Netflix has Blockbuster on the ropes

As Blockbuster suffers through another round of layoffs and its stock trades for less than a postage stamp, one has to wonder when Netflix will deliver a knockout.

Blockbuster was once a staple of weekend movie viewing, nearly as much a part of home entertainment as the TV set.

As the beleaguered company once again rethinks its move-rental business, it continues to lose ground to Netflix and Redbox.

Amazingly, Blockbuster's stock is trading at 40 cents a share following the company's announcement that it had undergone another round of layoffs and corporate restructuring. Last month the once dominate video-rental chain informed investors that it would miss revenue expectations for the fourth quarter due to lagging holiday sales. Blockbuster said it expects to report a loss of up to $193 million for 2009.

Jeanine Poggi at theStreet.com last week interviewed Blockbuster CEO James Keyes, who acknowledged that Netflix and Redbox continue to snatch away market share from his company. Last month Keyes said at a conference that Netflix was taking "demand out of the market."

Blockbuster, which in May of 2002 was trading at over $29 a share, said previously that it planned to close 20 percent of its stores by next year. The company is now betting on a multiplatform strategy and plans to replace stores with kiosks and compete online with Blockbuster digital.

There was a time when many on Wall Street argued that Netflix would never threaten Blockbuster or brick-and-mortar video stores. Ordering online was too complicated and nobody would ever want to wait days for the mailman to deliver a film. Nothing meant immediate satisfaction like the local video store, or so they said.

Netflix proved otherwise. At the same time that Blockbuster's stock trades for less than the price of a postage stamp, Netflix's stock and revenue are soaring . Netflix shares were trading at over $61 on Tuesday and last month the company reported profits rose in the fourth quarter 36 percent to $30.9 million while revenue grew 24 percent to $445 million.

As for the future, it's hard to see how Blockbuster will ever catch Netflix. After striking partnerships with dozens of set-top box makers, Netflix enables subscribers to stream movies from the Web to TV sets at no additional cost to their monthly fees.

And with Redbox boosting the number of its automated video-rental kiosks, the traditional video-store business model appears doomed. At this point, Blockbuster appears headed for the same fate as Movie Gallery. At one time, Movie Gallery was one of Blockbuster's biggest brick-and-mortar competitors, but last week it filed for bankruptcy protection for the second time since 2007.

 

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