Blockbuster Pursues Its Last Chance

Blockbuster (NYSE:BBI) has failed in the online DVD rental business and movie internet streaming business. The traffic to its thousands of stores is dropping rapidly and its cannot close locations fast enough. Long-term leases make the process of shuttering stores complicated

Blockbuster has a new rival. RedBox, which has over 20,000 kiosks set up to allow customers to rent DVDs for $1, is taking business from Blockbuster stores.

Blockbuster is expanding its own kiosk business with help from NCR (NYSE:NCR) which builds cash machines. NCR is about to announce that it will buy DVD kiosk operator DVDPlay Inc which has 1,300 kiosks, according to The Wall Street Journal. The move should allow NCR to have almost 4,000 kiosk locations by the end of the year. The Blockbuster brand may help increase customer traffic to these points of sale. That is clearly the gamble that NCR is taking.

The kiosk business may help NCR’s revenue and profits because it is net new revenue to the company. For Blockbuster, the math is much more complex. The rental chain’s annual revenue will be close to $4 billion in its current fiscal year. Kiosk sales may not be nearly enough to offset the sales attrition at its existing stores.

Blockbuster’s other challenge is to get net new customers. It is not clear that the firm benefits from having existing customers renting from kiosks rather than its store locations. It has to maintain many of its stores even if they are expensive to run. A rental from a kiosk may simply cause store-based rental traffic to drop further.

The kiosk business may be profitable, but is probably not large enough to do Blockbuster much good.

Douglas A. McIntyre