Fast Company

Blockbuster: We Can Beat Bankruptcy and Netflix

Blockbuster's Kevin Lewis

Blockbuster is struggling. The Dallas-based rental chain owes close to $1 billion, and has repeatedly warned it might face liquidation if it can't find new debt financing. Shares are now trading at 11 cents, and the company has been forced to delist from the New York Stock Exchange. It recently reported a higher than expected 20% drop in quarterly revenue, and it's already missed deadlines for interest payments. Chapter 11 bankruptcy and Chapter 7 liquidation are on the table.

With so much headwind, what is the rental giant doing to survive in the digital age? We spoke with Kevin Lewis, head of Blockbuster's digital strategy, to find out. In part one of our interview, Lewis spoke about competitors Netflix and Apple. Today, he talks candidly about Blockbuster's financial future and the potential of its first foray into the app market.

Fast Company: Blockbuster CEO Jim Keyes told me that the company's fight back to success is a marathon, not a sprint. Do you think the company has enough time for this long-term vision?

Kevin Lewis: It's no surprise that Blockbuster has a slightly challenged financial picture. But Blockbuster has a long and attractive future, who knows in what form. This is a powerful brand worldwide. Could things have gone faster or better? You can always say I wish I did X and not Y. But if you asked me in 2009 whether we'd be the only one in the mobile space selling movies other than Apple and whether we'd have Blockbuster On Demand--never in my wildest dreams would I have aimed this high.

To be clear, we have a long way to go. But I'm really proud of what we've accomplished, and at the end of the day, we're strategically better positioned than almost anybody out there.

Blockbuster's new app comes default on the Droid X. How did that deal happen?

You'll notice there's no Netflix on there. We are the movie provider for these devices. We're in it for the movies. We're not trying to get in the hardware business or sell you a different subscription--what we we want to give you is a really compelling movie service.

By the way, my biggest competitors in this space are not Amazon, Apple, and Netflix. My biggest competitor is: What the heck is this thing, and how does it work? When you have a Blockbuster-branded application, there's a certain assumption about what it does. As much as I would love to say that we're a set of brilliant people who know exactly what we're doing all the time, the reality is that the the brand is an incredibly powerful element in solving that problem.

Part of it is doing what we know. For device manufacturers, saying that we're going to help you serve your customers better, well, that's pretty compelling for them.

Currently, you can only download--not stream--movies through the Blockbuster app, and only over Wi-Fi. Why not create a streaming app? And will consumers be able to download movies over 3G ever?

There's a trade-off. The files are pretty darn big, and can go as large as 500 megabytes. As 3G speeds get faster, there is a significant likelihood that it could be downloaded over the networks. We believe a download solution is critically important in mobile devices. What happens on, say, the subway? Are you going to accept: Oh, I'm sorry, you're signal is weak--sorry, you're only 75% through downloading but can't play?

When I download movies on the Droid app, can I sync them to my computer? Can I watch them on my TV?

You're asking, How come I can't do HDMI out? [Ed. note: HDMI output allows you to transmit digital audio and video to different devices.] Let me give you the answer. If we didn't care about movies, we would've enabled HDMI out. Why? Consider the file that's optimized for the Droid device. Now think about that file on a 65-inch plasma TV. It's a fundamentally different file. If I give you HDMI out, sure, you can watch a movie on your TV. But you'd be disappointed with the picture quality. There's a lot of things I can do to fix that. I could turn that phone into a streaming device, or give you a larger file size.

Watching grainy video from a file optimized for a 4.3 inch device on a 65-inch plasma doesn't feel like the right thing to do. We're actually engaged deeply with our user community on this one.

Isn't that the problem with a download solution? With Netflix's streaming service, I can watch it on my laptop, or my iPad, or my Wii, and it's all synced to the same location.

You could also just go to Blockbuster.com, get the PC application, and download the file in the same way. We have that functionality. The question is, How do you implement it and how do you communicate it to customers? For the average consumer--and it's not that the average consumer is stupid--they've actually have been really clear about their preferences, which are: That's not a whole lot of fun. You have to make that seamless.

One of the ways you're trying to make it seamless is by replacing the "Download" button with a "Get It" button. Why?

We developed a "Get It" button. The "Get It" button says: Look, we're Blockbuster, we have every movie ever made. Our job is to "Get It" to you.

Blockbuster is a brick-and-mortar business. As the head of the company's digital strategy, how do you reconcile that with your vision of the future?

