Digital content delivery is the future. Every company--from Blockbuster to Best Buy to Netflix--is pushing its inventory online as a replacement for DVDs, in-store purchases and rentals, and even by-mail subscriptions. All-digital services such as Hulu have a leg-up against these competitors. Will other content providers be able to catch up, or will their increasingly archaic business models stymie their transition to digital delivery?
No other company faces this issue more than Blockbuster, the struggling rental chain, which the Wall Street Journal today reported is struggling even more than expected. After filing for Chapter 11 protection in September, the company is asking bondholders for an extra $200 million to $250 million, due to poor holiday performance and underestimated costs for exiting bankruptcy protection.
But the central reason for Blockbuster's struggles, both now and before bankruptcy, is its difficulties transitioning its bricks-and-mortar business to digital delivery. Though the chain has closed about 1,000 stores in the past two years, more than 5,000 still remain open. The company is "pinning its hopes on digital film delivery and expanded mail-order and kiosks businesses," according to the WSJ, yet it is either unable or unwilling to shutter the bricks-and-mortar outlets that are bogging down this transition. The stores, while representing a significant burden on Blockbuster, also represent a source of revenue, and Blockbuster cannot sacrifice the little revenue it does have, in exchange for the revenue it does not.
Netflix faces a similar issue, but to a far lesser severity. The subscription service began as a by-mail business; however, over time, Netflix realized that this model was not viable long-term (the company pays hundreds of millions of dollars in annual postage fees--around 20 times more than it spends on bandwidth, for one), and it began its transition to the digital age, aggressively striking deals with media companies, expanding its online library, and pushing content on mobile devices. In November, it launched a $7.99 per month streaming-only service, and on Monday, Netflix announced it would be removing the "Add to DVD Queue" option on streaming devices, in order to curtail by-mail requests.
"We’re doing this so we can concentrate on offering you the titles that are available to watch instantly," said Jaimie Odell, director of product management at Netflix. "Further, providing the option to add a DVD to your queue from a streaming device complicates the instant watching experience and ties up resources that are better used to improve the overall streaming functionality."
Recognizing the future is digital, both Netflix and Blockbuster have begun the transition, but only one so far has succeeded. It's an issue of how nimble the companies are: Blockbuster must close thousands and thousands of stores, whereas Netflix can make major strides toward online content simply by removing the "Add to DVD Queue" button from streaming devices.
Perhaps it's no surprise that in the last year, Netflix has shot up to 16.9 million subscribers from 11.1 million, while Blockbuster's subscriptions have dropped 20% to 1.2 million.