Internet killed the video star - TechCentral

Internet killed the video star

[By Alistair Fairweather]

Blockbuster Video. It’s a great name, isn’t it? For nearly two decades it has ruled the video-store roost, both in the US and around the world. But now, after years of billion-dollar losses and with its share price in tatters, it is filing for bankruptcy.

What happened? Well, many things, including corporate bloat (it has more than 6 500 stores), some questionable management decisions, and much stronger competition from cable television. But if we have to pick a villain here, it’s the Internet.

Blockbuster built its success on a similar set of principles to Starbucks: have lots of stores, have lots of copies of the freshest movies, and manage your inventory cleverly. David Cook, who founded the empire, was a database geek and so managing and customising the huge catalogues of videos came naturally to him.

The problem is, even with 30 copies, Blockbuster would still run out of the latest action extravaganza on a rainy Saturday. No Aliens vs Son of Rambo, no happy customer. People accepted it, though — what other choice was there?

And if you liked a particular genre of foreign film — say Czech love stories from the 1950s — you weren’t going to find it at Blockbuster. Its back catalogue was good if you wanted to watch 1980s comedies, or classic Hollywood fare, but if you loved Pavel Koutecký you were out of luck. Again, what could you do?

The thing is, with the Internet, none of that need apply. Your back catalogue is limited only by the size of your hard drives. And with the Internet customers don’t have to get out of their pyjamas and drive down to the store, only to find the last copy of Crocodile Dundee 7 has already been rented.

No one knows this better than Netflix, Blockbuster’s arch-rival. Though it started out as an innovative mail-order DVD rental company, it has steadily morphed into an online video-rental service. It is now generating billions of dollars in revenue and expanding rapidly.

What’s particularly interesting about Netflix’s model is that it simply does what Blockbuster always offered, but better. Its back catalogue is bigger and more exotic, it always has enough copies, and its online sorting and recommendation service beats even the brainiest video store clerk.

So are video stores as a whole about to go extinct? Not for a good decade, I would guess. Just look at SA — bandwidth is too expensive for the average family to consider renting a 2GB movie for an evening’s distraction. That will change in time though — and then the blood-letting will begin.

And look at Africa. In places like Nigeria they do a roaring trade in VHS copies of everything from When Harry Met Sally to their own home-grown Nollywood fare. They also listen to most of their music on cassette tape. Most SA teenagers don’t even know what those two formats look like.

But, as a business model, the traditional video store is pretty much on its last legs. It’s sad in a way, but also inevitable. Nostalgia is easy when you have an alternative. I’m sure people bewailed the end of peaceful sea voyages, and decried the arrival of the jet age in the 1960s. But tell that to the sea sickness-prone businesswoman who needs to be in Tokyo tomorrow.

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  1. Couldn’t agree with you more Alistair. And if guys like Mr Video are wise they’ll take the delay of effect on the SA market as a lucky break and start moving into other areas like online rentals etc. But I fear that as history would have it, these big companies will just rest on their lorrals and go bang.

  2. Alistair this is a really great article…… and a good synopsis of where things are going.

    I think the one subtle point where Netflix competed head on with Blockbuster even on the physical side is in their blockbuster DVD’s, which accounts for roughly 30% of their revenue and is in the same DVD release window as Blockbuster Video.

    Even in their core physical DVD business, Netflix beat blockbuster hands down through the use of technology with the physical distribution of their 6 rotating DVD’s and clever algorithms (and a clever business model backed by the US Postal Service)…

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