Thursday, September 23, 2010

Blockbuster Bankruptcy: External Forces at Work

The bankruptcy of movie-rental mainstay Blockbuster has been blamed on its competitors in the movie rental business. That’s an interpretation that probably comes mostly from Blockbuster itself, as it puts a favorable light on the company’s ability to continue to operate after reorganizing.

But other external factors are also at work. The recession has put new pressure on consumers, leaving them with little time to watch long-form movies. Technological advances that make it easier than ever to make movies, but not much easier to distribute them, means there are more high-quality free movies than ever. Hollywood has done poorly since the end of the Lord of the Rings series in making movies that grab people’s attention.

There is not much a video-rental business can do to bring customers into the store. Lowering prices may not help in a business where prices are already low. Loyalty programs risk adding pressure to already frazzled consumers. And when time is tight, the movie rental is one of the first things people cut.