—look, it's a very compelling advantage for mainstream customers. Not for Netflix's customer, who is that longer-tail customer. If you want Avatar, you are not going to get it on Netflix in a timely basis. I don't at all mean to poke any negatives at Netflix. I think they do a terrific job—at what they do.

All we're saying is that we do something different, we do it really well, and that we have a really unique advantage. Netflix has never hesitated to reference their strengths versus ours, or against anybody else. What would you recommend? Should we just sit and be quiet about this 28-day advantage?

Blockbuster has managed to set up multichannel support, from subscriptions to on-demand services to to kiosks to in-store rentals. But what happens if this system doesn’t work? What does Blockbuster do next?
Jim KeyesHow does it not work? Look, we are completely rebuilding house from scratch, and we’re living in the house! You might think, This looks terrible! Well, yes, no kidding! We’re in the middle of remodeling. But what we’re modeling is a house with a garden, and a studio, and a media room—and I’m out there saying, Listen, wait until we finish, but this is going to be really unique. It’s different than the other house—why wouldn’t you want to live here?

Call me brash, but we’re building a world-class cross-channel distribution platform. Netflix can’t deliver content the way we can. Redbox can’t do what we do in their vending machines.

What I want to do is punch a button on my remote, and have access to 10,000 movies. You can get it all here. I’m going to be brash for a moment, but I don’t have to figure out how to get it from my Nintendo machine to the screen. I know I can do it, but I don’t want to—it makes my head hurt to think about it!

But that is the pay service, correct? If you want access to those movies, it will cost you several dollars per rental. Doesn’t that price hurt your head more than figuring out how to put the Netflix DVD into the Wii? It’s not that difficult.
Well, here is what hurts my head: It is waiting five years for the movie.

Five years?
It’s not just putting it into the Wii, it’s waiting until the movie is available in subscription format, which could be as much as five years. In all seriousness—I was just poking fun—Netflix has some great content, but they won’t have Avatar for a number of years—not months, years. We have a subscription service, but we have many customers that prefer the all-you-can-eat buffet. Listen, Paul Blart: Mall Cop? Yes, you can see it on Netflix—it's only a year old.

But aren't many of these new titles also available on iTunes and through Comast On-Demand?
First of all, we have more titles in our library than iTunes. There are many movies that are in certain windows, Avatar for example, when it goes to the HBO window, you won't be able to get it through iTunes or anywhere electronically, but we'll still be able to give you the DVD.

What is the easiest way for you to rent a movie, personally?
Here is how my family uses it. I have a Blockbuster by-mail subscription. If I want a unique movie, I put it in my queue, and two days, it’s here.

If a friend came over with his kids, I stop at a convenience store, and I go to Blockbuster Express, rent a movie, and bring it home.

Friday night, I don’t know what’s out. I go to the store and I see Crazy Heart. I wouldn’t have thought to search for it online—I forgot it was released. It’s fun to browse in store sometimes.

And then it’s Sunday night, and I don’t feel like leaving my couch. I pull up my Samsung Blu-ray player, and Blockbuster On Demand is a button on the remote control: 10,000 movies at my fingertips. Yes, it's $3.99, but it's still a heck of a lot cheaper than a movie ticket, and it's no different than what you pay on Apple or Amazon. It’s the ultimate video on-demand service. Blockbuster On-Demand is similar to your Netflix experience: You get on and can search by title, actor, or whatever. It is a lot easier than trying to route movies through my Xbox or Nintendo!

That is the second time you’ve brought up Nintendo. Does Blockbuster have no interest in connecting through the Wii or other consoles? What about other platforms? An iPad app?
Look, when I say it’s confusing, I’m talking about how confusing it can be for parents, our consumers. That is our core—for example, that family-oriented mom who is not as willing to figure out how to go to a console or a computer and load a movie into the queue. The mainstream consumer wants simplicity. But we could be on consoles tomorrow morning for subscriptions if we wanted to. The problem we see is that game consoles would just as soon sell their own movies. Keep in mind that the Blockbuster customer wants new releases, which is very inconsistent for the subscription-digital streaming offer.

