The VHS/DVD rental chain Blockbuster is going to go out of business. Recently I was visiting with my family over the holidays and we went to a local Blockbuster store to rent some DVDs. Two things struck me on that visit to Blockbuster. The first thing that struck me was that the store was empty. And it was close to Christmas time! I had been to places like Best Buy and Barnes and Noble that same week and there hadn’t been space to move around in the store! The second thing that struck me on that visit to Blockbuster was the cost involved with renting just two or three DVDs; it came to almost $15. Isn’t it possible, I was thinking, just to buy a DVD for that price?

So I haven’t been too surprised recently to see some news reports popping up that indicate the eventual demise of Blockbuster. What is it, exactly, that’s ruining blockbuster’s business? In terms of selling DVDs, allot more stores have stepped into that market and they sell those DVDs for a cheaper price than what is available at Blockbuster. One of the most infamous of such stores is Wal-Mart; but there are other mass retailers, such as Target, that are also selling DVDs at very low prices. Such stores can mark down the price on DVDs because they know that will lure customers in. Once inside, customers may purchase items that make more money for the store. But a place like blockbuster doesn’t offer many other products than DVDs and that limits how much they can mark them down. With the huge chain stores driving the purchase price of DVDs so low, many people compare that purchase price to a rental price and begin to think, like I did, why continue to bother with rentals at all?

And for those who do still continue dealing with DVD rentals, there are other companies, such as Netflix, that offer what strikes many as a more convenient and affordable deal than is offered by Blockbuster. For a simple monthly fee the customers of Netflix get to watch numerous DVDs with no late fees attached. And those DVDs arrive delivered through the mail right to the customer’s home. Blockbuster spent allot of years building its number of stores in order to be in as many convenient locations as possible for its customers. But even to take a walk down the block may begin to seem like too much trouble when the DVD rentals can, instead, get delivered directly into the mailbox.

And it was that competition from Netflix that forced Blockbuster to stop charging late fees at the beginning of last year. That move has led to complaints from many of the company’s investors who now want those late fees re-instated. The blockbuster late fees had been bringing in as much as $250 to $300 million a year; that was upwards of 15% of Blockbuster’s annual revenue!

Before long, even the Netflix system of DVD rentals may become a thing of the past. In this information technology, receiving DVDs by mail may eventually become too slow and cumbersome a process. Studios are now delivering movies onto home theatre systems, computers and I-pods via video-on-demand services. And that seems like the clear trend of the future.

Even if blockbuster tries to keep up with all of these developments it is still stuck with several thousand huge stores all over the country that are paying rent. Between the loss of business and the overhead for stores that are no longer profitable, Blockbuster has spent the last few years several hundreds of millions of dollars in the red. Blockbuster's shares have fallen about 47 percent since the start of 2001. In a recent article by Chuck Saletta, a value investor, he put Blockbuster high on his list of “probable bankruptcies.�?

I guess my visit to blockbuster last month may have been one of my last.