Brown on Business
April 12-18, 2021
Blockbuster, the Netflix effect, and Little Rock’s street racing problem
By Wesley Brown
wesley@dailydata.com
Not so long ago, there were as many Blockbusters on city corners as there were McDonald’s and Starbucks.
But as quick as you could say Netflix, Blockbuster’s business model collapsed spectacularly until it filed for bankruptcy in 2010.
During the 1990s, Blockbusters distinct storefronts were popping up somewhere in America every 24 hours, according to the company’s own marketing and promotions. At its peak in 2004, Blockbuster consisted of 9,094 stores and employed approximately 84,300 people, including about 58,500 in the United States and 25,800 in other countries.
Two years earlier, Netflix went public on May 23, 2002, with an initial public offering (IPO) price of $15 per share. According to Investopedia, Netflix was the best-performing stock in the S&P 500 from 2010 through 2019. It closed at a pricey $546.99 per share on the Nasdaq on Wednesday, putting Netflix’s market cap at nearly $242 billion. By comparison, Dish winning bid for Blockbuster a decade ago was valued at only $320 million.
“With its more than 1,700 store locations, a highly recognizable brand and multiple methods of delivery, Blockbuster will complement our existing video offerings while presenting cross-marketing and service extension opportunities for Dish Network,” Tom Cullen, executive vice president of sales for Dish Network, said in late 2011. “While Blockbuster’s business faces significant challenges, we look forward to working with its employees to re-establish Blockbuster’s brand as a leader in video entertainment.”
What is surprising is that Dish Network has kept a small part of the Blockbuster alive, even if it is just a shell of its former self. But there it is at Blockbuster.com, a one-page URL housed on the satellite TV giant’s larger internet homepage.
The subscript reads: “Since 2011, Blockbuster has been a part of DISH and you can still Make It A Blockbuster Night. Continue the Blockbuster experience, when you sign up for DISH, and get access to thousands of new releases from the comfort of your home.”
Who knew? That page also still has Blockbuster store locater to find your nearest retail store where you can pick up the latest movie to take home. Big surprise though. There is now only one Blockbuster store left in the U.S. at 211 NE Revere Avenue in Bend, Oregon. One out of 85,000.
Amid this ongoing pandemic, there are likely to be a lot of Blockbuster-like companies that will never make it back to their full glory. One industry that is hanging on the edge of extinction is the move theater industry, which is closely tied to the same movie-loving homebodies that sent VHS tapes into the land of trivia.
Since COVID-19 was declared a pandemic in March 2020, most movie theatres have become giant dust collectors and perfect empty parking lot locations for street racers and their ilk to congregate and shoot the breeze. In fact, that very issue has apparently become the most pressing problem before the Little Rock city council, so much so that Little Rock Police Chief Keith Humphrey is now heat.
During a recent Little Rock Board meeting, discussion centered around the Cinemark movie theater parking lot near I-630 and Colonel Glenn where drag racers supposedly gather, burn rubber and prepare for street racing events across the city. Humphrey was asked the same question in more than one way on how he planned to resolve this loud issue that is dragging the city into a deep abyss.
Maybe the problem is that the same teenagers and young adults that are drag racing are the same crowd that would be inside the movie theater if there was no pandemic. In fact, large weekend crowds of movie-going teens often gathered in that same Cinema parking lot before the COVID-19 health crisis to catch their favorite show.
But the pandemic has changed all that. Cinemark Holdings Inc., the Plano, Texas based movie theater giant that owns the Colonel Glenn movie house and its adjoining parking and the Cinemark Tinseltown theater in Benton, reported an 80% decline in fourth quarter revenues of $686.3 million compared to nearly $3.3 billion a year ago.
The Texas movie theater chain further reported a net loss for the year almost equal to sales at $616.8 million compared to profits of $191.4 million in 2020. At the end of 2020, Cinemark’s total screen count was 5,958 and the movie chain currently has commitments to open six new theatres and 72 screens during 2021 and 13 new theatres and 123 screens after 2021.
As noted, the Texas movie theater operator’s financial results continue to be significantly impacted by the COVID-19 pandemic, closing theaters for an extended period beginning in March 2020. Cinemark, one of the largest motion picture exhibitors in the world, only began reopening domestic theatres in June 2020 and international theatres in August 2020, following enhanced health and safety protocols.
At year’s end, the company had 217 domestic and 129 international theatres open to limited hours, showing library content and some new releases with some limitations on capacities. During the fourth quarter, Cinemark theaters had attendance of 6.6 million with average ticket price was $7.42 and concession revenues per patron was $4.75, which is equal to about one hour of minimum wage in Arkansas. Anyone who has visited a theater in the past decade knows that a large bucket of popcorn and a drink will cost you a good day’s wages, not one hour.
“It is almost unfathomable that one year ago, we were reporting Cinemark’s fifth consecutive year of record results with the North American industry touting the second-highest grossing box office of all-time,” stated Mark Zoradi, Cinemark CEO. “While COVID-19 has caused significant distress to our industry and our company, Cinemark has maintained discipline and consistency, while demonstrating relentless perseverance and agility.”
But while Cinemark has staved off bankruptcy with a $400 million tender offering, other rivals have not been so fortunate. Of America’s top-five theater chains, three--Carmike Cinemas, Loews Cineplex Entertainment and privately held United Artists--have all filed for bankruptcy.
Regal Cinemas, the largest theater chain, and General Cinema Theaters, a unit of GC Companies, are also struggling to stay afloat. Cinemark rival AMC Holdings also announced in late March that it was seeking shareholder approval to sell 500 million shares to raise about $917 million to stay in business.
But the reality is that even before the pandemic, movie theaters were already facing small crowds and less populated venues as the “Netflix affect” and new homes with theater rooms were cutting into revenues. Those same movie chains that were struggling before the pandemic will still have to face the prospect of empty movie houses.
Maybe, these same theaters could save face and cut their losses by starting to show movies in the parking lots since they already have crowds of teen street racers and their fans gathering there now. They could even call them drive-ins or something similar. Of course, this would be better than going the way of Blockbuster and the VHS tape.
This solution could also solve the city’s street racing problem and end the sometimes-ridiculous discussions at city hall that drone on for hours. That time could be better served by chilling out at home and catching a Netflix movie.