Do you ever see a way that Netflix could overtake Blockbuster as the global market leader?
I don’t even—we have such different business models. What is your favorite all-you-can-eat restaurant? That's what this is. One price, all you can eat. There is a wonderful role for Netflix service in the market place, but it’s very different from ours. In our service, you get what you want, when you want it.

So you never see an instance where Blockbuster will fail?
Not if we’re able to respond to the changing needs of the customer. The customer used to get their content in physical stores, and then it changed to by-mail and kiosks. We’re building out all those platforms, and it doesn’t happen overnight. Like I said, it’s remodeling a house: it’s not easy, it’s not cheap, and it’s not fast.

To get this straight, Blockbuster will not go bankrupt?
It is not our intention. Our objective is to manage a very challenging liquidity environment. We’re doing a lot of things at the same time, and we have to spend a lot of money to build our future. What we couldn’t have anticipated was a complete financial meltdown in 2009. If you had to refinance a home last year, imagine what would’ve happened to you? The bank might’ve said that they’ll give you a mortgage, but the bad news is that you have to pay it back in five years instead of 20 years. Ouch.

You’re saying Blockbuster’s financial troubles were entirely from the financial crisis. Wasn’t it due in part because of Netflix’s success?
No, I don’t know where that comes from.

You didn’t lose a significant amount of customers to Netflix?
Yes, of course we did. We lost some to Redbox too. We were sitting on 45% of the market. Anyone with that much market share is vulnerable to new competitors. But people forget we’re still sitting on a base of 50 to 60 million customers.

In Blockbuster's recent earnings call, the numbers for by-mail subscribers were not released. Could you give me some sense of how many customers subscribe with Blockbuster by-mail?
We don't release it because it is not relevant. Our customers are still half subscriber and half in-store.

Look, I think we co-exist quite well with Netflix, but let's face it: Avatar comes out, and you want to stream it, you come to me.

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32 Comments

  • rimstalker

    Here was the problem with Blockbuster...you never ask the CEO because most CEO's are idiots and don't know the difference between a coin slot and a hole in the ground...they had zero comprehension of their customer's and no comprehension that they company had competitors.

    This is why they charged 2 to 4 times as much per movie, had specials nobody cared about, tried to beat Best Buy at selling electronics, took over the neighborhood video stores and replaced them and the people who worked in them with moronic minimum wage earners who knew nothing, had a business model based on late fees that drove people away from Blockbuster and the list goes on and on and on...

    End of discussion.

  • Anonymous

    blockbuster is too expensive!!!  maybe thats y theyre failing, i just looked for a nice movie, and blockbuster will charge me around $10  FOR ONE MOVIE!!! NETFLIX ONLY CHARGES $8 FOR A WHOLE MONTH OF UNLIMITED FREE MOVIES!!!  WTF???HOWEVER, NETFLIX HAS NO NEW RELEASES... THAT THE ONLY FAIL...  BUT BLOCKBUSTER HAS A FEW NEW RELEASES, BUT UR PAYING LIKE $20-50 OR MORE A WEEK TO WATCH ONE F*&(ING MOVIE!!!!  THATS WHAT I HATE ABOUT BLOCKBUSTER  :p

  • Jembhs44

    Maybe, Blockbuster has outsource their services oversea. I get the the run around they moved fro Texas to Colorado. But, you call them and someone answer (eventually) can't speak English or they're speaking from a script.

  • Bill Markis

    Blockbuster
    has significantly slowed their response time in mailing DVDs, it now takes them
    several days to mail the next title in the cue, example: I returned the movies
    at the store on Sunday, today is Wednesday and they just show them received in
    their website, they have not even mail it. It should be faster, next day
    response. I called Customer Service they acknowledge they have problems but do
    not offer solutions.

