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Is Tesco’s Blinkbox for Sale?

by Michael Goodman | Oct 03, 2014

It has been reported in several publications that Tesco is considering selling off Blinkbox, its online movie service. According to The Guardian, Dave Lewis, Tesco’s new chief executive, “has kicked off a strategic review of the service and intends to seek a buyer.”  It should be noted that Tesco has not confirmed this report.

When Tesco acquired an 80% interest in Blinkbox in April 2011 it made a lot sense strategically as physical sell-thru revenue (e.g., selling DVD and Blu-ray movies at retail) is in decline. According to the British Video Association, physical sell-thru revenue in the U.K. fell by $170 million in 2013 to $2.25 billion and physical rental revenue declined by $97 million to $307 million. However, despite Tesco’s best efforts, Blinkbox has failed to gain any real traction in the UK’s $1.6 billion online video market (see Strategy Analytics  2014 OTT Video Market Forecast - Europe for a more detailed analysis of the European online video market).

According to Strategy Analytics 4Q 2013 ConsumerMetrix Survey only 6% of UK internet video viewers used Blinkbox in the past month (see Exhibit 1). In comparison, 72% used the BBC iPlayer, 28% used Netflix, 20% used LoveFilm/Amazon, and 17% iTunes. As a result, Blinkbox is contributing little to Tesco’s bottom line. According to the latest figures filed at Companies House, Blinkbox, in the year to February 2013, had revenues of $5.11 million, up 39% YoY from $3.67 million. Tesco can at least take heart that they are doing better than their U.S. counterparts. According to Strategy Analytics 4Q 2013 ConsumerMetrix Survey only 3% of U.S. internet video viewers used Vudu (Walmart’s online video service) in the past month and 2% used CinemaNow (Best Buy).

Tesco, Walmart, Best Buy and other retailers have failed to understand the changing nature of the home video market. For years the home video market was based entirely on the rental and sell-thru business models, however, Netflix changed all that. The introduction of subscription video services has completely changed consumer home video consumption patterns and devalued ownership. In 2013, SVOD accounted for 54% of consumer spend on OTT home video in the UK and by 2018 this will grow to 78%. Blinkbox, however, does not have a SVOD service. It only supports electronic sell-thru and digital rental, this missing out on the lion’s share of consumers spend on online video. Unless, Tesco intends to revamp Blinkbox’s  business model they are best off cutting their losses and selling Blinkbox. 

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