Blockbuster UK Puts DVD By Mail Program In Pause Mode
Over the last few years, Blockbuster has been selling off their international operations piece by piece, in an attempt to return the company to profitabilty and to pay down the debt on their balance sheet. Over the last six months, we’ve seen speculation that Blockbuster is planning on selling their UK game division and in fact, they even took the unusual step of filing an 8K last September, indicating that a sale may or may not still be on the table, after a representative for the company told a UK trade group that they were planning on opening additional video game stores in 2007.
While Blockbuster hasn’t provided further comments on their Game Station plans, it is worth noting that earlier this year, Movie Gallery commented that they were planning on selling their own video game stores, but were hoping to wait until after the holiday season because of how profitiable these stores are during that time. It could very well be that Blockbuster has made the same decision with their UK Game Station stores, but when it comes to their online rental inititive in the UK, the end of the holidays may mean curtains for Blockbuster’s UK DVD by mail program.
In a post on his affiliate marketing blog, One Little Duck has said that Blockbuster UK will stop paying affiliates to sell the online service effective Christmas day 2006. In the meantime, they’ve announced that they are immedietely cutting all commissions paid for referals to only 4 pounds as a result of cost cutting at the company.
This move follows the replacement of Blockbuster UK’s Managing Director, Alex Sparks with management from Blockbuster’s Irish Video store chain, XtraVision. Despite the end of Blockbuster UK’s affiliate program and XtraVision’s new management over Blockbuster’s UK, Italy and Denmark divisions, XtraVision COO Gerry Butler has denied that the company is interested in selling Blockbuster’s international operations.
While I don’t fully understand why Blockbuster is backing away from their UK DVD by mail program, when they are simultaneously expanding their internet services in the US, it may indicate how difficult rental conditions have become in the UK. This could be a momentary pause in Blockbuster’s UK plans or it may be another indication that the company continues to struggle overseas and is trying to sell off their international stores, so that they can focus on their domestic opportunities instead. Either way though, putting the growth of their UK division into pause mode cannot be a positive sign for Blockbuster and will either force the company to sell these stores or watch as competitors poach customers from them.
Competitors have already taken notice of Blockbuster’s troubles and while Blockbuster continues to try and define their European strategy, two Irish entrepreneurs, Gavin and Iain McConnon, have already announced that they will be launching their own DVD by mail program named Moviestar.ie, that will compete directly with XtraVision.
With the competitve landscape for DVD rentals becoming increasingly tough, there is no telling how long Blockbuster will continue to be in downsizing mode. While the company could eventually transform their business into an internet business model that focuses on DVD by mail and VOD, it’s clear that this transformation will not come easily for a company that has a legacy of debt, store leases and poor management decisions to overcome.
Posted on November 21st, 2006 by Davis
Filed under: DVDs, Disclosure - I own stock in co. mentioned, Netflix
Your comments certaibnly ring true in my mind. While I have seen Blockbuster attract many new customers, with what I believe is a great customer proposition and even better customer service, I am astounded they they have begun what seems to be a retrenchment. I have also noted that their affiliate programme is winding down and as you have said will end in Dec this year and in the meantime has reduced to just £4 per gross addition. Sainsbury pulled out of this market not so long ago, and if Blockbuster does pull out it will leave the market wide open to competitors such as LOVEFiLM and Tesco……
[...] Less then a week after the company denied that they are trying to sell off their international properties, we’ve seen the company abandon their affiliate program in the UK and now Digitimes is reporting that they’ve sold off their Taiwanese Blockbuster locations to Taiwan based Webs-TV. [...]