Blockbuster: Movie Business Remains a Moving Target - ' Store Fronts Remain a '

For those who like to browse the store every time they're in the market for a movie, Blockbuster created an entirely separate, in-store subscription service it calls Movie Pass, which allows renters to pay a monthly fee to keep a set number of movies from an individual store for as long as they want. While it would seem logical to let in-store subscription customers transact with Blockbuster Online, and vice versa, the complexities of revenue recognition and inventory management make that impossible. "If a member is paying, say, $25 per month to rent X number of movies, we need to allocate that monthly fee per movie in order to pay the studios," Paci explains. "That means we need to know which inventory it came from and who paid what for the rental."

Compounding the pain that the new online venture caused for IT was Blockbuster's massive, and nearly disastrous, "No More Late Fees" program, launched in January 2005. The drastic change to their business model gambled $250 to $300 million in annual late-fee revenue in hopes of attracting wayward customers back to the stores. It worked . . . sort of. The program has increased in-store rentals, though Blockbuster isn't saying by how much. But those customers who failed to read the fine print howled with outrage when they found the full retail price of a movie on their credit card invoices. As it turned out, "no more late fees" did not mean "no more due dates." Blockbuster records a rented movie as a sale if the customer keeps it more than seven days. If the movie is returned within 30 days, the price of the movie is credited back to the customer's account—less a $1.25 restocking fee. Keep the movie more than a month, and it's yours permanently.

Swamped with complaints, several state attorneys general filed false advertising claims against Blockbuster. All but one of those claims was dismissed after Blockbuster began a multimedia advertising campaign to clarify the program's details.

But the false advertising claims weren't the No More Late Fees initiative's only missteps. The IT department had its share of trouble persuading the stores' on-site servers to recognize the new rules; daily inventory management and sales transactions are handled at each store by a roughly ten-year-old Digital Equipment Corp. Alpha server.

"When customer service representatives are standing in front of you at the registers, the business rules are all driven off that DEC server," Polizzi says. "We had to deploy the rules in such a way that if the U.K. isn't using No More Late Fees, which they aren't, they can continue to run their business with late fees. And when Canada decided to join No More Late Fees in February, we had to be ready to transition and support that business as well."

Behind the scenes, IT needed to keep an eye on how the myriad changes were affecting inventory, rental volume and sales. "We were out in the stores doing a soft launch of the No More Late Fees program, without advertising, on Dec. 27, which is memorable for me because it's my wife's birthday," Polizzi says. "It was a very interesting holiday season last year."

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