All Things Digital

Netflix’s March 2008 outage is back, this time in wide theatrical release. A serious disruption to the company’s distribution systems has prevented it from mailing DVDs to many of its customers for the better part of this week. “Our engineers continue to work around the clock to restore normal operations,” Netflix said in a post to the company blog today. “In the meantime, we’re notifying affected customers via personal email and we’ve posted a notice on the Netflix Web site. We’re as frustrated about this as you are.”

I’d imagine so, if not more. The outage is an ugly blow to the Netflix (NFLX) brand and to its bottom line as well. Citi analyst Tony Wible estimates that the company is losing roughly $1.8 million to $3.6 million in revenue a day. And the reimbursement credits it’s promised to affected subscribers are certain to prove costly as well. Said Wible, “Assuming only one-third [of the company's subscriber base] is affected for one-to-two days, [Netflix] stands to forfeit nearly $1.8 million to $3.6 million in revenues (using a $13.36 average revenue per user), or roughly $0.007 to $0.015 in earnings per share.”

A costly misstep given Netflix’s Thursday afternoon shipping update:

We hope to bring the rest of our facilities back online overnight and be shipping from all of our distribution centers on Friday. But the issues we’ve faced over the last several days have been significant and there’s no guarantee at this point that our shipping operations will be fully restored by tomorrow.”

Blockbuster CEO Jim Keyes says acquiring Circuit City will be “a challenge,” and while the company is up for one, a challenge of this particular sort may be more than it can handle. Because a week after announcing its $1.3 billion gambit for the foundering–yes, foundering–electronics chain, Blockbuster (BBI) says it would rather drop it than go hostile.

And with Circuit City (CC) refusing to allow the video-rental company access to its books until Blockbuster proves it can actually afford the acquisition, it would seem hostile is the only way to go. “The heart of the matter is that we still need further facts,” Keyes told The Wall Street Journal, referring to Blockbuster’s failure to gain access to Circuit City’s books. “With those facts, we can choose whether to proceed or get back to our continued success.”

The controversy over Facebook’s Beacon advertising system may have been laid to rest last December, but its memory lingers on.

Today brings news of the first lawsuit over the service and, oddly enough, it wasn’t filed against Facebook. It was filed against Blockbuster. Facebook member Cathryn Elaine Harris is suing the video chain Blockbuster (BBI) for its participation in the Beacon program. Her complaint alleges that Blockbuster violated the federal Videotape Privacy Protection Act when it shared information about her movie rentals and sales with Facebook without her consent. It seeks class action status and $2,500 for each violation of the 1988 statute.

Wow. Blockbuster is completely out of ideas, isn’t it? This morning the foundering movie rental chain went public with its bid to acquire ailing retail consumer-electronics chain Circuit City.

In a Feb. 17 letter to Circuit City CEO Philip Schoonover, Blockbuster (BBI) offered to pay more than $1 billion for the chain. But, to date, Circuit City (CC) hasn’t fulfilled a request for due diligence necessary to make the bid definitive.

Why? In a conference call today, Blockbuster chief exec Jim Keyes described the offer as “simply too attractive to ignore.” But it seems Circuit City also thinks the offer might be too attractive for Blockbuster to finance. “… To date Blockbuster has been unable to satisfy Circuit City and its advisers that Blockbuster’s proposal could be financed,” the electronics retailer said in a statement. “In particular, Blockbuster’s proposal appears to contemplate a rights offering of unprecedented size relative to the issuing company’s market capitalization and at a price that is at a significant premium to Blockbuster’s current market price.”

Well, yes, there is that. And, of course, there are other issues as well. Like what, exactly, are the synergies between a foundering movie rental chain and a foundering electronics retailer–aside from the fact that they’re both, you know, foundering? If it’s Blockbuster rental kiosks in Circuit City stores, the alliance would seem doomed to failure. Wait. It is Blockbuster rental kiosks in Circuit City stores?

To be fair, Keyes says digital content is important too, and he seems convinced that Circuit City will provide Blockbuster with the infrastructure it needs to distribute video to TVs and mobile devices. “What this combination provides is the ultimate distribution channel for [digital] content,” he said this morning. “It’s not necessarily downloading content to the PC that will ultimately capture the consumer’s imagination. It’s the opportunity to get that content on your TV and your mobile device that is a game-changing opportunity.”

A game-changing opportunity for Apple (AAPL), maybe. But for a foundering, outdated video-rental outfit?

With the Apple TV Take Two, we think we have it right this time. I think we have a great product.”

–Apple Chief Operating Officer Tim Cook, Jan. 23

Promises, promises, promises … When Apple (AAPL) debuted iTunes Movie Rentals this past January, the company pledged to offer “over 1,000 titles by the end of February, including over 100 titles in stunning high-definition video with 5.1 Dolby Digital surround sound.” Well, today’s March 4 and, as best I can tell, Apple hasn’t kept its promise. Browse iTunes this morning with the software’s “Power Search,” and you’ll find just 411 films for rent–91 of them available in high definition. That’s 589 short of the promised 1,000–a discrepancy of nearly 60%.

Seems Apple may not have Apple TV quite right yet after all–the Hollywood licensing part of it, anyway.

UPDATE: At the Apple shareholder meeting yesterday, CEO Steve Jobs confirmed the discrepancy, saying the company’s goal of 1,000 rental titles on iTunes was short by around 600.