Since he arrived in July of last year, Mr. Keyes has slashed costs at the world's largest video-rental chain, closing some 200 stores and customizing and shrinking the rest. The shift comes at a time when overall DVD-rental revenue, which had been rising steadily to $7.5 billion in 2006, has plateaued, according to Digital Entertainment Group in Los Angeles, and DVD sales have fallen $600 million in the last year.
Worse, Blockbuster last year missed a bank covenant and had to renegotiate its credit terms for a fourth time. Yet doom has been averted: Worldwide same-store and by-mail revenue increased 7.4% last year, while worldwide same-store revenue increased 2.9%. Net income increased $29.8 million, and earnings improved 16.2% last year, according to Blockbuster's March 6 earnings statement.
To build on that momentum, Mr. Keyes plans to expand retail selections to offer not only movies and games but game consoles, and eventually other entertainment products and services. He also has something planned for customers who'll never set foot in a Blockbuster: delivery to portable devices, PCs and, eventually, your digital TV at home.
But first, he says, consumers need to get the memo: Stop calling it "Blockbuster Video."
Advertising Age: What did you learn at 7-Eleven that's helped at Blockbuster?
James Keyes: When I first joined 7-Eleven, its demise was also being predicted because of the huge influx of competitors from Exxon to Wal-Mart, all offering lower prices. But I turned to the CEO, Jerry Thompson, whose father was the founder of 7-Eleven over 80 years ago, and he actually passed along his father's words: "Jim, convenience will never die. Products and services will come and go, but the customers will always need convenience. And your job is to deliver what they want, when and where they want it." And interestingly, if you look at the entertainment marketplace, it's all about convenience and convenient access to media and entertainment. We have the opportunity to find ways to become more convenient and relevant to the customer.
Ad Age: How?
Mr. Keyes: We have to be able to challenge the customer and offer new and different ways to find media entertainment. That could be through offering alternative content or exclusive opportunities [such as a new a two-year agreement that gives Blockbuster the exclusive U.S. rental rights for IFC Entertainment's films] or even to provide other forms of media entertainment in the form of books or magazines or games or music.
Ad Age: So it's really about becoming "Blockbuster Media," not "Blockbuster Video"?
Mr. Keyes: Interesting that you should say that, because we're testing various ways to communicating this to the consumer, and "Blockbuster Media" is a more descriptive way of defining the Blockbuster of the future.
Ad Age: You're doing it counterintuitively, though: A softening economy is good for movie rentals, and it also means it's cheaper to advertise. But you're cutting back your advertising roughly 25%. Why?
Mr. Keyes: One of the first actions we took was to pull back pretty aggressively on advertising. Some of our advertising costs were out of line with the returns we expected.
Ad Age: What did you find out about who your customers are? Where were you looking for them, and where are you actually finding them?
Mr. Keyes: We were spending a tremendous amount of our advertising dollars online. That's a very expensive form of advertising, and we found it wasn't the most effective use of our dollars.
Ad Age: Might it be easier to just restart with a new brand?
Mr. Keyes: One of things that attracted me to Blockbuster is that it is a brand known all over the world for media entertainment. My challenge is the same that we have seen Coca-Cola go through in recent years -- and even more recently, Apple -- in redefining the brand so that it means more for the consumer. Apple was successfully able to redefine itself from a computer-hardware maker into an entertainment provider through the iPod and even a retailer through the Apple stores. And Blockbuster has that same opportunity. I believe we can transform the brand by transforming the relevance to the customer by the way we reach out to them in their daily lives.