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Blockbuster CEO Out of Touch With Reality

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Interviews with Jim Keyes show a man unfamiliar with both home entertainment and reason.

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If A&E has taught us anything, interventions aren't easy for anyone. They may be absolutely necessary to keep the victims of abuse safe and their friends and family unit intact, but the process can be overwhelmingly harrowing and relentless. Tears are shed, lapels are grabbed, and accusations are throttled. And yet, in the end, it's really the best thing for everyone involved.

Which is why Blockbuster's (BBI) board of directors needs to organize a sit down with CEO Jim Keyes and convince the man that he's unfit to run the business.

Blind to the company's downward trend and his competitors' success, Keyes never misses an opportunity to dismiss the acclaim that Netflix (NFLX) had rightfully earned -- through empty threats or back-handed compliments -- or boast the broken, outdated system that Blockbuster continues to run. And everyone seems to realize it but him. (See How Netflix Succeeded Where Blockbuster Failed.)

One such person is Greg Meyer, former head of the rental kiosk company DVDXpress and one of Blockbuster's largest shareholders. He's unsuccessfully trying to get on the board of directors to usher the company into the 21st Century -- let alone its second decade. But Keyes wants to have none of it.

Meyers told Fast Company last month, "Between the time Keyes took on the reins as CEO of Blockbuster and today, the price of Netflix stock is up 500% and the price of Blockbuster stock is down about 90%." He added, "Investors in Blockbuster have been the victims of a massive destructive of shareholder value while Netflix shareholders have been beneficiaries of a very smart, focused, and visionary management team."

Nobody can argue with that. Well, almost nobody.

Fast Company's Austin Carr recently held the CEO's feet to the fire in a two-part interview. Despite Carr's hard-hitting questions and admirable efforts to get Keyes to open his eyes, the Blockbuster chief only managed to sound more out of touch as he burrowed his head further into the sand.

Of all the regrettable pull quotes from the interview, perhaps the most revealing is Keyes' defense of his company's rental kiosks over Redbox (CSTR) units and Netflix streaming.

What I want to do is punch a button on my remote, and have access to 10,000 movies. You can get it all here. I'm going to be brash for a moment, but I don't have to figure out how to get it from my Nintendo machine to the screen. I know I can do it, but I don't want to -- it makes my head hurt to think about it!


Bear in mind that the total process of streaming video through the Wii is inserting a Netflix disc and pointing the Wiimote at the menu option from the main screen. Boom. You're in the program. The Nintendo Wii wasn't a smash hit among the elderly for nothing.

Keyes also showed his disdain for the Xbox 360 (MSFT) for its equally confusing bells and whistles in streaming video. Nothing like the easy-to-use Blockbuster On-Demand service.

Blockbuster On-Demand is similar to your Netflix experience: You get on and can search by title, actor, or whatever. It's a lot easier than trying to route movies through my Xbox or Nintendo!


He probably just forgot that the Xbox is a key component in getting Blockbuster On-Demand from your laptop to your TV. He's only the CEO, after all.

Keyes' chief defense in Blockbuster's merits in light of Netflix's success is by noting they're completely different companies. Sure, they're both delivering home entertainment but Netflix's aim is its older library. Blockbuster focuses on new releases, which -- because of deals with Warner Bros. (TWX), Fox (NWS), and Universal (GE) -- it has the ability to rent out certain titles while Netflix has to wait 28 days before shipping them to customers.

All we're saying is that we do something different, we do it really well, and that we have a really unique advantage. Netflix has never hesitated to reference their strengths versus ours, or against anybody else. What would you recommend? Should we just sit and be quiet about this 28-day advantage?


What Keyes fails to acknowledge is that a 28-day window is all Blockbuster has at this point, and it's nothing much to brag about -- as evidenced in the thousands of shuttered locations and a stock price flirting with an all-time low of $0.22.

Even the one thing that Blockbuster could claim to go toe-to-toe with Netflix on doesn't go nearly far enough. Blockbuster On-Demand features 10,000 compared to 17,000 Netflix offered as of January.

Blockbuster's compatible devices amount to Samsung TV or Blu-ray player, Toshiba Blu-ray, HTC HD2 smartphone, TiVo (TIVO), and a laptop... only running Windows and Internet Explorer. Motorola (MOT) smartphones are reportedly forthcoming.

Meanwhile, Netflix streaming works on both Windows and Mac (AAPL) machines, as well as PlayStation 3 (SNE), TiVo, and decks from Panasonic (PC), Insignia (BBY), and Seagate (STX). And if you didn't see CEO Reed Hastings at the recent Apple conference, Netflix is indeed coming to the iPhone. Android (GOOG), Windows Phone 7, and Boxee devices are also rumored to support it in the future.

Blockbuster desperately needs to correct its projection. Keyes is the captain of a sinking ship who refuses to look at the rising water levels. And his comments -- as well as the reintroduction of late fees and SD card-running kiosks -- are shotgun shells fired into the hull.

No positions in stocks mentioned.
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