The Internet Killing “Old World” Businesses
In the late 90′s pundits around the world foretold of the rapid dimise of traditional business at the hands of the Internet. Of course this didnt really happen as the internet provided more of an evolutionary change than a revolutionary change. Still, the internet has dramatically changed our economic landscape.
Just take the online real estate advertising business. Ten to 15 years ago, everything was advertised in the paper. Now classified sections have shrunk to former shadows of themselves. If you are looking for a flatmate or a rental, you wouldnt even consider buying a paper, Craiglists or one of the thousands of niche sites out there provide a far better service. The same is happening with homes for sale … it is just a matter of time before more and more papers either reinvent themselves or just disappear.
Therefore it was with interest that the following article came across my desk from the Wall Street Journal about the Blockbuster thinking about entering bankruptcy protection. No wonder businesses like Netflix (USA), Lovefilm (UK and Europe) and Quickflix (Australia) are growing at ever increasing rates.
It will be interesting to see which other busniess and industries give up holding back the tide and are swept away by the continuous onslaught of the internet.
Blockbuster Considers Bankruptcy Filing (Source: Wall Street Journal)
Blockbuster Inc. again warned it may have to file for bankruptcy protection as the movie-rental company remains unprofitable. In its annual report filed Tuesday, Blockbuster said its declining sales and cash flow, coupled with increasingly competitive industry conditions, “raise substantial doubt about our ability to continue as a going concern.” Blockbuster provided similar warnings nearly a year ago before it was able to refinance its long-term debt in the fall. Nonetheless, the latest warning reminds investors of the serious challenges that the company faces—challenges that have increased in recent months with the rapid pace of change in movie distribution. Movie studios are showing increased willingness to release films via video-on-demand on the same day they are released on DVD, which threatens what Blockbuster had claimed as one of the remaining competitive advantages of its store base. As of Jan. 3, Blockbuster said, the company’s total liabilities were $314.3 million more than its total assets. Blockbuster is scrambling to expand in new distribution channels as rentals and sales at its 6,500 stores world-wide continue to decline amid intense competition from mail-order movie-rental services such as Netflix Inc. and rental kiosks. Blockbuster has its own mail-order service, as well as a brand of kiosks that are owned and operated by NCR Corp. Blockbuster also has worked with TiVo and other electronics makers to boost its digital-download offerings. But those businesses so far haven’t taken off quickly enough to offset the declining rentals and sales at its stores. With its growth efforts constrained by debt and declining cash flow, Blockbuster is closing hundreds of underperforming stores, including 500 to 545 this year, and has outlined $200 million in fresh cost cuts tied to staffing and advertising spending. Since last year, it has pursued options for overseas assets, selling its business in Ireland in August for as much as $45 million in cash, but it so far has been unable to close deals on other divestitures.
Disclosure: Simon Baker invests in and is a Board Member of Quickflix.
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Any information business (news, music, movies etc) that has a physical component (paper, cd’s, dvd’s etc) is in trouble if they can’t adapt to remove that physical component. Actually having to go to Blockbuster to pick up a DVD makes no sense when you have the infrastructure to get it directly from a plug in the wall. Many old organisations have used that physical aspect as a way of controlling their media distribution as well, and it is taking a long time for them to realise they can remove that without relinquishing all control.