Analyst, consumers wonder how Blockbuster can compete in digital age amid restructuring

By Stephanie N. Rotondo

Portland, Ore., Sept. 23 - Blockbuster Inc. announced Thursday that it had filed for Chapter 11 protections, but analysts and consumers alike wonder how the company can compete in the rapidly evolving digital age.

"I have my doubts," said Mary Ross Gilbert, a managing director covering the consumer and retail industries at Imperial Capital.. "I feel like it's just come too late.

"The industry has been moving rapidly forward to a digital model," she continued, adding that consumers have already quickly adapted to the new model. While Blockbuster does have an online service, Gilbert feels that their participation was "not material enough" to make a difference in the overall health of the company.

"They clearly had potential, but they just moved too slow," she said.

Blockbuster was founded in 1985 in Florida and the fledgling company soon flourished.

But even back then, consumers were put off by some of the company's policies.

"While swelling in size, however, Blockbuster began to alienate customers with strict late fees and unimaginative, warehouse-style stores," wrote U.S. News & World Report blogger Rick Newman. "It also overlooked e-commerce while sticking to its long-held retail strategy, even looking into buying the defunct Circuit City in 2009."

In 1997, NetFlix entered the mix and other similar companies followed, bringing with them a wealth of movie-rental options, including on-demand service and mail-order. One by one, the companies began to steal market share from Blockbuster, who remained committed to the old-fashioned retail model, even as consumers were moving away.

And, Blockbuster is not the first retail-driven movie rental company to fall on hard times. Movie Gallery Inc. was forced into bankruptcy not once, but twice, and the second time proved to be the death knell for the company: Movie Gallery permanently shuttered all of its approximately 2,500 stores this year.

"Why go to a brick and mortar store when the movies can be delivered?" said Kirby Gleason, a resident of Portland, Ore. "Or are available in digital formats on demand? With Netflix and on-demand, I do not have to stand in lines, be disappointed if a title is not in stock, listen to the pithy clerk comment on my choices, or pay late fees.

"The times are a changin'," he added.

The name of the game - for consumers, at least - is convenience and making that extra trip to the movie store is becoming a thing of the past.

"I have Netflix for TV shows and old movies," remarked Geoffrey Lee from Venice, Calif. "I go to RedBox when something new comes out. I go to 7-11 all the time. It's so easy."

Added Boardman, Ore. resident Bren Cornelius: "We stopped going to Blockbuster in the '90s. We watch only local channels [via a digital converter box] and we have Netflix we use by online, in the mail and also with our Wii.

"And the price for it all? A heck of a lot cheaper than just going with Dish or driving to find a movie."

Blockbuster is a Dallas-based movie rental chain with about 3,000 stores located across the country.

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