Friday, April 30, 2010

Did Redbox Kill the Video Store? New Ideas with Old Themes

What did you tell them?
Red Box killed the video store.
Red Box killed the video store. 

For those of you who remember the days of your vcr, a beta or vhs tape and a date, this walk down Memory Lane will also take you into the local video store. Year you remember the old brick and mortar store that sprung up for about a 30 year period  in the United States.

Those who got in early... and got out within the first 20 years of the video rental business then got out were the smart ones. (Does anyone remember paying $100.00 or more to belind to a video club?)  Movie Gallery (formerly known as Video Update) was the last of these stores that died a slow and painful death in our town. Sure expenses like rent at the shopping plaza, and employees took its toll. But the real culprit to the death of this local store was one little Redbox 150 feet away. The brick and mortar store just couldn't compete with a machine. Of course in the world of business, natural selection takes over unless you are part of a government subsidized business lobby. See CAIGGM and friends.

In terms of movie rentals, Redbox has a simple model. Place machines in high traffic areas and let the machine do the work of the video store. Let's face it, for those who remember video store experience, this is not much different. For only $1.00 you can stay home and enjoy a video.

However, Netflix has stormed onto the scene. It's first business approach was a simple. Utilize monthly membership fee and mail service to deliver dvd's right to your door. Netflix even offered a free trial to those who are weary of new consumer options. The more recent move into streaming video options and a recession that finds people looking for cheaper entertainment options positions Netflix to be the of ebusiness.  Investors have been handsomely rewarded.

The question is whether Blockbuster can change fast enough to challenge Netflix. Blockbuster has abandoned many of their video stores. And, Blockbuster has a long-established name. Blockbuster has even attempted to rival Netflix with an on-line video experience which also offers a free trial.  The question is only if it is too little, too late?

Growth areas? Great question. The current market suggests that games are another place to attract consumers. Gamestop appears to have successfully transformed itself from a shopping plaza storefront to a viable on-line business model. Gamefly's IPO  (GFLY) could however pose a problem to Gamestop. Could it be a case of Movie Gallery all over again? With free trialmembers and an endless mass of gamers, we can only see new opportunities.

The meteroic rise of Netflix and the potential of GFLY should not be under-estimated. Let us remember that it is not always the company that has the best name. But it is the company that builds a name with a new and more savvy consumer that usually succeeds.

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