"Three thousand stores. I think that's the optimal number for Blockbuster's domestic chain in the United States. Chasing market share blindly is extremely unwise. All it does is waste our money and energy on commercial areas with very low returns. By constantly optimizing the planned network of three thousand video rental stores, I want Blockbuster to reach a fifty percent domestic market share within the next three years."
The American home video industry had been growing rapidly these past few years. It was projected to break ten billion dollars in sales this year, double the domestic box office.
If Blockbuster could reach a fifty percent share, it would become a colossus with five billion dollars in annual revenue and roughly five hundred million in profit, with a standalone market cap easily surpassing ten billion.
Inside Loft Three at Daenerys Studios.
Hearing Nancy say this, Simon replied, "If you can really hit that target, maybe I should buy out the rest of Blockbuster's shares right now."
"I've run the numbers," Nancy said, her slender fingers sketching figures on the tabletop. "Blockbuster's market cap is around 3.2 billion right now. With the war continuing over in the Gulf, it might drop below 3 billion in the near term. If we go for a full buyout, we can keep the offer between 4.5 and 5 billion. The actual cash we'd need to pay would be about 3 billion."
Simon studied that beautiful, delicate little hand of hers, a smile tugging at his mouth. "You know I'm cooking up a very large acquisition plan right now."
Feeling his gaze, Nancy shot him a look. When the man didn't show the slightest hint of guilt, and didn't even bother looking away, she had no choice but to lift her coffee cup and take a sip. "Those two things don't conflict. Even if your own funds aren't enough, getting a loan of several billion from the banks is still easy for you, isn't it?"
The debt crisis that had erupted at the end of last year had made North America's major banks tighten credit across the board, and it had become much harder for many companies to secure loans. But a top tier borrower like Simon had instead become exactly the kind of client every major bank was eager to lend to.
Even if Simon wanted to raise ten billion dollars right now, it wouldn't be that difficult.
"That's true," Simon said. "But besides Universal, I'm considering some other things too. Another big plan that burns money, and the returns are higher than Blockbuster's. So this has to wait."
For an acquisition involving billions, Nancy hadn't expected Simon to agree on the spot anyway. Hearing he had other plans, she asked curiously, "Like what?"
Simon shook his head. "Can't tell you."
Nancy frowned. "Boss, do you think I'm not trustworthy?"
"Of course you are," Simon said firmly. "But trust is something you have to maintain. The most important point is this. If there's no need, don't casually give people a reason that might damage that trust."
Nancy seemed to grasp his meaning. "All right. I won't ask."
"Then let's talk overseas," Simon continued. "I've noticed Blockbuster's overseas expansion seems a bit sluggish. Video rental chains aren't like theater circuits. Overseas markets have far fewer government controls and trade barriers. If we're aiming big, overseas expansion should matter too."
Compared to Blockbuster's domestic chain, which would surpass two thousand stores this year, its overseas presence was still limited to small scale footholds in nearby countries and in five major European markets, the UK, France, Germany, Italy, and Spain. And aside from Canada, which kept pace with North America, the other markets had fewer than two hundred stores total, mostly concentrated in core cities like London, Paris, and Berlin.
"Our overseas stores are still mainly for market exploration," Nancy said. "Early market research and data analysis are important. Once that's done, as long as funding is sufficient, overseas expansion won't be any slower than North America. Also, I'm planning to connect all Blockbuster stores in the Boston to Washington metro corridor on the East Coast to the internet, and I want to redesign Blockbuster's membership program. In short, there's a lot to do, and I can't spare much attention for overseas yet."
"As long as you know what you're doing," Simon nodded, then reminded her, "And don't pile everything onto yourself. What should go to Wayne Huizenga and James Frey, you need to let go."
Blockbuster was a very important equity holding under Daenerys Entertainment, but with people like Nancy Brill and Wayne Huizenga in place, Simon felt extremely comfortable. Aside from major financial and personnel moves, he hardly interfered with Blockbuster's day to day operations anymore.
