The present, so it seems, is still where the money is. Just ask one of Blockbuster's newest competitors, a company that bet, in a sense, against the future. The business model for 3-year-old NetFlix rests on ordering DVDs online that are then delivered and returned through the mail. By eliminating those annoying late fees - which account for a full 15 percent of Blockbuster's $4.96 billion in revenues - NetFlix appeals to customers who "love movies and hate Blockbuster," says the company's CEO, Reed Hastings.
Video-on-demand won't become a significant business for at least five years, Hastings predicts (by which time he figures to be in that business, too). Sure, the technology is there, but "they also have helicopters so you can commute," he says. "Video-on-demand is a really compelling vision, but it's just not economical to deliver it."
While video-on-demand isn't exactly Topic A in most living rooms, it certainly is in some executive suites, where people like Antioco are busy plotting the future. In Antioco's case, his chain's muscle complicates his plans. For video-on-demand to work, it has to feature the same broad selection of movies as one of his video stores. That means striking deals with the studios, which are loath to let Blockbuster dominate another potential multibillion-dollar business.
Antioco uses soft corporate-speak to describe Blockbuster's "negative leverage," or what might be described as its ability to extort what it wants from the studios. Some suggest Blockbuster already employed such tactics with Universal when it negotiated digital-film rights for the Enron deal. Blockbuster's revenue-sharing video-rental contract with Universal expired last October, and Blockbuster made clear that it wouldn't renew without securing digital rights for the Enron experiment. (Blockbuster and Enron test-marketed the arrangement in the Pacific Northwest.) When Universal balked, Blockbuster applied pressure. It refused to stock tapes for Bring It On and Rocky & Bullwinkle, two of the studio's new releases. Universal cried uncle and signed over the rights.
"This is not us bullying," says Blockbuster's Raskopf, who adds that the company will not renew any revenue-sharing deals without new provisions allowing for video-on-demand. "This is saying, 'We're in this to make money for all of us.'"
Blockbuster insists that the studios need it as a middleman. Consumers already think of the blue-and-gold stores as a repository of films. After all, people don't shop for movies by studio; most have no idea who produced Erin Brockovich (Universal.) And Blockbuster's ability to influence viewing habits with promotions and other marketing could help keep video-on-demand from eating into the rental business. When it started selling subscriptions to DirecTV, for example, Blockbuster gave away a 52-week free rental card - and Blockbuster claims it rented more movies than ever.
To help it devise effective ways to boost the rental business, Blockbuster has a potent marketing tool: a database of the viewing habits of its 50 million customers. That data can help Blockbuster target suspense movie fans, for instance, when the latest John Grisham movie becomes available on broadband. "I think they have a lot to offer," says one studio executive who calls Blockbuster a "good partner." Though he acknowledges Hollywood's love-hate relationship with the chain, he adds, "There's probably a deal to be had [on video-on-demand]. But it's got to be on terms that work for both sides."
