Thursday, September 23, 2010

It's Between Chapters 10 and 12

No, this isn't about Borders (at least, not directly; see below). But it is about another brick-and-mortar franchise whose very existence is imperiled by the Internet: Blockbuster.

After suffering a difficult last few years, including ever-shrinking profit margins and the delisting of its stock from the New York Stock Exchange, the (former) video rental giant announced today that it's filing for Chapter 11 bankruptcy (though they're calling it a "pre-arranged recapitalization").

I think relatively few people are surprised, though I would have given them another year or two before expecting a bankruptcy announcement. Between Netflix's stranglehold on pre-planned video rental and redbox's domination of the impulse rental with their kiosk model, Blockbuster hasn't had anywhere to go for some time.

Speaking of nowhere to go: while Borders hasn't (as far as I know) given any indication that they'll be filing for bankruptcy anytime soon, I do see some similarities between the two companies. Both are apparently strapped for cash; both have been (or have been in danger of being) delisted by the NYSE (Borders' stock has hovered around the minimum average close of $1.00/share for most of 2010); both are competing against impossibly popular, efficient, and fast-growing electronic competitors (Netflix and Amazon, respectively); and both demonstrate, à mon avis, only a half-hearted and ill-informed attempt to enter the digital market (Blockbuster with their on-line rental queue feeding their mail service, Borders with their .com business and partnership with various third-party e-reader manufacturers).

Long story short: I'm not surprised by this turn of events for Blockbuster and while I don't think it necessarily prefigures a similar downturn for Borders, I think the stories are similar enough that both consumers and industry insiders should be paying attention. If Borders' management doesn't right the company quickly, it may be too late to avoid a "pre-arranged recapitalization." Here's hoping it's not too late already.


  1. Adaptability is a key to survival. I wonder if there was a stubborn refusal to adapt to the changing market, a simple mis-reading of consumer demand, or if they tried diligently couldn't implement the changes in time.

    About a decade ago the CEO of Iomega mis-read the data storage market and banked the company's future on his thought that "the future is zip." As it turned out, the future was CD-RW, DVD, flash drives, and SAN. Compression was not as important to consumers because storage capacity grew so fast.

  2. I remember when they came on the scene and hurt so many smaller ma and pa stores. I was in the video business as a wholesaler in those days (early 1990's) and saw lots of friends hurting. The word "Blockbuster" became taboo among the smaller weary stores.

    I know a lot of people who are happy to see them going down. Although they are keeping their stores open during restructuring, who knows what the future will hold. (They'll never make it long-term)

    Just happy to not be in that business anymore. Publishing is much more lucrative.

    I should qualify that: e-book publishing.

  3. Restructuring didn't work for Hollywood Video, and I doubt that it will work for Blockbuster. Netflix, Redbox and Amazon are so much more user friendly and have much better customer service. If Blockbuster could make itself into something like a Netflix/Redbox hybrid, they might have a chance. But all those customers who got taken for a ride with various crazy late fee and subscription traps will probably never go back, no matter how much they restructure.

    So I think Blockbuster has some industry specific issues that will affect them in ways that are unlikely to apply to Borders.

  4. It doesn't surprise me at all. I think there's only a handful of stores left in my area. We have Family Video chain that opened up here and I'm interested to see how long they last. Their prices are cheaper than what Blockbuster's were.

  5. Blockbuster didn't adapt to their competition, and not just in terms of not embracing digital. I would have continued to use them if they weren't just so much more expensive than their competitors. I think last time I rented from them, it was $5 for a movie that wasn't even a new release. Sure, I got it for five days, but I didn't need it for that long. Compare that to Redbox's $1 a night, especially since I never really rented movies I didn't plan to watch right away anyway, or Netflix's $9 a month for as many movies as I can watch, send back, and receive, and there's no reason for me to have continued with Blockbuster. It would have been ludicrous.

    Borders at least had a chance, especially since it was selling products rather than renting them. In their case, it's all about availability of materials and competitive pricing, and they have to go digital to compete against cheaper retailers like Amazon.

  6. I want my Borders back. I'd settle for Waterstones, or anyone, making my book/music/coffee buying experience as much fun.

  7. I agree with everything else posted above. It just amazes me that they're still keeping stores open despite the mountains of debt they're in. As was previously mentioned, there are just too many people that were burned or confused by BB's crazy pricing scheme and late fee charges to turn back to that brand should they re-emerge with a Netflix makeover. Though, there are still plenty of folks that stay off the internets that might be interested in their revival.
    And Elaine, I'm completely with you on Borders. Borders in its heyday was such a cool place to go and peruse. It was corporate, for sure, and there are certainly a ton of really great bookstore/coffee shops out there that are much more authentic, but for a big chain store, it sure felt 'indie' to me in the beginning...