"I know."
As she spoke, Nancy remembered something. She waved over her assistant, who had been waiting nearby, gave a few instructions, then turned back to Simon. "Speaking of Blockbuster's membership program, take a look and see if there's anything we should improve. And that Dune video game has started internal testing. Perfect timing, I'll get you a copy."
Seeing the little woman about to shamelessly squeeze her boss again, Simon said, "I'm worth hundreds of thousands a minute. Don't bother me with this kind of thing, okay?"
Real time strategy games were an important category, from the 1990s era of single player titles to the new century's online games. Many years later, phenomenon level online hits like World of Warcraft and League of Legends would still have deep ties to real time strategy.
So Simon had actually been following Dune's development all along, since it connected to many future plans.
As for Blockbuster's membership program, he had no desire to discuss it.
Blockbuster employed so many people. They couldn't all be freeloading.
Nancy didn't get the "hundreds of thousands a minute" joke. "I'm just asking you to take a look and see if you have any good ideas. We'll handle the details ourselves, of course. I've noticed you always come up with fresh concepts that break out of normal thinking. It's a talent people envy."
"Is that a compliment? Because I don't feel it at all."
Nancy said, "The DC film universe. Just that plan alone, do you realize how stunning it is? If next year's two films succeed, that strategy might end up as a Harvard Business School case study."
Simon smiled. "All right then. Looks like I really am amazing."
Nancy rolled her eyes at him again.
The assistant quickly brought over a folder and a floppy disk copy of Dune.
Simon set the disk aside and opened the folder. Across from him, Nancy said, "For now we're planning to divide members into two tiers, basic and premium. Mostly membership discounts, longer return windows, reduced late fees, that kind of thing. We're also considering monthly or annual subscription options."
Simon asked Nancy's assistant to bring him another bottle of water, then lowered his head and began reading through the membership plan.
Nancy didn't waste time either. She casually flipped through another set of materials, noticed her assistant had delivered a bottle of mineral water, and tossed out a topic. "I've seen you drink only water several times now. Why aren't you drinking coffee anymore?"
Without looking up, Simon said, "Jenny and I are planning to have a child. Coffee isn't good."
Nancy blinked. "Coffee affects the baby?"
"Seriously," Simon said. "So you need to watch it too."
"I'm not planning to get married."
"Not getting married doesn't mean you can't have a child."
"Having a child is a hassle. If I ever need one, I'll adopt."
"Better to have your own."
Nancy thought of something and frowned. "Male chauvinist."
Simon looked genuinely puzzled. "How are those two things connected?"
"They are."
"Fine. I'm a male chauvinist."
Both of them fell quiet. After a while, Simon said, "These plans all look good to me. As for how effective they'll be, I think Blockbuster can do what you just said about overseas pilots. Pick one or two states and test it first. If it works, roll it out nationwide. If it doesn't, cancel it. It won't affect the bigger picture. That's one advantage of scale. Your margin for error is huge. It's not just membership programs. Any good idea can be tested in selected regions."
Nancy turned her head, thought for a moment, then immediately pulled out her memo pad and started writing.
Simon laughed. "Do you really need to be that serious? You hadn't thought of it?"
"I thought of the first half of what you said, not the second," Nancy replied, jotting down a few lines before looking up. "Anything else?"
"Value added services for members," Simon said. "Have you ever rented tapes from a Blockbuster store yourself?"
Nancy said, "Of course. Every week."
"Doesn't it feel like a hassle?"
"A hassle?"
"Have you never thought about delivery to your door?"
Nancy considered it, then shook her head. "The cost is too high. Selecting titles, remote reservations, and logistics are all huge problems."
"In the short term, you can use phone reservations. As for logistics, try partnering with the postal system. The federal postal service is extremely developed. I doubt they'd mind an extra source of income. Sign a bundled contract with local postal systems for a year's worth of orders. Then Blockbuster can break free of store locations. A city would only need a few large warehousing and logistics centers."
