Could Blockbuster’s Demise Unchain Apple TV?

I was pondering the old adage “what goes around comes around” recently as I read that Blockbuster, one of the largest video rental chains in the world is in deep financial trouble and may be unable to continue operations. I remember back in my college days I had a job working in a small local video store and like many other independent retailers, we were always worried about being driven out of business by Blockbuster. Ironic that more than 20 years later, it’s now Blockbuster’s turn to be overtaken by the DVD rental services like Netflix and of course, streaming video and digital downloads. What goes around comes around.

Unfortunately for consumers, Hollywood’s reaction to new forms of distribution is cyclical as well. At first they’re hostile. Then they’re hesitant. Ultimately, once they understand how much money there is to be made, only then are they willing. It was that way with VCR’s. It was that way with DVD’s and it will be that way with digital downloads and streaming video as well.
I believe that part of the blame for this recurring paranoia can be laid at the feet of Napster and the Mp3 revolution. Hollywood saw what was happening to the music business and it seemed to confirmed their worst fears…that unchecked technology could decimate an entire industry. In reality, it was the music industry’s refusal to change that really helped to fuel the Napster phenomenon. Had they embraced the Mp3 revolution early on, they could have ridden the digital wave instead of being flattened by it. Instead they panicked, drove it underground and ultimately made things worse.

Pirate Bay and BitTorrent

The same thing is happening today with the Pirate Bay/BitTorrent phenomenon. Hollywood was reluctant to embrace digital distribution and their hesitancy has actually helped to fuel the popularity of BitTorrent. Today millions of people download illegal content in large part because there is no comprehensive yet legal alternative. Once again, instead of embracing the future, Hollywood is dragging its feet.

All of this brings me back to the precarious position of Blockbuster. If one of the largest video rental chains in the world can be driven out of business by mail order DVD’s and digital downloads, then that should be ample proof that the old paradigm is failing. People no longer want to drive to a local video store and forage for entertainment. The days of basing new business around the delivery of physical media like VHS tapes and DVD’s have ended. That’s not to say that traditional video rental companies are suddenly going to disappear. They’re not. But the handwriting is on the wall. As broadband penetration climbs, consumers increasingly want entertainment delivered to them in the form of digital downloads, interactive television and streaming video. Even Netflix, the company most responsible for Blockbuster’s decline understands that digital distribution is their future.
in 2006, Blockbuster reported revenues of $5.5 Billion. With 8000 stores worldwide, Blockbuster is one of the largest pieces in the global distribition apparatus. If it fails, Hollywood will have lost a major outlet for its content which ultimately means that other forms of distribution will have to take up the slack. This brings me to Apple and Apple TV.

iTunes music store

It’s no secret that part of the success of the original iTunes music store was brought on by the desperation of the music industry. With their backs to the wall, they finally agreed to broadly license their content at attractive prices. It took the Napster to get record labels to finally play ball and when they bowed to market pressures, the results were more better than anyone would have imagined. Steve Jobs has admitted on several occasions that getting through the maze of licensing for tv and movie content has been a difficult and lengthy process. Add to that Hollywood’s fear of ceding too much power to Apple and making it too influential in dictating terms, and it’s not surprising that progress has been slow.

With the possible demise of Blockbuster on the horizon, Apple may once again find Hollywood more receptive to its advances and more willing to provide the content for what I believe is the next big step for Apple and Apple TV, an affordable subscription-based rental service. Steve Jobs once said that people don’t want to rent their music, they want to own it. When it comes to video, I think it works just the opposite. People watch a movie first, and then they buy.

As a media server, Apple TV is a vision half-realized. It does many of the things we want in such a device but it is limited by available content. An affordable “all you can stream” subscription model with a wide selection of movies and television would give Apple TV a whole new reason for being. It would turn this modest device into a full-fledged service and could deliver in one stroke a very compelling end-to-end experience that would rival or eclipse those being offered by Netflix or Amazon.

The real question, and the one that nobody can answer, is whether the failure of Blockbuster would be a large enough motivator to get studios to the bargaining table. In the past, it’s taken a near-catastrophic event to shock the entertainment industry into action.

if Blockbuster falls…will it make enough of a sound? Only time will tell, but I certainly hope so. If history has demonstrated anything, it’s that those who don’t learn from the past are doomed to repeat it. Here’s hoping they’ll be smarter this time around….