In 2005, Greg Meyer wrote a letter to the management of Blockbuster (BBI, news, msgs). He wanted to warn the movie rental company of a looming revolution: DVD vending machines that were showing up at supermarkets and fast-food joints all over the country.
At the time, Meyer was the CEO of DVDXpress, which operated DVD kiosks in New York and the United Kingdom. He was offering Blockbuster a chance to get in on what looked to be the next great transformation of the home-video rental business.
If Blockbuster installed a DVD machine outside each of its stores, Meyer argued, it could offer movie rentals even when the store was closed. This would likely increase the revenue at each retail location and let the company reduce its operating hours; with the kiosks, Blockbuster could justify closing each store during the three slowest hours of the business day, saving $140 million a year in operating costs. Meyer gave the Blockbuster board his contact information and proposed a meeting to discuss his kiosks. He never heard back.
Five years later, Blockbuster looks foolish for ignoring the kiosk revolution. Redbox now operates machines at 22,000 locations, and it's poised to expand to 30,000 by the end of the year. In 2009, Redbox's parent company, Coinstar (CSTR, news, msgs), doubled its revenue in the DVD business; Redbox now accounts for about 20% of the DVD rental market. Meanwhile, Blockbuster looks nearly sunk.
In 2005, when Meyer sent his letter to the board, shares of the company -- which had already been roughed up by competition from Netflix (NFLX, news, msgs) -- stood at $9. Today, two Blockbuster shares wouldn't buy you a $1 rental at your local Redbox. With $1 billion in debt, Blockbuster is flirting with bankruptcy.
Yet here's the crazy thing: Greg Meyer is still trying to save Blockbuster. In 2007, Meyer sold his DVD company to Coinstar. After DVDXpress merged with Redbox, Meyer left the company and used part of his windfall to invest in Blockbuster; he now owns about 650,000 shares. Despite Blockbuster's troubles, Meyer believes the video chain can thrive again.
Meyer acted on that belief earlier last month, launching a proxy effort to win a place on Blockbuster's board of directors. In his pitch to shareholders, he pointed to his 2005 letter as proof that Blockbuster's management always seems to miss out on the video industry's next great advance. I contacted Meyer shortly afterward with a long list of questions about his odd battle to resurrect Blockbuster. He was happy to talk about what he envisions as Blockbuster's bright future. And I have to say, he doesn't sound totally crazy.
Meyer's mission hinges on the goodwill of the movie industry. At the moment, Blockbuster is being squeezed on two sides. Netflix caters to those of us who like a deep selection of back-catalog movies while Redbox is winning the instant-gratification, latest-release market. If you can get your fix of Truffaut in the mail and pick up the occasional "Alvin and the Chipmunks: The Squeakquel" at your corner store, who needs Blockbuster?
But that calculus is changing. Over the last few months, both Netflix and Redbox signed a series of deals with studios that delay their access to many new movies by 28 days after the films' release dates. In return, the companies got better terms on movies after the month-long window. The upshot is that Blockbuster will now be the only large retailer to offer many new movies on the day they're released.
Blockbuster sees the 28-day delay as its biggest advantage over its rivals. It has launched a clever marketing campaign to show off its exclusive titles -- posters highlighting new movies like "Avatar" with the tagline, "We have it 28 days before Netflix and Redbox."
Meyer says these ads will do wonders for Blockbuster. "Entertainment is in some respects a perishable good, like fruit," he says. "It's worth more when fresh and less when stale."
Continued: Some customers prefer stores
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