Nancy's small face lit with barely contained surprise. "That's completely disruptive. If we really did it, our existing store system would collapse."
Simon shrugged. "If I can think of it, other people can too. You can let Blockbuster disrupt itself, or let someone else disrupt it. Which outcome do you prefer?"
Nancy knitted her brows, weighing it for a moment longer. "A service like that involves too many complicated links. You'd need to grow to a certain scale before you get real economies of scale. Smaller video rental chains couldn't possibly do it. And us, it doesn't seem necessary. Blockbuster's store distribution is carefully selected, and we're still optimizing it. It maximizes convenience. Most customers can swing by a store on their way home from work and pick tapes in person, no need to rely on mail delivery. Also, you said in the short term. Do you have a long term idea too?"
Simon could hear the rejection in her tone and wasn't surprised.
Trying to push a Netflix style model in an era where you could only reserve by phone really wasn't easy. And even in the internet era, for the sake of protecting its own store network, Blockbuster would instinctively resist that model.
"In the long term, if the number of internet users grows large enough, Blockbuster can build its own website. Users could search and reserve tapes through the site, like a library's electronic catalog system. That solves the problem of title selection and remote reservations, and it's safer and more convenient. Then they receive the tapes through the postal system. After they watch, they just put the tape into a special Blockbuster mailer and send it back. The whole process, they never need to leave home."
"If I'm not mistaken, America Online's user count this month is only around one hundred and fifty thousand. For it to reach a sufficient scale, how many years do you think it'll take?"
"American household VCR ownership went from two percent to seventy percent in just ten years. I believe the internet can reach that level of adoption in at most ten years."
"Using the internet to develop business is a great idea, but even if your prediction comes true, we still have to wait at least five years. You can't build a Blockbuster off two percent household VCR adoption." Nancy suddenly changed the subject, staring straight at Simon without blinking. "Boss, I'm really curious. Where do all these ahead of the times ideas of yours come from?"
This wasn't the first time Simon had faced a question like that. Janet's little stare used to be far deadlier, so he stayed perfectly calm. "That last idea was told to me by a guy named Reed."
"Reed?"
"Yeah," Simon nodded, then tilted his chin toward the empty seat beside Nancy and lowered his voice into a weird, eerie tone. "He's sitting right beside you."
Nancy turned her head to stare at the empty air next to her and said, annoyed, "Hey, Reed, can you sit across the table instead? I hate men."
The little woman played along with Simon's deadpan joke with a straight face. Neither of them laughed, but it made Jennifer Rebould and Sherry Lansing, who happened to walk over together, feel completely baffled, even a little creeped out.
What was going on?
Seeing Jennifer and Sherry, Nancy stuck out her tongue, greeted them, then explained, "Just a joke." Then she stood, pointed at the Dune floppy disk by Simon's hand, and said, "I've got work. That, remember to test it and email me afterward."
After Nancy left, Jennifer said to Simon as he stood, "Ms. Lansing has been waiting for you a while, so I brought her over here."
Simon checked his watch.
He'd scheduled a two thirty meeting with Sherry Lansing to discuss the Daenerys and MGM collaboration. He'd finished the Marvel meeting early and hadn't rushed back to the administrative district, but he hadn't expected that chatting with Nancy would make the time slip away. It was already three.
He apologized, then simply sat back down and asked Lansing, "Have you read the script for A Few Good Men?"
These days, over in Australia, Johnston Holdings had already begun taking over Seven Network from Qintex, and the Daenerys and MGM collaboration had been moving forward as well.
In Simon's view, MGM's biggest problem was avoiding the same fate it suffered in the 1980s, being sold from one owner to another. As long as it had a stable environment, against the backdrop of Hollywood's global expansion in the 1990s, it wouldn't be hard for MGM to regain momentum.
At worst, if they managed it patiently for a few years, Australia could still flip the studio again at a very good price.
As for the two planned co produced films, Simon hadn't liked several of the projects MGM proposed. In the end, he simply pulled one newly acquired property from Daenerys instead: A Few Good Men.