Is Blockbuster springing into action too late?

Revenue last year plummeted 20% to $4.06bn (£2.6bn) from $5.07bn (£2.8bn) in 2008. In the space of five years, Blockbuster’s net sales have fallen by a third, with little signs of any slowdown in the rate of decline.

In fact, the latest speculation suggests that the retailer might consider disposing its European operations - in Denmark, Italy and the UK - in order to save its core US business. Last year, the company exited the Irish market, followed by Spain last month.

Blockbuster chairman and chief executive Jim Keyes recognises the company must now adapt or die. The business is investing in a new multi-platform approach, including online movie downloads and the expansion of rental kiosks, to try to shore up its business.

However, such initiatives now seem simply too little too late, with many of its rivals already offering similar services. And the competition is only going to get tougher after Walmart’s recent acquisition of film download service Vudu and speculation that You Tube is in discussions with big studios about streaming movies via subscription.

The recent bankruptcy of Movie Gallery in the US highlights the decline of the video store format in the face of growing online and digital competition. Movie Gallery cited intense competition from Netflix, cable and other view-on-demand services and Redbox, the kiosk-based rental service, as contributing to its decline.

Indeed, the latest data suggests that DVD and Blu-ray rental revenue actually rose by 4% in the US last year as more people stayed at home. Unfortunately for Blockbuster and other stores, the gains primarily went to non-store players such as Redbox and Netflix. There was a 94% surge in revenue from $1 per night DVD kiosks and 25% growth among online subscription services.

Saddled by debts of about $964m (£594m), selling further stores seems like a certainty for Blockbuster. Between 500 and 1,000 US stores could close by the end of this year. Selling off its remaining overseas businesses, including Europe, also seems highly possible.

Over the longer term, the retailer said it is committed to the transformation and diversification of Blockbuster into a multichannel media entertainment provider. But increased rivalry and changing consumer habits will mean it could be fighting a lost battle.

Robert Gregory, research director, Planet Retail. For more information contact us on:

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