Future consumer distribution channel for multimedia?

Blockbuster Video, one of the largest video rental and music retail companies in the world, has embarked on a new program to bring multimedia software and hardware to the mass market. The program, which was launched on a trial basis in November, is a potential turning point for interactive media.

To date, multimedia title distribution has been limited to computer software outlets and mail-order catalogs, but if Blockbuster’s plans are carried out, interactive media titles and platforms will, for the first time, reach a mass consumer audience.

Initially, Blockbuster will rent software in 57 company-owned stores in the San Francisco Bay area. As part of the trial, Blockbuster plans to stock more than 200 CD-ROM titles from more than 35 software publishers. Titles will range from games and adventure to education, edutainment and reference. Each of the stores will also carry five different hardware platforms: Panasonic’s Real 3DO Multiplayer, Sega’s Genesis CD player, Philips’s CD-I platform, Apple’s Macintosh TV and IBM’s PS/1 computer system. According to Blockbuster, trained salespeople will be stationed at each machine to answer questions about the hardware and to demonstrate various software titles.

THE ANALOG TAPE KING GOES DIGITAL

Although Blockbuster is initially distributing CD-ROM titles only as a part of this in-store trial, there can be no doubt that the company, with its core business founded on analog media, is looking for ways to evolve toward interactive entertainment. During the past couple of years, the company has been very active in acquiring new retail chains and strengthening the Blockbuster brand name, not only in the United States, but overseas.

In addition, it has been developing technologies for media delivery (see story on the NewLeaf partnership with IBM, Vol. 2, No. 9), and new in-store product categories, such as Sega video game and Philips’ CD-I rentals.

Tracking customer habits. Blockbuster’s business model for the pilot was derived from its extensive research in tracking consumer profiles and buying habits at its stores. The average Blockbuster customer profile is one that every multimedia publisher would love to reach: typical customers are in their mid-thirties, are married with children and have median incomes of more than $50,000. In addition, the percentage of Blockbuster customers with personal computers in their homes is nearly two times the national average.

It may be frightening to contemplate, but the Blockbuster organization (like the Tandy Corporation) also tracks every single customer’s rental history, every single store’s daily business and the sales record of every single store item. With more than 40 million customers, this is its most important source of information on consumer demographics and purchase decisions.

Additional data that convinced Blockbuster to pursue new media markets came from the game industry. According to Sega, three out of five of its video games are rented before they are purchased. Blockbuster also points out that Gaming magazine and Game Pro both found that more than 80 percent of the people they questioned would prefer to rent game cartridges and CD-ROMs before buying them.

COLOR CODED FOR YOUR CONVENIENCE

Within its stores, Blockbuster has designed areas for interactive technologies that it hopes will appeal to consumers unfamiliar with new media. Each of the five multimedia machines is set up in its own color-coded kiosk, with promotional material surrounding it. Color-coded shelves contain software for rental or purchase. As is Blockbuster’s practice with videos, original packaging for the software is prominently displayed, with copies of the software behind the box.

By color-coding the kiosks and shelves as well as the stickers placed on every software package, Blockbuster hopes to alleviate consumer confusion about which software will play on which machine. In addition, Blockbuster says an employee versed in use of the game players will be on hand to demonstrate the system and answer questions about the titles.

USING HARDWARE TO SELL SOFTWARE

With the exception of the Apple and IBM computer platforms, consumers can rent players from Blockbuster. (Computers will not be available for rent because Blockbuster officials didn’t want to be saddled with the liability.) Customers who, after renting a system, decide they must have one of their very own can even purchase the Sega, Philips or Panasonic players in the store or place orders for the Macintosh and IBM machines through an 800 number.

Rental fees are $4 for titles, $15 for players and $20 for three titles and a player. All rentals may be kept for three evenings.

The chicken and the egg. It is not Blockbuster’s intention to be in the hardware business. However, the company realizes that a business in multimedia software cannot succeed without a healthy hardware market. To that end, even though Blockbuster doesn’t believe that selling players will be a major component of the program, the company has agreed to allocate space and personnel to promote the various hardware platforms.

By putting the different platforms in the store, Blockbuster is also making the shift to interactive media easier on the consumer. In essence, the company is creating a scenario whereby it can generate consumer interest and excitement by lowering the economic barriers for experimenting with the new technology. In addition, it is providing an opportunity to satisfy “impulse” purchases of hardware.

AWAITING THE RESULTS

On March 31, the company plans to review the trial program and re-craft it for a national roll-out in time for Christmas 1994. Ultimately, as many as 4,000 Blockbuster stores nationwide may rent and sell multimedia software.

Blockbuster will collate the results of the initial test, and share that information with the participating hardware and software companies. All of the participants will receive the common data from the test (total usage, in-store responses, etc.). Individual product information, such as how well a specific title or platform rented or sold, will be shared only with that company.

Invaluable market research. Most of the participants in this program are eagerly awaiting the information that will be gleaned from the test, as well as the exposure of having their products in front of an audience that probably doesn’t go into CompUSA or the other computer stores for their entertainment and information.

“The [traditional computer] channel has been doing a terrible job of merchandising CD-ROM,” says Scott Walchek, president and COO of Sanctuary Woods, a software publisher participating in the test. “It’s reached the point where it is more risky for me to rely on the status quo, anemic software channel than to try to extend my reach into an already proven, mass-market channel.”

Walchek is looking for data to help understand the “single-play” model — also known as the “pay-per-play” model — which he believes will carry over into the interactive television market. Will people rent and play a title one time only, or will they want to buy it so they can play it over and over again? As Walchek asks: “Is the product we are doing going to satisfy the hunger” of multimedia users?

THE ‘BLEEDING EDGE’ OF TECHNOLOGY

While the rental trial is still only a few weeks old, Blockbuster officials are pleased with the preliminary results. Store traffic in San Francisco is up; game rentals and sales are higher than predicted; and the interest in personal computers is very high, especially with those Blockbuster members who are parents of school-age children.

Interestingly, the early numbers show that educational titles are following the game model of rental before purchase, according to Mike van der Kieft, Blockbuster’s director of business development and manager of new media markets. Van der Kieft declined to comment on the exact figures.

Survival of the fittest. That Blockbuster is willing to devote floor and shelf space — about 30 feet per participating store — to interactive media is a sure sign that the company, which owns virtually 20 percent of the multi-billion dollar home video rental market, believes in the future of interactive media. Especially if one considers that Blockbuster is one company that is truly on the bleeding edge of technology — the more successful the technology, the greater this company could bleed. If video on demand became a widespread reality tomorrow, Blockbuster, with its core business rooted in analog technology, could very well go the way of the dinosaur.

In looking for ways to diversify and adapt its business, Blockbuster has put itself in the forefront of interactive entertainment, at least as far as the consumer is concerned. This could only strengthen its position as a leading provider of software — from movies and music to games and multimedia.

David Baron