Blu-ray could be Blockbuster's bailout

The impact on Blu-ray

Because of its guaranteed availability policies and large display space, Blockbuster is a voracious consumer of discs. If it were to close all but its franchise stores, there would only be 18% of its current storefronts left. Without all those shelves needing to be filled, Blockbuster would be able to scale back its stock, and a huge chunk of Hollywood's revenue would be lost.

A great deal of that loss would impact Blu-ray, at the worst possible time.

In 2007, Blockbuster started carrying Blu-ray Discs in 1,700 of its company-owned stores, and later expanded that to include all of its corporate outlets. The worldwide production of Blu-ray Discs in 2008 was more than 200 million units, with the majority (82%) going to so-called "pipeline fill". Blu-ray sales for the year, according to Nielsen VideoScan, accounted for about 8% of all the disc-based movies sold.

At the Home Media Expo last summer, Blockbuster's Jim Keyes said, "We think the rental model can help Blu-ray," convinced that the high purchase price of the discs would discourage sell-through and compel users to rent instead. Going by the previously cited Adams Research figures, Keyes' prediction could shape up to be correct. However, the Blu-ray rental business is not improving fast enough. "If we're slow in doing this, all it does is stimulate demand for digital," Keyes said.

Theoretically speaking, if 8% of Blockbuster's total stock was Blu-ray, reflecting the conditions of the market at large, it would be worth $64 million dollars. At the six-dollar revenue sharing cost of DVDs, that would amount to 10.4 million Blu-ray titles from Blockbuster, or about 5% of all Blu-ray discs produced. However, if the Blu-ray industry got on board with Keyes' suggestion, Blockbuster's volume purchasing behavior could trigger a Blu-ray surge even beyond its current expectations.

As it is, Blockbuster is already attempting to branch out in new directions where it is at an infrastructural disadvantage, and a strong push in Blu-ray would depend on its current purchasing power. Unfortunately, with the employment of Kirkland and Ellis, and the impending debts coming due in August, Blockbuster appears to be in no position to increase its spending on much of anything.