Blockbuster CEO 'Confused by Fascination' With Netflix

http://blog.wired.com/business/2008/08/blockbuster-ceo.html

by cstejerean • 18 years ago

71 67 18 years ago

blog.wired.com

jrockway2• 18 years ago

"I've been frankly confused by this fascination that everybody has with Netflix," Keyes told Rafat Ali, in an interview with PaidContent.org.

Translation: "I am not qualified for my job. I know nothing about my industry, or what my customers want. I get a nice paycheck though."

I'm frankly confused as to why a CEO would think that being confused about his competition would bring him more business.

OneSeventeen• 18 years ago

Yeah. Way to fail completely at your job, Keyes. This is a guy who can't imagine anyone using his product in a way different from the way he uses it. Fail.

jrockway2• 18 years ago

This is a guy who can't imagine anyone using his product in a way different from the way he uses it.

There is really a different problem here. It's probably true that most people want to see new releases. The problem is that Netflix has new releases and old movies also. So if you go with Blockbuster, you are stuck with only new releases. If you go with Netflix, you get everything. Why bother with Blockbuster?

Also, I guess there is an agile-ish mantra like "design products for yourself first". He is doing this, and is proof that it doesn't work for everyone. :)

cdr• 18 years ago

He might know what his customers want, but the problem is his customers are becoming Netflix customers. The market has changed, but his target customer hasn't.

staunch• 18 years ago

I think Netflix simply identified a big gap in the movie rental market that this guy is still unable to see, even when it's eating his business alive.

dmix• 18 years ago

That is exactly how disruptive technologies take over big markets. While they are developing a great service, the big company is still completely focused on the ways of their old customers.

babyshake• 18 years ago

Reminds me of how the GOP is "attacking" Obama by ridiculing his popularity.

sysop073• 18 years ago

This was good too: "Why would anyone want to watch anything other than new releases"

And this is why Netflix's share price is a good 15 times higher than Blockbuster's right now

thorax• 18 years ago

Well, I wouldn't worry about share price so much as their overall worth. It's heavily reflected there, though: Netflix ($1.8 billion) has nearly four times the market capitalization of Blockbuster ($472 million).

The fact that the CEO is confused really is obvious in the market as well as in the interview.

caudicus• 18 years ago

Well, to their credit Netflix's market cap is only 4x that of Blockbuster. ;)

rudyfink• 18 years ago

At the heart of it, I think the "new release" is a market strategy rather than a consumer goal. Creators want consumers to believe that they should forget everything in light of the "latest and greatest". The creators' strategy is to attempt to drown out all other consumer thoughts with marketing. Consumers just want a good trade-off for their time.

In the past, information was substantially easier to find on things that were new. Finding good movies in the so called "long tail" of a video store involved book research, knowledgeable friends, or lucky guesses. You could choose what had been recently marketed to you or the devil or the unknown box. Modern information networks have changed this reality largely in favor of the unknown box.

The truth is that a large percentage of new creation is not really worth your time. The biggest advantage the new stuff has is frankly that it is new. As information systems progress, people will have an easier time separating hype from substance. This will effectively make older quality creations more desirable.

It is probably fanciful, but I'd expect his statement to be exactly wrong in the long run. The reality may become "why would anyone want to watch new releases"?

briansmith• 18 years ago

"Why would anyone want to watch anything other than new releases" is pretty much the slogan of RedBox. Why pay $5 for a movie rental when you can pay $1 at McDonalds or the grocery store or the gas station for the same new release? Plus, with RedBox, I don't have to show two forms of ID or fill out an application. I pick the DVDs I want, slide my card in, and the movies pop out.

NetFlix has become the premium rental service. RedBox is the budget service. Blockbuster is getting squeezed out of the market from both sides.

cujo• 18 years ago

I'm a bit confused by it too. What does Netflix have/do that BB doesn't?

akd• 18 years ago

price

icey• 18 years ago

Amazing customer service

calvin• 18 years ago

The long tail (http://en.wikipedia.org/wiki/The_Long_Tail).

mechanical_fish• 18 years ago

No leases on brick-and-mortar stores.

No retail employees.

A first-mover advantage in the online space.

No history of charging late fees. This is a really important point - in my mind, the name Blockbuster evokes the image of a scolding librarian who sells used cars on the side.

