Monday, June 20, 2011



In 1997, Sumner Redstone warned Hollywood studios that the video store business was going into the toilet if it didn't get some help. His company, Viacom, then not only owned Paramount, but Blockbuster Entertainment as well. Rentals from Blockbuster's 6,000 stores put $3.9 billion dollars in the six major studios' pockets, and he argued that studios “can't live without a video rental business. We are your profit."
As a result, the studios agreed to share the cost of stocking Blockbuster's stores in return for a share of its rental revenues.
He won that battle, but lost the war.
Thirteen years later, two-thirds of America's video stores have closed and Blockbuster has gone bust. In April 2011, Dish Network bought it out of a bankruptcy auction with plans to convert what remains of its rental store business to streaming a la Netflix and movie vending machines. The other major rental store, Movie Gallery, had liquidated its 4,700 stores in April 2010.
"The store model is now dead," a former top executive close to Blockbuster wrote me recently. "The move to $1-per-day rentals has done it in."
The pioneer in dispensing $1 rental DVDs out of kiosks in fast-food restaurants and supermarkets is Redbox. It was created in 2004 as a joint venture between McDonald's and Coinstar, which then bought out McDonald's. By doing away with clerks, real estate leases, and the store itself, Redbox created a business model with which no brick-and-mortar stores could compete.
 Go read the whole article as it will give you a sense what the entrainment industry is facing. 

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