Attention Joe Clayton: Can you call off your comment spammers?

Anyone who's followed the consumer electronics industry knows Joe Clayton. He was a vice-president at RCA in Indianapolis for years, helped to set up and then ran DirecTV, moved into the telecom industry to run Frontier and Global Crossing, came back into media as the head of XM Satellite Radio, and was appointed the president and CEO of DISH Network last June. Joe's very well respected in the industry, but something that DISH is doing is causing me to lose respect for the company, and he can stop it with a single email.

Whenever I post a story about any player in the home video business, such as Netflix, Redbox or Blockbuster, I get comments on the post that are very similar in tone and style, although they're always posted by different people, or at least, people using different identities. My most recent post, on Redbox's latest announcements, got this reply, from someone named "gman":

I agree that “they” have a lot to do in the meantime, but they seem confident that it can be accomplished in the next 6-10 months. Critics aren’t as confident they will be as successful compared to Netflix who has been butting heads with people like HBO and Starz. I do not intend to cut the cord anytime soon, mostly because I get my programming from my employer, Dish, but now that I get the Blockbuster @Home for $10 a month with my TV service AND it includes over 100,000 titles streaming and for disc rental I know that I have something special. The combining of these services is what pleases the distribution companies and I benefit from current TV programs, so win-win.

Notice how the comment starts as a legitimate input but turns into an ad for Blockbuster @Home. Notice also the mention of DISH as the commenter's employer. All of the suspect comments say that the commenter works for DISH, which as you may know, owns Blockbuster. However, the comments never directly acknowledge that DISH and Blockbuster are the same company. Given the similar wording and contents of the comments, there's no way that they're not being written either by DISH or by contractors working for DISH.

If DISH wants to buy advertising space on this blog, I'd be happy to sell it to them, but they'd rather get it for free. I review every comment before it's posted, and I've caught and deleted all of the promotional DISH comments before they've gone live. I'll continue to do so. As far as I'm concerned, it's cheap and sleazy, and puts DISH at the same level as spammers selling fake Viagra. None of DISH's competitors do the same thing, at least to my blog.

Update, February 12, 2012: Apparently, this post really pissed off the DISH spammers who I called out. They didn't have the courage to actually respond to my charges, but they rated the post "one star", hoping that it would deflect potential readers. So, I touched a nerve. I expect to touch a few more in the coming weeks.

Desperation time: Warner Bros. doubles the waiting time for DVDs

All Things Digital reports that Warner Brothers is set to double the delay between the time that DVDs and Blu-Ray discs go on sale and when they're available for rental through Netflix, Redbox and Blockbuster from 28 to 56 days--almost two full months. (In a separate decision, Warner Brothers' sister division HBO has decided to stop selling DVDs to Netflix altogether, requiring the company to purchase the movies at retail price.)

Warner Brothers' plan is very likely to anger consumers but have no substantial effect on DVD sales. The reason is that consumers who are already unwilling to pay for a DVD in order to see it a month sooner aren't likely to be willing to pay for it in order to avoid a two-month delay. Under Warner Brothers' new plan, movies will hit the rental and pay-TV/video-on-demand markets at about the same time. The plan could actually backfire and lead to lower wholesale sales of DVDs and Blu-Ray discs, since Netflix, Redbox and Blockbuster may purchase fewer copies due to the increased competition from video-on-demand and streaming services.

Warner Brothers and other studios can't turn back the clock and can't change the economy. They might be able to make their plan work, if they make UltraViolet versions of their movies available without having to first purchase the movies on DVDs or Blu-Ray, at a reasonable price and with a much simpler process than they have today. That would make services like Warner Brothers' Flixster a real alternative to Netflix, rather than an ill-conceived tool for decreasing piracy.

Dish Network buys Blockbuster for $320 Million

Reuters is reporting that Dish Network, the U.S. satellite video service provider, was the winning bidder for Blockbuster in U.S. Bankruptcy Court. Dish Network acquired Blockbuster for $320 million, of which $228 million in cash will be used to pay off the company's creditors (including movie studios) and bondholders. Blockbuster's total outstanding debt at the time of its bankruptcy was over $1 billion.