And, of course, Netflix also has a different CEO.

dionidium• 18 years ago

I had Blockbuster's Netflix-like service. At the time I canceled (to switch to Netflix) something like 17 of the 22 movies in my queue were unavailable with a "long wait".

biohacker42• 18 years ago

It is refreshing that he bluntly admitted his confusion. Most CEOs know enough to BS so that it is not obvious that they are clueless. Give this guy some kind of pity award.

tlrobinson• 18 years ago

But is he really "confused" or is this a sarcastic attempt at badmouthing Netflix?

rokhayakebe• 18 years ago

If you can admit you are clueless, then the next honest move is to resign.

jyothi2• 18 years ago

yeah, he is the smarter of the dumb CEOs. As he knows he at least realizes that.

richtaur• 18 years ago

CEO and "confused" in the same sentence is a bad thing. If anybody should know WTF it should be that guy.

alaskamiller• 18 years ago

Wired couldn't pick the money quote, but it's really this:

This is a hypothetical one. Would you be ever interested in buying Netflix?

Keyes: Not really. Netflix doesn’t really have or do anything that we can’t and don’t already do ourselves. So, there’s really no advantage in buying.

And the reason why Keyes won't is because BBI is worth only $288 million while NFLX is worth over $2 billion. Way to bluster through, Keyes.

macebobo• 18 years ago

Maybe NFLX should buy BBI and fire Keyes! Heck, it is only slightly over $2 a share! It's amazing the arrogance Keyes displayed in the interview and how folks like this are able to stay in power even though BBI stock has been tumbling since mid-2002.

joao• 18 years ago

How does one get a top CEO job and is just clueless?

There are lots of these types of sentences by CEOs that just show they don't understand their target market...

cmos• 18 years ago

wow. He should be fired. Immediately.

Just saying those comments should be career suicide. His PR person is probably freaking out.

Why would the board of directors just wait around for a clueless leader to drive them into the ground?

They lost the battle. Time for an aggressive plan B to stay in business.

Attempts to sell consumer electronics in blockbuster stores are pathetic and have failed over and over again. First radio shack, then circuit city. Putting up a shelf with electronic gear will not move it. http://findarticles.com/p/articles/mi_hb6695/is_200201/ai_n2...

My plan B for them would be to change store format entirely. Build a nice home theatre that can sit 20 people and have showings of new releases. The catch is they use equipment that is in the $1000-$5000 price range, and it's a great experience that you can 'take home'. Delivery is free. Installation is extra.

Show new movie releases. Always have free popcorn!! It costs virtually nothing. Have a kids night. Let local managers be more creative.

Still rent movies and games, but change the 'browsing' process. Have large screens and use a wii type remote to navigate a virtual store with slick graphics. Show what's popular, ask what type of movie they want. Make a game that promises to find you the perfect movie. Navigate through actors or scenes. Remember what they have seen. (how miserable is it to walk to the other side of the store with a movie and your wife says 'seen it' over and over again)

Make it so people don't say "do we have to go to blockbuster?" when they are in between movies in their netflix queue. It's staggering to think that the idea of putting boxes of discs on shelves and letting people walk around aimlessly picking at random is

prakash• 18 years ago

Why would the board of directors just wait around for a clueless leader to drive them into the ground?

Typically, CEO's hire their board and gives them lots of options to essentially align with the CEO.

Once I wrote this, out of curiosity, I checked who's on the board of Blockbuster. Interestingly, a one Carl Icahn is on the board. (http://www.reuters.com/finance/stocks/companyOfficers?symbol...)

Also, the CEO made $5 odd million last year(http://www.reuters.com/finance/stocks/officerProfile?symbol=...).

mikeryan• 18 years ago

wtf? The board hires CEO's not the other way around - board members are voted on by shareholders.

dhimes2• 18 years ago

You have to be careful with the licensing on that one...but a good idea in concept

omouse• 18 years ago

As far as I know, they already play clips of movies or even full movies (though they are older movies usually).

ericb• 18 years ago

I like your approach. Jordans Furniture uses the "shoppertainment" strategy very effectively--I think this could work for blockbuster, too.

Chocobean• 18 years ago

"My plan B for them would be to change store format entirely. Build a nice home theatre that can sit 20 people and have showings of new releases. The catch is they use equipment that is in the $1000-$5000 price range, and it's a great experience that you can 'take home'. Delivery is free. Installation is extra."

This is brilliant! the Brick and furniture places try to sell you the entertainment stuff and throw a movie in there as flashing demo, but no one ever feels good about watching a 2 hour film while commissioned sales people peek over your shoulder. But put the emphasis on the movie and make the living room set "optional", and it may work. And for crissakes Free Popcorn, how cheap and good is that!

hugh• 18 years ago

My plan, if I were CEO of Blockbuster, would be simple (if undignified): compete on price.

A few years ago I lived near a Blockbuster -- I had a card but I hardly ever used it, because with rentals going for something like $6.50 (compared to $9 in the cinema or maybe $10 to buy the DVD outright at Walmart) what was the point? Then I moved to a new place, where my local video shop was an independent shop where DVDs rented for $3 a night. At three bucks a rental, I found myself watching a lot more DVDs, and of course spending a lot more money than I had previously.