Obviously in the long-term, it will all be digital. The question is, when? The migration from VHS to DVD has happened. Moving to fully digital will take a hell of a long time--a lot longer than the most bullish digital folks believe. I believe there will be a hybrid of physical and digital for some time.

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13 Comments

  • Chris Reich

    These are the cries of a business in the final hours. Blockbuster is on its way out unless they choose to totally reinvent their business model. That has to start with closing the stores immediately to conserve cash. Today. Right now. Close the stores.

    Partner with Dish and offer any movie wanted instead of the limited pay-per-view offerings. Charlie is smart enough to join forces with Blockbuster. It has to be easy for the average consumer. Downloading on a PC, burning the DVD and then getting that to work on the DVD player requires too many steps. Let me choose from a menu and get it. Direct delivery through my receiver.

    Chris Reich
    www.TeachU.com

  • Jimmy Smith

    BB kiosks are outnumbered by Redbox in my area by a rate of about 20 to 1. <advantage box="" red="">
    BB online charges $3 to $4 for stream rentals. NF are part of their subscription. <advantage nf="">
    BB online allows store exchanges which reduces movie turn around. NF does not. <advantage bb="">
    BB has an ongoing bleed with store lease agreements.

    I think that NF is trying to knock down redbox out of the competition with its free streaming, and BB is still dreaming of growing but doesn't know how. </advantage></advantage></advantage>

  • Jimmy Smith

    I am doing some move rental shopping because I am on the market to decide who gives the best service and this is my view. $5 rentals in blockbuster stores are expensive and is very likely that this business will disappear. BB is at disadvantage because of the many lease agreements they have and they have to honor or break. So BB has to be operating at a loss until they stabilize that problem. Blockbuster online rental seems to have a slight advantage over netflix as you can drop your movies at one of their stores and get an extra rental. So, the movies are returned one day ahead of time if the blockbuster store is on your way of your daily commute or nearby. This advantage will disappear over time. Blockbuster online streaming business is at a big disadvantage. Netflix offers the same service for free while blockbuster charges $3 or $4 per streamed movie. This price is even h

  • Vijaykumar Balasubramanian

    His confidence must find its route in their huge collection of titles. This and the fact that Blockbuster can get into spaces where NetFlix and RedBox don't have a presence yet. Their association with NCR is also a promising sign.

  • Mike Oliver

    BB has streaming srvc., email srvc., and kiosk srvc., and all with the new releases which the competitors wont have until 28 days later. to find a BB kiosk near u just google Blockbuster Express.

  • anna grate

    um,excuse me.but redbox is so much better---you shouldnt even be trying to keep your business open!dont worry,you beat out netflix---but,i mean....just go ahead and let redbox take the lead.

  • M.D.

    Reading Blockbuster Interviews feels like watching a man trying to charge the front lines, saber drawn, while sitting backwards on a horse this is running away from the battle.

  • citizen144

    This poor guy sounds like a talking head sent by a PR department struggling to achieve a smile. Couple of his comments regarding Netflix streaming are sure to leave the his people struggling...

    "We have that functionality. The question is, How do you implement it and how do you communicate it to customers?"

    Well first, you don't have the same functionality (streaming) and second, Netflix communicated how to stream their movies instantly pretty well. The response is a fail.

    And this takes the cake coming from the man leading Blockbusters digital strategy "The migration from VHS to DVD has happened. Moving to fully digital will take a hell of a long time." Uh, aren't DVD's digital media? Is Blockbuster for real putting this guy up front?

  • Curly Bill

    Rather than giving the customer options, i.e. mobile device, PC, Mac, WII, etc., Blockbuster has chosen to force the customer's square peg into a very narrow round hole. And any time you say "it's not that the average consumer is stupid", what you are really saying is just that. The average consumer is stupid and Blockbuster will tell them what they want, and they will love us for it.

  • smithjohnson159

    He has high hopes but I don't think he's going to succeed because digital distribution is the new standard and I rather use Netflix or watch a movie from my on demand than go to blockbuster. P.S - R.I.P BlockBuster

  • David

    Your "Get It" button is no replacement for instant queue or being able to quickly integrate pretty much any device such as game consoles because of the simplicity of streaming.

    It makes me sad for Blockbuster that you are the head of digital strategy because you are leading them to failure by not providing a viable streaming solution and that you don't have the vision to see this.

    When the time comes and you realize that you have made a major mistake by not tackling a streaming option it will be too late for Blockbuster and I truly will miss Blockbuster.