Dish Network gets a number of valuable assets as part of acquiring Blockbuster:

• Blockbuster has more than 1,700 stores, many of which Dish will likely close. The remainder, however, will likely start selling Dish's satellite service, streaming video service and hardware to consumers. Dish won't have to compete for shelf space with any other vendors. (Update, April 21, 2011: In a Bankruptcy Court filing earlier this week, Dish Network stated that it plans to keep only 572 of Blockbuster's stores open, although that number is subject to change.)
• Dish will become NCR's partner for its Blockbuster-brand video kiosks. To date, NCR/Blockbuster has done a poor job of competing with Redbox for locations, but Dish may give them access to new retail relationships.
• Blockbuster's set-top box and streaming video programs have largely failed to make any impact on Netflix, but Echostar, Dish's sister company, builds set-top boxes and owns Sling Media, the developer of the Slingbox. Echostar could build support for Blockbuster's streaming video service into its set-top boxes, and build new designs that could compete with Apple TV, Google TV, Roku, Boxee and others.
• Blockbuster has distribution deals with many of the major movie studios that gives it access to their DVDs and Blu-Ray titles 28 days before Redbox and Netflix. Dish could leverage those deals in a variety of ways, in a variety of channels.
• The Blockbuster trademark itself is still very valuable, even though it's been damaged by the company's ongoing bankruptcy. Dish has the option of using the Blockbuster trademark, its own trademarks, or a combination of the two, depending on the situation.

In short, for not a lot of money, Dish Network dramatically expanded its potential market opportunity and channels of distribution.

Blockbuster: Pass reorganization, head directly to liquidation?

In court filings yesterday and today, several parties to Blockbuster's bankruptcy plan filed objections. According to the Los Angeles Times, the objectors include "Walt Disney Studios, Universal Studios, landlords, unsecured creditors, other parties and the office of the U.S. Trustee, a Justice Department unit that oversees bankruptcy proceedings." The problem is that the plan filed on February 21st for the sale of the company to four major secured creditors for $290 million would give the buyers the right to determine who receives the proceeds of the sale. Unsecured creditors, such as the movie studios and landlords that own Blockbuster's stores, would get little or nothing.

It's not a surprise that the unsecured creditors objected to the sale, but when the U.S. Trustee also objected, it made it much more likely that the court will take the matter very seriously. According to the Wall Street Journal, the unsecured creditors would prefer that the court convert the proceedings to a Chapter 7 liquidation, rather than allow the sale to go ahead as proposed. As a practical matter, it's very difficult to see how Blockbuster could survive without the support of the movie studios and distributors. It's their movies and television shows that Blockbuster rents, and if they refuse to supply product to the reorganized Blockbuster, it would cease to be a viable business.

Blockbuster could still modify the sale proposal to satisfy its unsecured creditors and the U.S. Trustee, but it's looking increasingly likely that Blockbuster will end up in liquidation.

U.S. video rentals from kiosks now exceed rentals from retail stores

According to the NPD Group, in Q3 2010, rentals of DVDs and Blu-Ray discs from kiosks (primarily Redbox) exceeded those from retail stores (including Blockbuster) for the first time. Netflix and other subscription services accounted for 41% of all video rentals, while kiosks accounted for 31%, and in-store rentals accounted for 27%. Year-to-year, kiosk rentals increased 10%, subscription services increased 2%, and in-store rentals declined 13%.

Keep in mind that the numbers reported by NPD Group only cover rental of physical media; if streaming video and digital downloads were included in the figures, retail's share of video rentals would be even lower.

This news comes at the same time that Blockbuster received a two-week extension from the U.S. Bankruptcy Court to file a reorganization plan and hire a new CEO. The Dallas Morning News reports that Blockbuster is looking for as much as $250 million in additional financing in order to exit from bankruptcy. Bloomberg Television is reporting that some Blockbuster creditors are balking at putting more money into the company and are suggesting that the company liquidate.

In any event, Blockbuster's retail locations are an endangered species. For the company to survive, it has to increase its presence in the kiosk segment and build a viable online business.

Blockbuster enters Chapter 11 bankruptcy

As expected for months, Blockbuster has entered Chapter 11 bankruptcy in the U.S., and its equivalent in several other countries. Blockbuster says that its 3,000 U.S. stores will continue to operate as usual during the bankruptcy (but that's probably not true--see below). In addition, its video kiosk business is owned by NCR and isn't part of the bankruptcy.

Blockbuster has asked the Bankruptcy Court to allow it to give the movie studios and distributors that supply it with 80% of its revenues priority for repayment, so that they don't cut off the company's ongoing supply of content. Senior bondholders, including Carl Icahn, who bought approximately one-third of the company's bonds as of September 17th, will be compensated with common stock after the company is reorganized and will effectively own the company. Other creditors and shareholders, with the exception of the movie studios and distributors, will be wiped out by the bankruptcy.

