Sun 14 Oct 2007
A brief history of time:
1- 1923- Vladimir Zworkin patented his iconscope TV camera tube which is basically the first electronic television
2- 1952 - Charles Paulson Ginsburg headed the team that invents the VCR
3- 1987 - Blockbuster is founded
4- 1988- Hollywood video is founded
5- 1996 - Brent Townshend invented the 56 kbit/s modem.
Viable businesses exist because they solve important problems. For consumers, the problem is that they want to be entertained, but that entertainment is displaced in time or location from them. For the last twenty years, the video rental business has had a blast capitalizing on this dilemma. They have been able to charge several dollars for each video rental and reap nice rewards by leaving heavy late penalties on their customers. With all that abuse, we keep coming back.
That lucrative time is over, and Blockbuster has realized it. For the past two years, they’ve been lowering their prices, reducing or eliminating late fees and introducing new programs that allow consumers to have videos out on a continual basis. Much of this change was prompted by the introduction of NetFlix in 1997 and it’s subsequent explosive growth (currently 6.7 million subscribers.) NetFlix, unburdened with expensive PP&E assets, is able to offer DVDs at a very low monthly subscription rate, undercutting competition. Blockbuster has been feeling the pain.
Not too long ago, Blockbluster also introduced a low monthly fee by mail and store service (Total Access) and spent considerable money informing everyone that they, with their stores, were now better than NetFlix.
Not to be outdone, NetFlix countered by offering downloads of movies (currently the selection is rather slim, and subscribers are hour limited.) Still, the ball is now in Blockbuster’s court.
During all of this Hollywood Video has done… absolutely nothing. My local Hollywood Video, in fact, just closed their doors last week. Goodbye!
Hollywood Video will likely be out of business in less than two years, but I predict that Blockbuster will be gone in under five. Here’s why: they are selling physical rental of electronic bits and that is becoming increasingly silly.
Renting bits made sense when they started two decades ago when sluggish 2400 baud modems were the only thing available, but high speed fiber is being laid at a fantastic rate across the country and soon, all your entertainment, in the highest quality will be streamed into your house, selected by your computer (or some other smart box) and then fed into your flat screen television.
Physically storing bits on plastic is so last century. Let’s move on.