(Oh, and then I moved away from the cheap video store, so now I have Netflix.)

If Blockbuster cut its prices to $3 per movie per night, it would get a lot of people thinking "Wait, am I _really_ watching enough movies per month to make my Netflix subscription worthwhile?"

This would, of course, only be a stop-gap measure, while they work on getting a good online-delivery system going for the long term.

FreeKill• 18 years ago

Great idea. A theater chain here in Toronto offers VIP theaters which are basically 20 person theaters with smaller screens and much nicer chairs. They offer tables to put your stuff on, space between seats, and also servers that deliver you drinks and popcorn or whatever you want (prior to the movie starting).

I could definitely see blockbuster going that route. Setup a couple private screening rooms and let people book them for their friends/family/co-workers. Then as you say, make a point of showing them how reasonable it would be to make that kind of experience a reality in their own home, but only before and after the film.

jyothi2• 18 years ago

Agree. Even if you are not a visionary at least being updated with the market is absolutely necessary.

Imagine how Keyes would respond on Amazon's release of Kindle, lest sold books online or having a vast catalog.

BrandonM• 18 years ago

So... will you go to the trouble of pitching this idea to a VC and setting up shop in some major cities (Columbus being one of them)? This would be a cool way to meet new people.

It kind of sucks that there is nothing in between "watching movies with friends at home" and "watching movies with friends at the theatre". The former is a lot a of fun, and the movie is even ignored at points as you are having more fun with each other, but there is no chance of meeting new people. The latter is 100% focus on the movie with a few comments here and there, with a slim chance of meeting new people.

Your idea could be really cool... almost an informal theatre that allows talking and horsing around, a place for both friends and bored individuals, where you can meet cool new people.

The more I think about this idea, the more I like it.

rms• 18 years ago

>My plan B for them would be to change store format entirely. Build a nice home theatre that can sit 20 people and have showings of new releases. The catch is they use equipment that is in the $1000-$5000 price range, and it's a great experience that you can 'take home'. Delivery is free. Installation is extra.

Great idea, but not economical -- public screening rates for movies are ~$500. That was the rate clubs at my college had to pay, a commercial rate may be even higher.

a-priori• 18 years ago

When I was growing up, we went to a small-chain video store. They always had some movie (recent, but not new releases) playing on a real-projection screen in the store -- no seats or anything, but people would cycle through, watch for a few minutes, and move on.

As far as I know, they didn't play public screening fees, but different jurisdictions have different laws.

irinotecan• 18 years ago

Blockbuster has enough clout to force movie companies to "water down" their product so they don't have to sell "unrated / NC-17" editions of movies, why can't they negotiate a much better public screening rate? Also, if it is so un-economical, why do the electronics stores that sell home theaters do exactly this?

ricree• 18 years ago

Toss out Blockbuster entirely, and I think that this could be a viable business in and of itself so long as you could negotiate decent licensing terms. The only change I would make is to focus on allowing customers to choose the movie. Right now, people are pretty much limited to seeing movies in theaters when they first release and watching them on home systems.

The declining price of home theater systems makes the second option a bit better, but there is still a huge gap between the two experiences. I think that a company could do very well for itself by offering a quality moviegoing experience for small groups(let's say mini theaters seating anywhere from 10 to 50). The ability to watch old favorites on the big screen (and let's face it, who wouldn't want to watch Jurassic park in theaters again), and the opportunity to watch directors' cuts that never entered theaters in the first place could be a huge draw.

huherto• 18 years ago

From a consumer point of view. I hate going to Blockbuster because it takes me a long time to choose a movie. I would like to have the catalog online. Mark the movies that I have already seen. Mark the movies that I may like to see someday. Being able to make an online reservation, and on my way home pick it up at the counter.

stcredzero2• 18 years ago

The lesson: if the market confuses you, you are out of touch with it!

byrneseyeview• 18 years ago

There are plenty of times when being confused and 'out of touch' is better than pretending to know what's going on when people are being irrational. This is probably not the case with Blockbuster, but they don't have the resources to emulate Netflix. Their best bet is to hold on to a gradually declining customer base, and eventually liquidate.

stcredzero2• 18 years ago

You don't have to know what's going on when people are being irrational. (And besides, we're being irrational almost all the time.) You only have to know how to charge us for being irrational.

gibsonf1• 18 years ago

The biggest difference from a value perspective: Late Fees.

weegee• 18 years ago

I've been with Netflix since 2004, and tried Blockbuster Online a couple of times but always went with Netflix. The reason? Better selection, better website, better customer service. I thought the in-store renting deal with Blockbuster would be a plus, since there is a store within 5 minutes walk from my home, but while in the store, I asked myself, "what the hell am I doing here??"

keyes• 18 years ago

netflix.confuses.me

aditya4• 18 years ago

Wow. Is anyone reading the article or just going on with Netflix fanboy'ism?