Blockbuster will most likely use the bankruptcy to cancel the leases, layoff the employees and close many of its more poorly-performing stores. It will also use the bankruptcy to renegotiate leases for other locations, and possibly lower or eliminate some benefits and pensions. The company's hope is that by wiping out its debt and lowering its operating costs, it will be able to compete more effectively with Netflix and Redbox. However, given how far behind those two companies it is, it's hard to see how Blockbuster can catch up.

The rats are running for the lifeboats at Blockbuster

Home Media Magazine reports that Mark Wattles has sold more than 1.7 million shares of Blockbuster stock for a grand total of $230,741, or an average price of just a little over $0.13 per share. Blockbuster CEO Jim Keyes sold more than 245,000 shares at a price of $0.18 each, for a total of $44,100. According to the article, he still holds more than 1.8 million shares, which if valued at what Wattles got for his sale, would be worth a bit more than $234,000.

Blockbuster's stock has been delisted by the New York Stock Exchange and its biggest holders are dumping their shares while they still have some value. Even though the company claims to have avoided bankruptcy through a one-month reprieve in debt payments from creditors owed $440 million of the company's $920 million in total debt, Wattles's and Keyes's stock sales indicate that they don't believe that the company will be able to stay out of bankruptcy court. Based on first-quarter earnings, the company is on track to have less than $100 million in earnings this year before interest, taxes, depreciation and amortization--not enough to cover scheduled interest and principal payments on its outstanding debt.

TiVo tanks, Apple breaks third-party apps

Earlier this week, TV By the Numbers reported that TiVo lost 163,000 subscribers in October, and the company has lost subscribers almost every month this year. In its most recent quarter, TiVo only sold an average of less than 500 DVRs a day. The company would have lost money in the quarter had it not received a one-time payment of $105 million from Echostar for patent violations. It's pretty clear that TiVo's situation is getting dire, and the company is not going to survive in the standalone PVR business for much longer.

At about the same time, Blockbuster got into the set-top box business, as I've written about earlier. Also, Apple released a new version of software for its AppleTV STB, which broke third-party software running on those devices, including Boxee, media center software for Linux and OSX that supports Hulu, CBS, Comedy Central, CNN and many other Internet media sites. Boxee was back up and running on the AppleTV a day later.

Is there really a market for third-party set-top boxes? By and large, the answer is "no," although the Roku Netflix player seems to be selling well. What I'd really like to see is a set-top box that's open and that supports multiple services. That rules out Apple and Vudu. You shouldn't have to pay a monthly subscriber fee to use the box, so that rules out TiVo, Microsoft's Xbox 360 and, at least for now, Roku. Blockbuster's new box is still a question mark--there's no monthly fee, and the box, built by 2Wire, runs Linux, but it's unclear if Blockbuster will allow Boxee and similar applications to run on it.

In my opinion, it would be a brilliant move if Blockbuster let Boxee, as well as others, run their software on its box without a long approval process or the fear that the third-party applications would be deliberately broken by Blockbuster. In one step, Blockbuster's offering would move from a me-too product to a market leader.

Experience has proven that consumers simply don't want multiple set-top boxes. Given the choice between a cable operator-provided PVR and a TiVo, they've chosen the cable operators' offerings in droves. This market is dead unless the players start seriously rethinking their strategies to adapt to consumer needs.

Blockbuster jumps into the set-top box business

According to CNET's Crave website, Blockbuster Video has struck a deal to resell 2Wire's new MediaPoint set-top box, to compete with the Roku Netflix Player and other Netflix-enabled devices, as well as Apple TV, Vudu, etc. The MediaPoint player will sell for $99, but comes with 25 free movies. Additional movies will be priced starting at $1.99, and no monthly subscription is required.

The MediaPoint comes with all the standard inputs and outputs: 802.11g or wired Ethernet interfaces, composite, component and HDMI video interfaces, and both analog stereo and Toslink digital optical audio interfaces. The MediaPoint user interface, as seen on the Crave website, borrows a good deal of its look from TiVo.

On paper at least, Blockbuster's offering could be very competitive with the Roku Netflix player, with a lower net cost and no subscription required. It's not known if Blockbuster is trying to get its service integrated with many different companies' video players, as Netflix has succeeded in doing. What IS clear, however is that Blockbuster is once again playing catch-up to Netflix. Keeping in mind what happened to Blockbuster's Total Access program, which made big progress against Netflix only to lose its momentum when the company chose to pare its financial losses, I wonder whether the company has the stomach to stick with its online service.