Blockbuster have announced that they’re going to stop bothering online competitor Netflix, and instead concentrate on trying to rent people movies.  This decision was brought on by the fact that they haven’t been making very much money doing either while they tried to do both.

Quarterly profits fell $10 million since last year, which would be bad enough except last year they lost $27.5 million in a quarter.  That’s right, in a year of business Blockbuster has increased their ability to fail to make money by 40%, losing $37.8 million in the last three months (as reported by the Houston Chronicle).

Part of the reason for this might actually be good foresight.  Blockbuster certainly recognised the the threat online services like Netflix posed, and one can picture an executive in a boardroom somewhere declaring "We must destroy them no matter the cost!" Unfortunately when you’re a business, "the cost" is something you have to keep an eye on.

After courting millions of online-service subscribers, every one of which ended up costing Blockbuster money, the company has decided to cut its losses and focus on the stores it hasn’t already had to close to reduce overhead.

Blockbuster Chief Executive James Keyes confessed that their online attempts were "a bit overzealous", which is as close as a CEO of a major business is legally allowed to come to saying "Holy hell, we screwed that up."

An even more expensive and underhanded stunt was the attempt to steal Netflix customers and property directly, giving Netflix customers free rentals if they deposit a Netflix mailer label in exchange (as described in Ars Technica).  Of course the cost of Netflix customers losing their deposits was not mentioned.

Luckily for everyone involved that offer proved ineffective.  Armed with the realization that a genuine technological shift has occurred (which many legacy businesses seem incapable of), combined with practical experience of what competition strategies are stupid, it will be interesting to see how Blockbuster move forward.

Assuming they don’t go bankrupt first.

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Entry was posted on Saturday, November 3rd, 2007 at 2:00 pm under Uncategorized.

Read more entries by Luke McKinney.
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