Blockbuster, with $6 billion in annual revenue, still dominates the movie-rental industry, but that business is shrinking. As DVDs have replaced VHS tapes, more Americans are choosing to buying movies instead of rent them, and most don't buy them at Blockbuster.
Other threats include Netflix, an online DVD rental company that is still small and unprofitable, but has the potential to steal many of Blockbuster's customers. Video-on-demand, which allows customers to watch a movie without planning ahead or returning a DVD afterward, is being used by increasing numbers of cable subscribers.
After years of trivializing these threats, Blockbuster has launched a series of programs to try to counteract them. It now has an online program similar to Netflix's, but offering lower prices. It also offers a flat-price movie pass program in its stores. In January, Blockbuster stopped charging customers late fees (with some provisions), and it has increased its inventory of games, which account for nearly 20% of its business. Another move was to offer a Guaranteed In Stock program. With this program, customers who are unable to get the movie they want are given a rain check for a free rental.
Whether these strategies work will depend on its customers. Blockbuster's problems are "not just a tale of a business struggling with technological obsolescence, but a compelling illustration of how more general changes in consumer behavior can affect a business." By 2002, Americans were spending more to buy movies than rent them, but Blockbuster executives believe this trend will not last. The one application that may be Blockbuster's downfall, experts believe, is video-on-demand.