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Adding to the complications of that holiday season was Blockbuster's new in-store DVD trading program, quietly rolled out in more than 2,600 stores last year and expected to be in 1,600 more by the end of this year.

The idea is to let customers bring in used movies they no longer want and walk out with others. Sounds simple enough. Turns out, however, that many states require such a trading program to adhere to the same regulations required for pawnshops—an entity for which every state has slightly different laws. "You have to be a certain age to trade, you have to keep records of who is trading what, and how often, in case there's an attempt to traffic in stolen goods, and all of that is taking place at the same time you're developing an entirely new category of inventory," Polizzi says. "When you go through 50 states, and 25 countries and 9,100 stores globally, understanding all those variables, and making it effective for the people who have to account for the supply chain, is a key part of what we have do through IT."

Rounding out Polizzi's year from hell was Blockbuster's push into an entirely new rental market: video games. As each new gaming console has come out, players increasingly have been loathe to plunk down $50 to $75 to buy a game that they have never tried before. With at least three new game consoles coming out in the next 18 months, Blockbuster sees a potentially, well, blockbuster revenue opportunity.

By some measures, video game rentals and retail combined already represent nearly 20 percent of Blockbuster's business. But analysts already see plenty of potential pitfalls. "Some Blockbuster video game departments seem to do very well, while others don't at all. It's very mixed right now," says Dennis McAlpine, managing director of media and entertainment consultancy McAlpine Associates LLC, in Scarsdale, N.Y.

In their traditional video rental space, Blockbuster has two decades of data about what inventory needs to be located where in order to make the most money. Without the same kind of detailed data in the games space, and little experience determining which selection will be a hit and which a dud, "you can end up with a lot of bad inventory if you buy at the wrong time," McAlpine warns. IT is confident its systems can quickly collect the data needed to avoid that trap, and Blockbuster is confident that the new Game Pass subscription model—which, for $19.95 per month, allows renters to keep any one game indefinitely—will explode as new consoles hit the market.

This article was originally published on 08-10-2005
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