  • Casey

    Actually, Netflix change the DVD rental business and get rid of the used market leader Blockbuster. I think Netflix's success is based on how it know the customers needs. Nowadays, following the continuing growing internet technology and dvd rental market. Netflix create a way people can sit down on the sofa and choose movies through computer, dvd player or video game consols. It is so convenience to people who are really busy and have no time to drive a couple miles to a blockbuster store. 
    However, my experience in Netflix is very bad. Honesty speaking, I have subscribed to the company for  one month, I never rent the dvd by mail, but also watch online stream movies. I remember I watched Cloudy with a chance of meatball with 42" vizio tv, the dpi is sucks! Totally different form my expectation. Finally, I cancel the contract. 
    Netflix is just like an ant to defeat the big giant Blockbuster. However I think is temporary, like CEO Jim Keyes said blockbuster can offer an overall service to customers, it is Netflix can not do. Even the retail stores are closed one by one, but I think if Blockbuster can give what customer want. 

  • Julius

    He is confident because they are still somewhat in control, but that is dwindling. If they were more observant they would realize that it will be just a matter of time unless they come up with an entirely new plan. Also Netflix, though picking up momentum, needs to add-on also (not that they aren't -- things such as streaming video). What happens if Netflix buys out some company like Movie Gallery and goes to in-store but with the same payment plan (no late fees - one, two, three movies out at a time for a monthly bill)? BBI would be dead in the water. Each store would receive the payment according to the subscribers address/zip code and the main corporation would receive payment from all the stores. That 28 day thing would be the only hindrance, but they could secure those same deals.

  • Julius

    He is confident because they are still somewhat in control, but that is dwindling. If they were more observant they would realize that it will be just a matter of time unless they come up with an entirely new plan. Also Netflix, though picking up momentum, needs to add-on also (not that they aren't -- things such as streaming video). What happens if Netflix buys out some company like Movie Gallery and goes to in-store but with the same payment plan (no late fees - one, two, three movies out at a time for a monthly bill)? BBI would be dead in the water. Each store would receive the payment according to the subscribers address/zip code and the main corporation would receive payment from all the stores. That 28 day thing would be the only hindrance, but they could secure those same deals.

  • Josh

    Maybe even less than that. They're talking about getting a bancruptcy loan should they seek Chapter 11. Isn't it ironic? Netflix hitting new highs day after day and BBI hitting new lows. I think its time BBI cuts it's losses and admits defeat.

  • Mike K

    People should realize that streaming video is not as good as DVD or near Blue-ray. The only way streaming will get better is if they upgrade the whole internet something that may not happen in your lifetime.

  • OrderOfMen.com

    You are correct about bluray (for now) but most streaming services (Netflix) equal or exceed DVD with a half decent (and cheap) internet connection. This isn't 1999 any more. Internet connection isn't the bottleneck. The bottleneck now is getting more titles on streaming services.

  • Mike Oliver

    BBI should survive they offer the same web srvc as ntflx only better because they have the new releases the day they are released ntflx wont see them for a month. They have the streaming and a new deal with toshiba for streaming as well, they have the boxes as red box does however including the new releases and the stores though fewer to cut down on overhead.. Blockbuster will become the leader in the industry once again if only for the the reason that they have the new releases a month before anyone else and offer the same srvc as their competitors..

  • Josh

    I don't know where these lies got started but they are absolutely false. Here's proof...
    I just logged into my Netflix and checked to see if the following New Releases were available...
    Today is June 10th
    Shutter Island, Relased: 6/8, Available Now
    From Paris With Love, 6/8, Available Now
    Alice in Wonderland, 6/1, Available Now
    ...I'm not sure why there's slander going around about Netflix not getting them for a month. I know these movies aren’t as big as Avatar was which is also available now. I wish I would have checked the day Avatar was released, I bet Netflix had it that day. I’ll check the next time a big movie comes out on DVD, I want to see if it’s true they don’t come out for a month.

  • acarr

    Blockbuster has secured 28-day exclusive deals with Fox, Sony, Warner Bros., and Universal. These movie studios represent about 50.8% of the studio market share.

    Blockbuster has not reached this deal with Paramount (which distributed Shutter Island), Lionsgate (From Paris With Love), or Disney (Alice in Wonderland), which should explain why those films are available through your Netflix account now. Any other exceptions might come from films contracted through Starz, which has a sharing plan with Netflix.

    I hope that helps clear up the confusion.

