Michael Emilio

I just read an interesting report on new Blockbuster CEO James Keyes - mainly talking about taking his company into the “digital age”.

We all know about the “no late fees” policy. What may be surprising is how that turned out.

About the Blockbuster No Late Fees Policy

With the No Late Fees Program, there are no more penalties for late movies or late video games at Blockbuster but you still have a due date for the items you’ve rented - you get one full week for games and two days or one week for any movies you rent. If you want to keep your rentals an extra day or so, Blockbuster will give an extra week goodwill period for free - this means no late fee. But now let’s say you’ve kept the item for that extra week of goodwill they’ve given you and you still haven’t returned your rentals. Then your rental gets coverted into a sale and you have to pay the full price for the movie or game minus the rental fee you were originally charged. If you return this game or movie within 30 days though, Blockbuster will reverse that sale and only charge you a restocking fee of $1.25. This fee can vary between stores. Only about 160 franchise-owned Blockbuster stores have discontinued this program - all of Blockbuster’s company-operated stores in the United States and Canada are continuing this program.

Blockbuster CEO Responds to the No Late Fees Program

CEO James Keyes believes that starting that policy which eliminated movie rental late fees, which was implemented about three years ago, is one of the root causes of Blockbuster dropping in sales year after year since 2004. Yes, this means that sales have dropped since implementing that policy. On Blockbuster’s point-of-view, they loved late fees because they accounted for almost one-fifth of all revenue. Of course, in the customer’s point-of-view, late fees stink. Big time. So Blockbuster dropped them, in order to appease customers. But, what has it do for Blockbuster? After all, in business, the goal is to be profitable, not just make some people happy that used to be upset before. It’s a nice bonus, but rule number one in business is to always turn a profit.

The problem that the elimination of late fees has caused is that now Blockbuster customers, knowing they won’t have to pay the late fee if they bring the movie in late, return the movie very late. This means major problems for the new releases section of Blockbuster stores, since the store shelves are often stripped of new movie releases.

One idea I have for the new CEO is why not combine the no late fee policy with an early return bonus? For example, a standard movie rental at Blockbuster costs $4.49 (plus tax). If a customer brings back the movie the same day before closing, why not refund the customer $3? Everyone’s happy: the customer got a movie rental for $1.49 and Blockbuster still rented a movie but now has that movie available for other customers the next day. It’s a good compromise: James Keyes if you’re listening, take note!

Is the Total Access Online Rental Store Still a Focus?

One of the moves that new CEO Keyes is implementing is a de-emphasis on the Blockbuster Total Access online rental store, which has been unprofitable for them. It was pretty shocking for me to read that it’s been completely unprofitable. To think a company like Netflix had a net income of almost $50 million in 2006 and BlockBuster to completely, well, stink at online movie rentals is a total conundrum to me. Oh yeah, by the way, Netflix has grown into a 7 million subscriber base business.

Another move Keyes is gunning for is lifting the ban on using credit cards to get rentals of movies and games in excess of the check-out limit per visit. Now you can use a check card. Not a huge move, but no doubt improves sales among those that rent massive quantities at one time.

His big move, the big move he’s thinking is going to be the future for Blockbuster, is that customers will go to kiosks inside the actual Blockbuster store to burn the movies onto a disk or download the flicks straight onto their cell phones or other mobile devices. Although Keyes feels store rentals are going to be an integral part of the Blockbuster business for at least five years, he wants to keep Blockbuster on the cutting edge if viewers eventually download films.

“This is an industry in transition and a company that hasn’t been able to keep up with that change,” says CEO Keyes. “But Blockbuster is one of the best-known brands in the world. We’ve just got to find ways to use technology to make the company more relevant.”

New CEO James Keyes replaces John F. Antioco, who had been the leader of Blockbuster since 1997. Others who have left the company along with former CEO Antioco have been the chief financial officer (CFO), chief operating officer (COO), general counsel, and the online business manager.