This chart explains it all: http://www.flickr.com/photos/13736953@N00/2762004788/

Netflix is one segment of Blockbuster's entire getting media to consumer's strategy. Looks like the B&M folks are here to stay, no matter how much we love digital delivery!

He's right, Netflix is a small blip on their radar!

subwindow2• 18 years ago

I honestly can't tell if you are serious or not.

This chart explains it all: http://finance.google.com/finance?chdnp=1&chdd=1&chd...;

aditya4• 18 years ago

I was being serious -- do you really believe what the market thinks of Netflix vs Blockbuster (ie. suits on Wall Street) or what the reality of the business is (my chart vs your chart, if you may :-)

joanou• 18 years ago

I quit BlockBuster in 1998 after a dispute. I asked the clerk for scissors and cut up the card in front of him. Since then, I been very happy with Netflix, its convenience, and efficiency. Rarely it has problems and has responded well when they occurred. I am fascinated by the BB CEO being so out of touch.

h34t3• 18 years ago

There's a good lesson in here -- if one moves beyond knee-jerk criticism of the CEO for blindness/idiocy.

To him, Netflix is a marginal player lurking in a "tiny" $5.6b, while Blockbuster is the giant, going after the $27.2b. From this point of view, narrow as it is, he's not really crazy at all. And obviously some investors agree. There's a lot of money here that Netflix isn't even trying for, and Blockbuster has a foothold in.

Yet Netflix is worth 4x Blockbuster. Why? I'm not sure that the CEO has really followed this question to the end. He seems overly focused on the size of his market, rather than on how profitable it is.

Put another way:

Netflix is worth about 32% of the market it's playing in ($1.8b market cap, playing in $5.6b market).

Blockbuster is worth 1.7% of the market its playing in. ($472m market cap, playing in $27.2b market).

Physical presence seems valuable, so that's what he goes on and on about -- nobody can compete with Blockbuster in the physical realm, that's their advantage. But maybe that's because nobody wants to. Stores cost too much for what they give you.

Just because there's money being spent, doesn't mean there's profit to be made.

(all numbers taken from the CEO's own chart-graph of stagnation, at http://www.flickr.com/photos/13736953@N00/2762004788/)

_csoo• 18 years ago

Physical presence is valuable if used properly. Most stores aren't very inviting and it's hard to shop around for movies when you can only see the cover of the movie. The movie packaging doesn't tell you much.

Hm. An interesting idea is to have reviews of movies stickered on the cases.

h34t3• 18 years ago

I agree -- I'm just finishing up helping design a retail store for a new brand here in Calgary. With the right product/market mix, a retail store can be very profitable.

(Which is why it's good that Blockbuster is trying to change their retail model to something else -- "We have a physical store network that nobody can match, now let's figure out how to make money off it." It's just a shame that they haven't been able to take their eyes off those stores, so they've missed other opportunities..)

abossy• 18 years ago

"Hm. An interesting idea is to have reviews of movies stickered on the cases."

I don't have a Netflix subscription because I've been renting movies from the local mom-and-pop store near my apartment. It's employed by film-school-dropouts and they have hilarious comments stickered on the movies. It always affects my movie-renting decisions! A corporate hog like BB couldn't scale such mom-and-pop personalization, but reviews would be an excellent alternative.

netcan2• 18 years ago

This article's a bit unfair.

If you read the interview (kinda long) the quotes' are a little out of context. At least they don't really represent the jist of his arguments.

Sure, the business model is built on artificial product life-cycles, content-container hybrids that are unnecessary and market segmentation that is being aggressively created to wring as much out of a new flick as possible.

He refers to this: http://www.flickr.com/photos/13736953@N00/2762004788/ (He segments the market across 2 axis (medium - store/mail/internet/kiosk & method - rent/buy/subscribe)

But given that environment, his arguments are reasonable. They want to focus on the big market - Physical Store. VOD subscriptions, he sees as a small market indefinitely. VOD buy/rent he sees as a long term direction so.

The point about new releases sounded a little more along the lines of:

The new release market is more substantial. We have chosen to focus on those. We can, if needed support the long tail.

It's a bit cheap taking shots at everyone & anyone in an anachronistic business. What do you expect them to do throw the business out the window & start over? The in store market still exists.

Blockbuster CEO 'Confused by Fascination' With Netflix

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