KEY POINTS:
If you stick two bricks together, they still won't float. With that in mind, it is probably a good thing that Blockbuster pulled out of its US$1.3 billion ($1.7 billion) deal to buy American electronics retailer Circuit City last week.
Now the company that once led the world
in video and DVD rentals must contend with the realisation that it has become, in business terms, a brick, with all the associated buoyancy problems.
It is hard to believe that, back in 2002, Blockbuster shares were trading at more than US$30. Today, as the idea of a high street video rental chain becomes more of an anachronism every week, the shares are trading at just US$2.67.
There is a very simple reason. In the fast-paced world of entertainment media, the idea of going out to a shop to rent such a thing as a silver disc in a box has become faintly ridiculous. Few people these days, in America at least, buy similar silver discs when they want to listen to music. Most with disposable incomes and a strong moral compass buy their tunes directly from online retailers such as iTunes, and store them on their computers and iPods. The rest of us simply download them free from our friends or from friendly websites that still offer such nefarious services.
The same goes for films. I know some hardcore web pirates who haven't rented or bought a DVD movie or TV series for years. Instead, they download their cinematographic booty from the internet overnight, or while they are at work, ready to watch when they get home. But until recently this sort of behaviour wasn't much of a thorn in Blockbuster's side - at least, not compared with its other problems.
Because, for the best part of a decade, Blockbuster has struggled even to keep up with subscription and mail order DVD rental outfits like industry leader Netflix.
Blockbuster is still the DVD rental market leader in the US, with 20 million customers. But the company has somehow squandered its market dominance, allowing Netflix to become an industry darling with 8.2 million subscribers to its mail order service and a catalogue of 100,000 movies.
Blockbuster simply failed to see Netflix as a serious competitor until it was too late and launched its own DVD by mail subscription service in 2004. Since then, the old high street stalwart has limped along, making one embarrassingly large loss after another, while Netflix - and technology - continue to leap forward with remarkable agility, at least by comparison.
You would think that, after missing the Netflix trick by such a wide margin, Blockbuster would be keen to jump aboard the next movie rental bandwagon with all the gusto it could muster. Sadly, it has missed out again.
Legal movie downloads are the next big thing in home entertainment. In fact, they have been the next big thing for quite some time in America.
Just as Napster spawned iTunes and other paid-for online music services, so too have the online movie pirates given way to commercial movie download systems like Apple TV and Roku.
Apple, the untouchable consumer electronics company, is already on to version two of its Apple TV service, which allows subscribers to download movies via iTunes on to a set-top box - as well as hundreds of free video podcasts - and watch them on the television sets in their living rooms.
The Apple TV service is set to debut in the UK later this year and will offer the latest movie releases in high definition for around £3.99 each.
Netflix has teamed up with Roku to produce its own version of the Apple TV set-top box, which will allow its subscribers to download any number of films at the touch of a button - so you won't even have to wait for the post to watch a film, never mind walking down to the video shop.
Blockbuster, meanwhile, is still "planning" to launch its online streaming video service - but, once again, the rest of the market is some way ahead and likely to remain so.
So with all these problems to contend with, it is odd indeed that Jim Keyes, the relatively new Blockbuster chief executive, should decide that buying Circuit City, a stumbling electronics retail chain, would save his neck and turn the company around.
Investors were equally mystified, but sounded approval when the deal was pulled last week by sending the shares up more than 6 per cent. Blockbuster still has a slim chance to muscle in on the downloading market, despite the formidable headstart gained by Apple and Netflix.
But if Keyes so much as stumbles over this one, it may be time to call "cut" on Blockbuster's final scene.
- OBSERVER
