Blockbuster Canada – A Cautionary Tale of Greed, Indolence, & Stupidity

"Uh-oh. Not again."

In a move that surpised no one, Blockbuster Canada is shutting down the roughly 250 stores left after a prior 140 stores were shuttered across Canada back in May. The bulk of the closures occurred in Ontario, bringing the total employees to hit the unemployment line this fall to around 5000 - a significant amount considering the chain had established itself in central city, suburban,  and town locations, and became for many their neighbourhood video store.

Backstory: The Blockbuster Strategy

Years ago, I used to operate a small video post-production business that serviced indies and a few chain locations like Videophile and Video 99, and each manager always feared rumours of an imminent BB moving into their territory, because in most cases the end result was the death of a long-established neighbourhood store, especially the mom & pop shop.

BB's strategy was detailed by a client, whose parents happened to be neighbours with the candid owner of a few BB stores. The strategy was simple and deliberate: scope an area, find the target store, move beside them (or as close to their location as possible), and offer a massive selection of current titles for less than what the local rival was charging. Once the pesky neighbourhood shop was driven out of business, raise prices, forcing locals to pay BB's prices if they wanted to rent new release movies within an easy walking or driving distance.

I specifically remember a tiny Video 99 just off of O'Connor Road run by this exceptionally nice older couple. They'd deal with the usual nonsense of damaged tapes, the studios offering zero refunds if tapes were wrecked within the first few weeks of use, and people renting a boatload of new release tapes before moving out of the area, and taking the tapes with them.

Eventually, the owners'  fears were confirmed when a massive BB moved a few blocks north, and their business started to rapidly decline. Within months, the mom & pop Video 99 was dead, and the location became a small burger joint.

The video rental business, as a friend & colleague said, 'is the worst business anyone could get into,' because the financial rewards are poor, the potential for sudden financial loss was always looming, and you had to deal with exhorbitant rental tape pricing, damaged goods, belligerent customers, and competition.

BB was the chief enemy, and the company was responsible for the death of many small shops.

BB's business strategy was never wholly sound, because the model was about presenting an image of More when it wasn't financially responsible. Massive stores with huge square footage that cost high rent and property taxes in a custom-designed retail & rental environment. 25-30 copies of the latest films, even if it was a stinker. Their main selling point was to always guarantee enough New Release copies for that first wave of weekend renters.

Vagaries of a Flawed Industry

The adoption of a no-late-fees policy in 2005 screwed them further because they lost a huge chunk of income, employees had to explain a complex policy about when they would be charged for the replacement of a DVD if it was never returned, and the penalties offered less compensation for the BB franchise owner if videogames were never returned - games being more pricey than DVDs. (Rogers, seeing that major flaw in BB's no-lates policy, made sure to avoid that blunder when they introduced their own late-free system to their video shops about a year later.)

An acquaintance who runs a BB in the west end described the huge theft problem, because the company mandated all stores keep their sale product live. Lots of small products in a big store with many aisles and high racks are a thief's delight, and it's one of the chief reasons Indigo is (quietly) getting out of home video and CD sales - theft just kept eating into the profit margin.

There used to be a 2-level BB by Charles and Bay, where employees had no chance of catching all the crackhead thieves because there were 2 floors with racks to scope. In the end, that store died in 2001 because of a court case: a guy slipped & fell on an icy step, won $30,000 in judgment. Most likely it wasn't the 30K that convinced the company to fold the store, but the aggravation of running a money-losing business in a high-rent area. The lawsuit was simply an excuse to get the hell out of the area.

That friend I mentioned helped run the family video store, and he eventually opened his own shop after buying an existing business. A week after he re-opened, customers were coming in with free movie coupons they'd been sold by the prior owner, who literally had gone door-to-door selling coupons for a business of which he was no longer  in possession. That is the kind of idiocy that permated the video business at ground-level.

After selling his store to a patented numb-skull who ran it into the ground in less than 6 months, my friend went back to his dad's store, and during their final days of operation they decided to ally themselves with a company regarded as a video store's 'last resort,' because they offered discounted pricing on the acquisition of major titles for rental. The problem with the deal is that this company, not the store, owned the stock outright, so if you had to fold due to dwindling profits, by that stage your ownership consisted of racks, fixtures, and sales & rental gear - hardly enough to pay creditors.

