The once-king of movie rentals is now losing on market share big. Their online rental system is non-existent, thanks to a patent battle win by Netflix in 2006. So how can Blockbuster cure part of their problems? Maybe sell to Google?

Back in 1985, David Cook put together the first Blockbuster store in Dallas, Texas. Scott Beck, John Melk and Wayne Huizenga took it to franchise – which would then be bought by Viacom.

From there, it was pretty much opening stores and gobbling up others like a Pac-Man game. I remember a local company called Doorstep video that was acquired by Blockbuster by 1990. By 2000, Blockbuster was the dominant movie rental chain.

Enter the Online Movie Revolution

Once the Internet began to infiltrate, the ability to order movies at home caused concern to the rental industry. The only thing to do is join the revolution. Blockbuster and Netflix show up with rental business models. What a great idea – Rent a movie from the computer and wait a week for a disc, watch it, then wait another 2 weeks for the next disc.

Of course within time, that model would get better. No late fees, return at any time. They even found it worked on a gaming model with Gamefly.

Blockbuster sweetened the pot with the option to return to their stores and get more movies while they wait for the next titles. Add no late fees – It looked like a great option. Netflix went a different route. They went the online way – Movies from your computer right now. Through the web or through a set-top box.

Movies on Demand – Netflix on everything

Netflix’s model seemed to be more powerful than Blockbuster’s. Of course, you could only get Blockbuster on limited devices. Netflix is on the web, through your Boxee, Roku, TiVo and more. Last year, Netflix subscriber base grew and Blockbuster lost share. They closed stores, but that was not enough to keep up with Netflix and now emerging Red Box locations – where you can rent movies in the grocery store (which you have to go to anyway).

Lawsuits

Franchise owners sued Blockbuster for their “Total Access” feature. Netflix sued Blockbuster for copying their online model. Blockbuster was also investigated for their “No Late Fee” claim. The issue was over it possibly being misleading. Blockbuster would charge a “restocking fee” for any movie 30 days late, as well as charge the renter the full price of the video if it also was over 30 days late.

It’s probably a good thing they didn’t buy Circuit City in 2008. Blockbuster might not have been around today if that acquisition came through.

So why should Google buy Blockbuster

After all that, you may be wondering why I think Google should buy Blockbuster. It seems like the company is a failing business model, but that’s not completely true. It’s just disorganized.

Blockbuster needs to enter the on demand market the same way Netflix has – ASAP. What a better way than through Google.

YouTube by Blockbuster

YouTube has struggled to get their online rental model going. Distribution companies like Paramount and Universal try to limit the on-demand option by at least 30 days. On Demand rentals turn into a “let’s watch this movie while we wait for the new stuff”. Hopefully you can find something in the sea of B-movies.

With Blockbuster’s online rental, along with brick and mortar stores and YouTube’s on-demand models, it might be a great marriage. Add to that, YouTube has reach on Boxee, Roku and TiVo already, along with a host of other devices. For $14.95 a month, you could get the best of both worlds.

How moving Google on the block would change Blockbuster

There is still something to be said about the store on the corner. Google could definitely take advantage of the older business model. Just look at how popular the Apple store is.

Google Blockbuster stores could not only have movie and game rentals, but also be the place to try out the Android OS. Maybe play with a Android tablet or phone. You could buy some Blogger wear and get expert advice on Google Adsense or maybe how to make a good YouTube video.

Get in on the Gaming

Oh, yeah – we didn’t even touch game rentals. Of course, Google would enter in a new market. They would compete with Game Fly for rentals and Best Buy for purchases. The “games on demand” market is in it’s infancy. When it explodes, Google will be right there to cash in.

Win-Win?

Google would get local exposure, while Blockbuster’s model would grow dramatically. YouTube would get a boost on their online movie rentals, Android might get a home and Google would get into the gaming market at the right time – when it is low.

One should expect that to change when people start spending again, because there is still a great predicted growth in this market.

Blockbuster is trying to cut costs to keep investors happy. Their stock price is bordering on losing their filing. They have put their international assets on the market and will be closing stores in the next quarter to compensate. Google stepping in and paying a modest price including stock buyout would keep the company from going under.

Of course, this is only a suggestion. Other companies would also profit from getting Blockbuster – Best Buy and Walmart for example. Even Apple could see great advantage to incorporate what Blockbuster has. It’s just a question of who’s gonna do it.