Fast Company

Blockbuster CEO Jim Keyes on Bankruptcy, Netflix, and Becoming the Next Apple

Blockbuster Netflix tug of war

While it may feel like an all out tug-of-war between Blockbuster and Netflix, don't forget they aren't the only companies battling for market share. Redbox is fighting for kiosk space. Apple, Amazon, and Comcast are competing for movie download purchases. And Hulu will soon start its subscription-based service. Blockbuster is trying to fend off all these competitors, even as the company is mired in debt.

We spoke again with the company's CEO, Jim Keyes, to get his take on Netflix's recent comments with Fast Company (Click here for our first interview with the the Blockbuster chief, in case you missed it). Keyes spoke with us about how he's using the company's 28-day distribution advantage to Blockbuster's favor; the ways he's trying to turn the video-rental giant around, Steve Jobs-style; and why bankruptcy isn't interfering with the company's plans for success.

Fast Company: Blockbuster's 28-day distribution advantage gives the company a four-week leg up on Netflix for new releases. However, when I spoke with a rep from Netflix, he said this was something they actually heavily pushed for years ago. Who went to the studios first?
Blockbuster CEO Jim Keyes: We're both going to the studios all the time for different kinds of deals. I tried to emphasize before that our customer base is very different--our core focus is very different. Their focus is more on the longer-tail titles. Ours has traditionally been on new releases.

Jim Keyes Why though, if this deal was so beneficial to Blockbuster, would Netflix have pushed for it so heavily?
It's a different business model. Theirs is a subscription model that focuses more heavily on older titles. Blockbuster has a broader range offering. The majority of our business--as much as 80%--has been in new releases.

Netflix has said that if customers "were really interested in a movie, they would've already seen it in the theater." Did Blockbuster do research before making this deal that showed otherwise?
Our research says it's about a $20 billion business for rental and retail, and approximately more than 60% of business for new releases is done in the first 30 days. The bulk of the business has traditionally been in new releases. People want rushed content. Our job is to provide it for them. There is also a market for the longer-tail content, and Netflix has made that their focus. The trade-off is one of economics. They were looking for a lower cost of goods, and were willing to accept a delay in the offering. For us, when Avatar is released, our customers want it that day, and we have it on a cross-channel basis.

One industry source I spoke with suggested that Blockbuster had little control over the 28-day deal with movie studios, and ended up committing "huge payments" for new releases because of the company's financial position. Is this not the case?
Our deals are very consistent with the economics of the past. We're pleased with the studios flexibility in allowing cross-channel availability--we're pleased with their continued support, and the ability to offer our customers what they want.

You've explained that Blockbuster is in the process of remodeling, yet everyone I speak with describes it less positively. One industry source even suggested that you were "whistling by the graveyard."
We're in the process of transformation. Think about Apple 10 years ago. Steve Jobs came back and did a masterful job. But it wasn't an overnight success. It took him a number of years to reengineer Apple and turn the company from what it was--basically a PC provider--into what it is today. I don't know if you recall, but there were questions about the long-term viability of that company, and look at the success that they have today. But it took many years.

But Steve Jobs returned, I believe, around 1997. By 1998, they released the iMac. What is the equivalent at Blockbuster?
The equivalent for Blockbuster is Blockbuster On Demand, which is the ultimate video on-demand experience.

So you see Blockbuster as another Apple?
I use that as an example. There are hundreds of examples of companies that are traditionally great brands, but had to transform themselves into a new business model. This is a pattern we see over and over. If a company is not able to keep up with the changing needs of its customer, it will become irrelevant. Our job is to keep pace with that change.

With Blockbuster's multi-channel platform, do you ever worry that customers will just do what's most convenient? For instance, won't a customer always choose a Redbox kiosk if it is closer? Or just use Comcast or iTunes if it's easier? Or, if a Netflix subscriber notices Avatar is unavailable, can't he or she just rent it from Blockbuster that one time? It's unclear why a customer would need to commit to Blockbuster as a subscriber, kiosk user, and on-demand customer. What about the fickle customer who might just use Blockbuster for a new release every now and again?
The advantage of cross-channel capability is all about convenience. In our case, if you receive a movie in the mail, and then watch it, you can go to the store and exchange it for, say, Alice in Wonderland--and you have immediate gratification. You don't have to wait for a queue. Very simply, we have more new movies than anyone else. If you're looking for a new release, you have a better chance of finding that at Blockbuster.

If there is an alternative closer to you, but you know you'll only get a new release at Blockbuster, we hope you'll be willing to travel that extra distance. If you're looking for a new release, but you're not sure it's been released on one of our competitors' services or on iTunes, we hope that customers will choose Blockbuster On Demand. They will count on us for new releases. Across all these platforms--on demand, in-store, kiosks--you have one account that just makes it easy for you. It's that one customer, one account convenience.

