This Slate piece about Blockbuster, the movie rental chain, is fascinating; well, it’s fascinating to someone like me who thinks formats and markets and channels and digital data and movies are interesting in themselves. Stir them all together and…
In 2005, Greg Meyer wrote a letter to the management of Blockbuster. He wanted to warn the movie rental company of a looming revolution: DVD vending machines that were showing up at supermarkets and fast-food joints all over the country. At the time, Meyer was the CEO of DVDXpress, which operated DVD kiosks in New York and the United Kingdom. He was offering Blockbuster a chance to get in on what looked to be the next great transformation of the home-video rental business.
If Blockbuster installed a DVD machine outside each of its stores, Meyer argued, it could offer movie rentals even when the store was closed. This would likely increase the revenue at each retail location and let the company reduce its operating hours; with the kiosks, Blockbuster could justify closing each store during the three slowest hours of the business day, saving $140 million a year in operating costs. Meyer gave the Blockbuster board his contact information and proposed a meeting to discuss his kiosks. He never heard back.
Five years later, Blockbuster looks foolish for ignoring the kiosk revolution. Redbox now operates machines at 22,000 locations, and it’s poised to expand to 30,000 by the end of the year. In 2009, Redbox’s parent company, Coinstar, doubled its revenue in the DVD business; Redbox now accounts for about 20 percent of the DVD rental market. Meanwhile, Blockbuster looks nearly sunk. In 2005, when Meyer sent his letter to the board, shares of the company—which had already been roughed up by competition from Netflix—stood at $9. Today, two Blockbuster shares wouldn’t buy you a $1 rental at your local Redbox. With $1 billion in debt, Blockbuster is flirting with bankruptcy.
Yet here’s the crazy thing: Greg Meyer is still trying to save Blockbuster. In 2007, Meyer sold his DVD company to Coinstar. After DVDXpress merged with Redbox, Meyer left the company and used part of his windfall to invest in Blockbuster; he now owns about 650,000 shares of the firm. Despite Blockbuster’s current troubles, Meyer believes the video chain can thrive once again.