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Blockbuster Abandons Online Rentals

22 Nov, 2001 By: Joan Villa

Blockbuster has unexpectedly abandoned a nationwide rollout of its online rental initiative and discontinued the service in the four test cities where it was offered for most of the year.

An e-mail sent last week from Web site Blockbuster.com notified customers that the program, tested in Austin, Cincinnati, Denver and San Diego, would end Nov. 20 and thanked them for their participation.

“It is with regret that we notify you that based on test results, the Online Rental program is not a viable program at this time for Blockbuster,” the e-mail states.

A Blockbuster spokeswoman confirmed the test concluded Nov. 19 and, she says, proved to the company that an online reservation system works technologically and operationally and could be revived in the future. But a nationwide rollout, expected this fall, will be scrapped.

“The marketplace needs to catch up with the idea,” she says. “It was operationally a success. We know the customers who tried it liked it, but what it came down to was it's a Web idea ahead of its time.”

Mark Gilman, executive v.p. and president of Blockbuster new media, told Video Store Magazine in July that the service was in the final test stage and would likely be rolled out to all markets late this year. It allowed consumers to browse a store's inventory, reserve a title, pay online and pick up the purchase from a specially designated counter in the store designed to be wait-free — conveniences that Gilman believed would drive incremental rentals.

“The consumers that are using it love the service and are using it very frequently,” he explained at the time. “The people that are on and using the service typically use it every Friday and Saturday night — they go in, place their order, confirm their order, then go and pick it up. So it's providing the value-added service we hoped it would to the consumer.”

Gilman anticipated that the Web site would enhance Blockbuster's core rental business by establishing an online consumer relationship, first developing two-way dialog and “e-couponing,” and over time expanding to new initiatives including video-on-demand.

Interactive video expert Gary Arlen, president of research company Arlen Communications, argues that Blockbuster has been savvy in preparing for competition from cable, satellite and VOD, but the retailer “may have been rushing this ahead” to develop an online customer relationship that would lead to online movie delivery. With the Internet euphoria cooling, the idea is no longer as appealing as it was when hatched a year-and-a-half ago, he says.

“The problem is video-on-demand has been slower in coming, which suggests Blockbuster doesn't need to roll out this kind of project yet, since VOD isn't as much of a threat as it was a year ago,” he says. “It's certainly more evidence how hard it is to fine-tune the ‘bricks-and-clicks' relationship.”

Greg Durkin, research director at Alexander & Associates, says he is not surprised that Blockbuster abandoned the project. He believes e-commerce in general has not lived up to expectations, especially considering the commitment of time, money and resources that such a program entails.

“It doesn't seem like [online reservations] provides enough added value to the shopping experience,” he reasons. “They wouldn't have enough involvement to justify using this. It's like trying to train someone to use pay-per-view all of a sudden, or [video-on-demand]. To change their behavior takes a really long time.”

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