To create that convenience, Blockbuster has a kiosk system, subscription and on demand services, and in-store offerings. It almost feels like you're boxing an octopus: battling Netflix for subscribers, Redbox for kiosks, and Apple and Comcast for on-demand service. Do you ever feel like Blockbuster is stretching itself too thin?
It's an incredibly dynamic industry that's changing very quickly. But we do not look at this as a sprint, we look at this as a marathon. We want to provide a better long-term platform for our customers to give them the most convenient access whether physical or digital form. It takes time and resources, but we believe the outcome will be a better consumer proposition.

You've said remaking Blockbuster won't happen overnight--that it's a marathon. Do you ever worry that this is a situation where you need to remodel overnight, and that Blockbuster might not have time for a marathon?
We are going to move at the fastest pace possible. The customer change doesn't happen overnight. If you look at the acceleration of paid digital consumption of content, it isn't moving as quickly as we would all like. We'd all like to have movies move more quickly to video on-demand. That consumer adoption is moving steady, but not as quickly as anyone would like.

In the news lately, we've seen Blockbuster seeking $150 million debtor-in-possession financing. It's worth asking again: Is Blockbuster going bankrupt?
We're transforming not just the business model but the balance sheet. We've had two successful refinancings in the last 18 months, and we continue to work on finding the right capital structure to facilitate the business itself.

So Blockbuster is not going to file for bankruptcy protection?
As I've said, we're looking at all of the various options to refinance and recapitalize the company. I've said repeatedly that the company's objective is to seek out-of-court solutions with strategic investors to recapitalize, and we've been exploring a number of those alternatives.

If I look at Blockbuster's share, it's hovering around 30 cents; I've seen this $150 million debtor-in-possession loan recently; and I've also read that the company has around $900 million in debt. How do you convince an investor to stay with the company, and how do you bring in new investors?
As I've said, we're in the process of an overall business transformation, and we are trying to accomplish that transformation in a way that provides the greatest return for all of our stakeholders. That's our objective.

You recently told the Wall Street Journal that "this is not a time to sit on the sidelines for six months while the technology side of our business is dramatically changing daily." With Apple releasing its iPad, why hasn't Blockbuster created an app to rival Netflix's? Why wasn't Blockbuster on stage at WWDC, instead of Netflix, if you're trying to keep up with this rapidly changing technology?
We have taken a bit of a different path in the near-term. Our more aggressive push has been for download applications rather than streaming for portability. The limitation of streaming in a portable device is that you have to be in a strong 3G area or a Wi-Fi hotspot. It is somewhat inconsistent with the concept of portability. We believe in the download capability for Blockbuster On Demand into portable handsets like the HTC phone.

We took a little bit longer to introduce an iPhone app, and we will have an iPad app as well. It's just a question of priority, timing, and resources.

Can I get a sense of your feelings on the iPad and iPhone 4? I know Blockbuster's app is related to managing queues, but do you ever see a time when it could be used for movies?
They're terrific devices. Now, if you think about the different business models of Netflix and Blockbuster, Blockbuster's model is more directly competitive with Apple in the sense that we are a transactional-based service, offering movies à la carte. Netflix's subscription-based service doesn't conflict with the iTunes offering. It doesn't mean we won't make content available, but you don't see Amazon movie downloads yet either.

I don't mean this in a sarcastic way at all, but have you had a chance to use Netflix's iPad app? It's very popular, and I just wonder why Blockbuster would be against that type of streaming offering?
We're not against streaming. We have a terrific streaming service. I wish you'd try it.

Add New Comment

4 Comments

  • Tasha

    How do I get a hold of the thieves that screwed me out of millions. Blockbuster fucked me over. someone please tell me where to email my letter.

  • David H Deans

    perhaps it's Mr. Keyes renewed emphasis on movie "new releases" that's at the root of Blockbuster's continued decline. The need to promote all new releases is clearly a Studio-centric business model -- it was designed to ensure that Hollywood attains a "reasonable ROI" across their total production portfolio.

    In contrast, Netflix has a customer-centric business model that relies upon a unique recommendation engine -- it was designed to give consumers the best content that fits their individual taste preferences, regardless of when it was produced.

    My point: the Netflix service experience becomes progressively better over time. While the Blockbuster experience is doomed to the "hit and miss" inconsistency of Hollywood's production schedule. Moreover, Netflix best marketing vehicle is existing customer word-of-mouth -- something that I can't imagine Blockbuster ever achieving as it struggles to avoid bankruptcy.

  • Matthew Bunk

    Austin,
    Thanks for asking all the right questions. I always find it interesting when a CEO starts asking to be compared to Steve Jobs. That's a slippery slope, I wouldn't want to walk down.

  • reed

    Excellent interview fc, way to keep pushing. As confident and enthusiastic as Jim is, you can just tell he's squirming under these sorts of questions. A lot of contradiction here, I don't really get the impression that he has a good idea of where to go next with the company.