Another client tried this company's service, and when they realized they were headed for a risky position, they packed up the stock and shipped it back, severing business ties with a company that was slowly being hit with lawsuits by angry video shop owners. That store later boosted their adult section to compensate for dwindling profits, but eventually folded after it was clear the video rental biz - big stores, big inventory, and a family-styled environment with snacks and drinks and trinkets - was dying.

Industry Panacea: From DVD to a Cheap Candy Bar

Then came DVD, which saved the industry because your rental stock no longer cost $90-$130 - the average price for a rental tape - but $15-$25 for an off-the-shelf DVD.

Your product was indestructible. It takes immense human stupidity or mortal danger to destroy a DVD, so your stock had far more longevity than VHS or laserdisc. Video rentals was again a business with good potential, but it still posed the problem of indie shops weighing the odds: chance money on a new format, or get out of a business that had become a headache. The day I visited my clients to explain my decision to close shop, one client was no longer there:  liquidators had moved in, and I gather the brother / co-owner did go into the funeral business he'd been training for during the store's final months.

Rogers isn't in the video rental business anymore; what they rent is akin to a rack of candies, supplementing their core business: cellphones. You sign up for a cellphone contract, and maybe grab a new video for the weekend, along with a candy bar - the flipside of buying candy or popcorn alongside the main purchase: a video rental for the weekend.

BB's demise was inevitable - only a fool would buy a chain whose business sense wasn't good, and in an industry that has no idea where it's going. There were rumours the family responsible for once running a profitable music and home video distribution company were interested in BB Canada, but they must have realized BB was in terminal shape, and backed off.

BB's closure in Canada is due to no one being interested in taking it off the receiver's hand, and the irony is the Canadian operation was more profitable than the U.S., and kept the latter afloat during its dying days. Plus a lawsuit from south of the border, where BB's U.S. owners wanted BB Canada to cease and desist in using the BB name and its intellectual property. Without a brand name, those 500 Canadian stores were dead, hence the first round of closures in May.

The 70/30 Split

This of course means the rental landscape in towns, suburban centres, and cities will go though further changes. Locally, someone may pick up the challenge and set up a rental & sales shop, but it would have to survive with a clientele interested in product beyond new Hollywood releases. You'd have to build an inventory, and go through the same classic headaches: late fees, damaged goods, and that smal faction of the general public in need of deep psychiatrict help because one day they'll go ballistic over a late fee, returning a purchase a year after its sale date, or because your shirt happens to be green. Or they're just plain crazy.

The studios are releasing less back catalogue titles because A) most of the A-level material's already been released, and has reached the key buyers; B) what's left is the obscure, cult stuff, or titles which may have been in some legal limbo. What's out there now are carefully selected titles with prior sales stats, anniversary dates, thematic ties to a new remake or genre hit, or  a long unavailable cult title.

The hard-to-release stuff seems to be coming from Shout! Factory, but even they are testing the waters of selling TV and film discs exclusively through their website.

That leaves a large swathe of indie labels to release older studio and indie titles, and it may be that a year from now what's on the shelves will be a 70/30 split in favour of indie labels, as studios focus on mass-distributing product digitally, and the indies exploit niche markets - those who want to build video libraries, and collect rarities.

The indies know their target clients, and they're careful in producing just enough to satisfy the core buyers with limited runs boasted special features. Many of these projects are labours of love, in the sense the producers are putting together extras because they themselves want to know more about a film's history, and share it with the fan base. It makes a project fun, and it's good business. The studios continue to produce special editions, but their time and energies are going towards select titles - like iconic genre classics.

A few years ago Paramount, who's been deleting a massive swathe of back catalogue titles on DVD, licensed an eclectic mix of films to Legend Films, as well as Olive Films - the latter being an online retailer.