  • Steve Klein

    The 800 pound gorilla is that they were only able to reach these deals with the studios after heavily leveraging their Canadian properties - the last true profit center in their organization. I fear I must agree with Aaron Westley: 3 years max & then Blockbuster is another casualty....

  • truthbtold

    It is sad to see that the one time Industry Leader is completely oblivious as to what has completely destroyed their industry. The competition from Netflix and now Red Box has hurt them, but there is no mention at all about the real reasons that they are now obsolete. How is it possible to be a key player in this industry and not have a clue? Mr. Keyes the real reason retail video is in danger of going under is the fact that bootleg DVD's and free downloads on the internet have taken the largest chunk out of the video rental business model. There are no statistical numbers to account for these users other than the missing sales and revenue. When the technology to burn DVD's became affordable and mainstream - that was the time to change the business model. This change should have started 10 years ago! I have a solution to respond to this problem if you're "Seriously" interested contact me: athanielhill@hotmail.com

  • Mac Cook

    I'm going to have to disagree with just everyone here. Blockbuster will survive for many, many more years. If they file for bankruptcy, they will come back. Hopefully they won't go bankrupt, and bond holders will give them a break.

    many of you claim that consumers do not care about the 28 day window. This is ridiculous. Go to Facebook and look at Coinstar's Redbox page or Netflix's page. These companies' "fans" are incredibly upset about not being able to get new movies (unfortunately BBI's Fbook page is also riddled with negativity). See, the thing you guys forget is that movie studios and retailers advertise. I'll see about five commercials for Avatar, and then I'll be like, dang, that was a good movie. I go to redbox.com and I learn that Avatar "doesn't exist." I then go to netflix.com and see Avatar is "unavailable." I then go to blockbuster.com and see Avatar is in stock at 7 locations within a couple miles of my house.

    That may be the real problem. Upon a look at the numbers, BBI could be profitable, if it weren't so big. Fortunately, BBI is now closing stores; plus Movie Gallery/ Hollywood Video went BK for the last time. This means much fewer stores, and for BBI less costs and perhaps more business.

  • acarr

    Mac, thanks for your response. It'll be interesting to see whether this advantage picks up any traction among consumers--so far, according to Blockbuster, it has not. But you're right, movie studios will aggressively advertise the DVD releases of films like Avatar, even if Blockbuster can't afford it right now.

    (It's worth pointing out though that Avatar is currently available on Netflix. Plus, does anyone here even know a person who didn't watch it in theaters?)

    Still, a (clearly unscientific) poll by Engadget showed that customers are not very swayed by this advantage. Of the some 4,600 voters, 63% said the 28-day delay doesn't affect their loyalty to Netflix/Redbox, and that they'd rather wait to enjoy the convenience and price. Only 10% found this exclusive window appealing enough to switch.

    I'm not saying that's conclusive evidence, but it does show that perhaps it's not such a black-and-white argument.

  • Jon Evans

    As a Blockbuster shareholder, it concerns me how Jim outright ignored many of your most potent questions, giving completely unrelated answers that were frequently vague to the point of being useless information.

    For instance, for some reason he reiterates over and over how Blockbuster focuses on new releases while Netflix concentrates on older titles. If he can so clearly draw the line, why is Blockbuster losing so much business to Netflix? If their businesses were so drastically different, then BBI should not have been so heavily impacted to them to the point of teetering on bankruptcy. His answers are inane.

    The lack of an iPad app is another astonishing misstep. Apple is obviously at the center of the electronics and media world right now, and it is crucial to take advantage of that by setting your lot with them. Walking by my local Apple store at the mall, there is an enormous Netflix ad in their window. Like, bigger than me. That's GREAT advertising. Everyone looks at that store, it's brimming with crowds.

    I cannot understand how Blockbuster has repeatedly failed to make decisions that are so obviously advantageous.

  • George Bush

    I agree with Drivas and Dumont, Keyes is completely nuts, and he is wrong about not getting Avatar in years (maybe online and streaming rather than DVD?). Avatar is available from Netflix right now.. I just added it to my queue (Already saw it in the theater in 3D