Even Carl Icahn Won’t Be Able To Turn Blockbuster Around

It seems that we have traveled back in time.

Snow White is coming to theatres. Arnold Schwarzenegger is starring in a new cartoon. Blockbuster Video, the once-mighty video rental chain, has gotten the interest of Dish Networks, SK Telecom, and Carl Icahn.

That’s right: Carl Icahn is interested in acquiring Blockbuster Video. The only question is why.

Why would SK Telecom want a company that has lost its brand power and brand loyalty? Why would Dish Network want a company that has scared off customers with fluctuating prices? Why would anyone want to buy a video rental chain that cannot compete against Netflix, Hulu, and Comcast?

It’s no secret that Blockbuster is in the toilet. The company has already eliminated several of its retail locations. Even worse, those closures were preceded by layoffs and (according to the employees I spoke to four years ago) pay cuts. These are not the signs of a business worth acquiring. They are the warnings of a corporation  in peril.

Something tells me that none of Blockbuster’s prospective suitors are actual Blockbuster customers. If they were, they would know that over the past several years:

• Blockbuster launched a No Late Fees rental program that included a restocking fee (which, in essence, is the same as a late fee). Those who did not return the rented product by the due date were at risk for being charged the full retail price of the item, prompting a massive lawsuit.

• When the company updates its Terms of Service, customers are rarely given more than a notice that’s printed on their receipts.

• Last decade, game rental fees peaked at $9 for seven days. Movies cost $4 for the same period.

• I was once a loyal Blockbuster customer. Over the last two years, I witnessed several angry customers storm out and say that they were leaving Blockbuster for Netflix or Comcast On Demand.

• Blockbuster’s one and only advantage over Gamefly is that it currently charges less for its By Mail service. (Blockbuster charges $19.99 for three games at one time; Gamefly charges $22.95 for two.) However, very few consumers seem to know about this service, so it isn’t doing the company much good.

• Further, the quality of that service is questionable at best. In 2010, Blockbuster bridged its By Mail feature with its retail locations and allowed customers to order video games that were not available in store. This was a great idea, but when trying to rent a copy of 3D Dot Game Heroes for PlayStation 3, I learned that only one copy was available and it had already been checked out. There was no way to secure the game upon its return, so I had to repeatedly visit the store to check its availability. When it was finally available, the clerk provided me with two dates: the expected arrival date and the due date. The game arrived three days late, which cut into my rental time. It took five calls from home and four in-store visits to resolve the situation.

• As of 2011, Blockbuster reduced the fee for game rentals to $7, increased the fee for movies to $5, and decreased the rental time for both (renters can get a game for four days and a movie for three).

• To verify the current rental fees, Benzinga placed calls to four Blockbuster locations near our office in Michigan. The first two (Bloomfield Hills and Southfield) said that they had stopped renting games and movies because they are closing on Sunday. The number for the third location (Birmingham) had been disconnected. The fourth (Clawson) was still in business and provided the above information.

• This afternoon, the Wall Street Journal reported that Blockbuster may close all of its stores.

These stories and memories are the tip of the iceberg. Blockbuster has permanently damaged its relationship with consumers, and while my colleagues at Benzinga argue that Carl Icahn is a genius, I find it hard to believe that even he could turn the company around.


— Louis Bedigian