Olive has a distribution system, and they know their client base. Paramount's titles keep flowing out every month or two, which means both sides must be content with the relationship, and it's one that will splinter into further alliances where indie companies with buy the rights to release studio titles on commercial DVDs. Studios will focus on their top 100 classics, and license the video rights to indie or boutique companies specializing in getting niche titles to their niche fans in runs far less expansive than a studio pressing.

You can bet that with indie releases, if it's limited, it'll sell out; and if it's non-limited, there will be no deletes in store bins. Most likely, as happens with soundtrack albums, when a title's selling power has significantly waned, it'll be discounted online, and become a delete until the supply has been snapped up during targeted sales events - usually around holidays, or during down periods, like the dead season around February.

Proof of an indie's power lies in its relationship with and presenting a good opportunity to the studio. Case in point: Twilight Time's new association with Sony, where the studio  has licensed a number of titles, including Fright Night for Blu-ray, and Ray Harryhausen's Mysterious Island (featuring a 5.1 mix of Bernard Herrmann's score).

Again, indie labels & devoted producers releasing newly mastered DVDs and BR's of abandoned and /or cult & classic films isn't knew. I could extend this blog by several paragraphs citing labels specializng in art house, docs, sexploitation, Asian action, vintage TV, and so on, because there is that much material out there of interest to specific fans who genuinely want to own a non-MOD (made on demand) DVD-R.

The Changing Aesthetic Value of "Ownership"

Collectors and fans don't want an over-priced MOD made from a vintage broadcast master; they want a newly minted Blu-ray or DVD which will look good on their TV, sound great in their system, and look lovely among other titles in their library. MOD doesn't quite fit that need, or at least won't until their price point is brought down to $9.99 - a topic I'll address in an upcoming blog.

This is why it's hard to fully write-off the demise of home video: people still want to own.

There's serious buyers, but I think there's always been less of them.

Most people bought movies because they were cheap; $6 to rent, or $15 to own, with no worries of late fees. They were simple gifts & stocking stuffers. And when living room wall units were bursting with too many movies no one wanted to watch in the immediate future, they were sold to used shops, saturating the market with used product at cheap prices ($10-$15) with which the studios can't compete, such as a repackaged anniversary edition costing $20+ new.

Complacency & Indolence Will Kill You

BB's demise is symptomatic of changing tastes and the venues of getting specific movie fixes. The local video store - the dedicated indie - may survive for another few years, but several things have to remain constant: among renters,  there has to be a keen interest in movies of all kinds; a steady stream of product for the store & film fans; and customers not only willing to step outside and walk to the store in inclement weather, but adhere to the old rules of due dates, late fees, and damage costs for being a dope and letting your dog eat at out-of-print Criterion, or cleaning a DVD with Drano.

(The Drano incident happened. The person in question was a well-to-do professional who felt it perfectly logical to walk from the living room into the bathroom where the chief business concerned bodily relief, grab a bottle of Drano from the cluster of non-home entertainment utensils, and 'clean' the DVD with a solvent that bore a skull logo on the can. End result: the corrosive compound turned the DVD to a foggy coaster.)

Back in June, BlogTO updated their tally of Toronto's top video stores. Take a peek, because you'll find each shop has its own character, mix of eclectic-minded staff, and is nestled in pockets of the city where they're ensconced in a mixed residential & business area. They've survived because they aren't the typical BB, and never intended to be.

But like BB, they can't be complacent. They may have a core dedicated customer based, but it's not enough as people move in and out of a neighbourhood, lose jobs, change tastes, or start families, with little time left to head out for videos, and watching a packload over the weekend.

You can't rest on the laurels of being 'the city's oldest' or 'biggest' or 'best of 2008.'

If you haven't adapted to the times, changed old rental formulas (or an intractable mindset), boosted your online presence and updated your website from banal to informative, you may well become a Dodo. No one knows what further drastic shifts will occur in 2012, but to be indolent and sit and allow a business to shrivel away, and to be apathetic to creative, proactive measures during a serious industry transition is foolish.

That's what ultimately killed Blockbuster as a major entertainment entity, and it can happen again to any store.

Mark R. Hasan, Editor ( Main Site / Mobile Site )


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