People have long been predicting the demise of retail DVD rental stores. True to those predictions, those mom n’ pop video stores have all but disappeared, replaced by chains like Blockbuster. And now even Blockbuster is losing tons of money and its very existence seems threatened. And it’s all because of cheap and accessible online distribution of video content, right? Right?

Surprisingly, while the predictions of doom and gloom for the retail stores are coming true, the actual reason is not the one anyone predicted five years ago. Yesterday, Blockbuster announced they may close up to 960 of their stores over the next two years. That represents about 20% of their total. But right now, their biggest competitors, and the the main reason they’re being forced into the action? DVD delivery services like Netflix and, more surprisingly, those little Redbox kiosks at your local grocery store.

Redbox is a relatively recent addition to the DVD rental landscape. Interestingly, they really only took off after the industry was already writing off the whole idea of hard-copy DVDs and predicting that online distribution would mean nobody ever touched an actual DVD again. Eventually, of course, that will be true. But in the meantime, a meantime that has already lasted several years, Redbox will be happy to serve up millions of those .99 cent movies and make a whole lot of cash.

In another twist, Blockbuster’s reaction to the Redbox kiosks has actually contributed to their problems. They’ve placed 500 Redbox-esque kiosks in various locations already. By attempting to emulate a successful competitor, they’ve started to cannibalize their own business. And with plans to place 10,000 more of the automic machines by next year, it appears they have no plans to stop now.

Tags: Blockbuster, DVD, online distribution, Redbox, Technology

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