Blockbuster: Time to Go for the Triple Play

Should Blockbuster (BBI) get into the video download business? Michael Greeson, principal analyst of the Diffusion Group, thinks they should.

In a research note,

Greeson contends “it’s time” for the company to offer a “triple-play” of mail, bricks-and-mortar and online movie rentals; he says such a move “could give a second wind to a dying brand and uniquely position the company for long-term success.”

He could have a point, actually. Blockbuster has been visibly damaging Netflix (NFLX) with its double-play Total Access offering that combines mail and in-store rentals into a single program. Adding a digital download option could make sense, at a time when Netflix itself recently started to offer a limited number of movies for free streaming over the Internet to subscribers.

Greeson’s note points out that “Blockbuster has a lousy record when it comes to identifying and quantifying emerging trends that may impact its business.” He observes that the DVD sales market is dominated by mass retailers like Target (TGT) and Wal-Mart (WMT); he adds that “of particular embarrassment was Blockbuster’s inability to foresee the emergence of Netflix,” allowing a “no name upstart” to snag “millions of Blockbuster converts who wanted a better video experience.”

Greeson notes that, while Blockbuster was an early investor in CinemaNow, it otherwise “has no real presence in an important emerging market,” while Amazon (AMZN), Apple (AAPL) and others are already building online rental and sales businesses. But he adds that the roll out of the Total Access programs hints that “the company is actually aware of what cards it does hold.”

By adding video download service, he says, Blockbuster could provide “a comprehensive yet cohesive market message, one in which Blockbuster is itself recast as the true innovator in consumer video.”

He also contends that Blockbuster “has the brand clout” to make video download a mass market business.

Think of how Apple’s entry into the online video business has drawn attention to the progress that online video has made, as well as enhanced the awareness of online movie services. Blockbuster’s entry would have a similar impact, but instead of speaking to Apple fans and technology enthusiasts, it would whisper to the mass audience of Internet households that (given the right equipment) a broadband connection is now a legitimate conduit for delivering on-demand movie content to your primary home TV.

In Friday’s trading, Netflix was down 43 cents at $22.82; Blockbuster was down 31 cents at $6.26.

Thursday: Netflix: Weak Subsriber Guidance Mutes Gains; Analysts Fretting Over Blockbuster

BBI vs. NFLX 1-yr chart