Blockbuster Gone Digital

>Just when investors thought beleaguered Blockbuster wouldn't make it, the movie rental company is going digital. After more than 25 years of renting out videos and DVDs, Blockbuster Inc. announced the launch of a new application programming interface (API) to deliver its movies to myriad platforms, including smart phones, gaming consoles, tablets, and digital television boxes. Alex Williams of ReadWriteWeb reports that the adoption of a new digital API strategy gives Blockbuster "the leverage to give the customer a unified experience across multiple channels," providing customers with new avenues to purchase Blockbuster products. The API will bridge the gap between Blockbuster's monstrous inventory and the growing market of Internet-ready devices that has left the rental giant toiling under the specter of financial ruin.

The announcement came in the midst of a rough year for both Blockbuster and the rental industry at large: Movie Gallery -- the second largest movie rental chain in the U.S. and owner of Hollywood video -- announced in February that it would be filing for Chapter 11 bankruptcy and closing all of its U.S. locations, citing the "economic and competitive realities" video rental industry faced. Blockbuster also declared that it would be closing nearly 1,000 stores in 2010 in an effort to shift its focus more toward digital streaming to mobile devices. Despite a 7 percent boost in Blockbuster stocks following Monday's announcement of rival Movie Gallery's closing, Blockbuster's shares are hovering somewhere around $0.40 (The Street's Jeanine Poggi notes that Blockbuster is close to being removed from the New York Stock exchange) and the company remains on the brink of bankruptcy.

The new API is a huge, if belated, step in the right direction for the ailing company. With Netflix, the reigning online rental and streaming service, posting record earnings and revenue forecasts last quarter, Blockbuster is playing it smart and abandoning the classic brick-and-mortar approach to renting movies. The company's new strategy is one of adaptation to the widespread promulgation of mobile technology and internet-ready televisions. According to ReadWriteWeb's Williams, Blockbuster is currently limiting the API to certain partners -- including TiVo, Samsung, and HTC -- but may open it to other providers in the future.

Blockbuster has been, to some degree, responsible for its own unraveling.  Williams reports that the new API came after "two years of work to consolidate Blockbuster's multiple channels to represent its new philosophy: 'One Customer, One Blockbuster.'" Netflix, meanwhile, already had one foot in the digital movie market, making it easy for the fledgling rental company to outpace its competitors while Blockbuster sought to shore up its unprofitable stores and extensive inventory.

The new API, however, may mark the beginning of a Blockbuster insurgency. As The Big Money's Chadwick Matlin wrote at the end of April, "just because more and more Americans watch movies online -- whether it be through Web-connected computers, Blu-Ray players, or DVRs -- doesn't mean they want to stop watching the newest movies. Netflix and Redbox can't provide those when they first come out."

Blockbuster can offer digital downloads of new releases, Matlin explained, because "it asks customers to pay for digital movies the same way they rent DVDs -- a la carte. (The studios prefer this to Netflix's come-one, come-all digital strategy.)" But Matlin thought that Blockbuster's superior selection would be irrelevant if it didn't adopt a comprehensive digital strategy.

The new API, then, may be a light at the end of the tunnel. The release of the iPad and the subsequent scramble for new tablets, the increasing use of web-ready gaming consoles (like the Xbox and Playstation 3), and the new national fixation with versatile smartphones like the iPhone and Motorola Droid has produced an entirely new market of outlets to which Blockbuster can deliver its immense inventory.

The cost of renting a new release may continue to limit Blockbuster's reach; some viewers will surely prefer to stream bootlegged releases from sites like Megavideo or Wisevid, but these services often yield movies with blurry images or poor sound. Blockbuster will soon find out if paying $4 to get the newest releases streamed to a TV, phone, or e-reader is a cost consumers are willing to incur.