Speaking at a press event in London today (8 January), Tesco chief executive Dave Lewis estimated the company has invested £70m in Blinkbox since buying an 80% stake in 2011. That includes a number of marketing campaigns over the past 18 months aimed at boosting the profile of the brand, in particular its movie and music offerings.
At the time of the acquisition, Tesco said Blinkbox would be integral to helping the supermarket “link physical purchases with the building of digital collections” and build out its multichannel offering. It was hoped that Blinkbox would provide Tesco with customer data that would help it build up a fuller picture of what its customers bought and were interested in to provide more targeted marketing and therefore boost sales.
The service has proved costly to run, however. While figures are not available for 2014, in the year ended February 2013 Blinkbox reported a loss of £18.5m, up from £5.68m in 2012.
Lewis said Blinkbox still requires “a lot more investment” to fulfil its potential, something Tesco wasn’t prepared to do given that Blinkbox isn’t core to Tesco’s business. The supermarket is hoping to turnaround its business by cost-cutting and jettisoning non-core assets following a difficult 2014 that saw it issue a number of profit warnings and admit to a £263m profit overstatement.
“For us to be investing now when we don’t have what we want in the core of the business – that is not what we need to be doing. Blinkbox should be part of the core of someone else,” he said.
The appeal of Blinkbox
For TalkTalk, Blinkbox offers the opportunity to widen its services, particularly into online and mobile video. The company already has its own TV platform but is working on a TV app.
The purchase of Blinkbox should speed up that launch, as well as offer new revenue streams through movie rentals and bring TalkTalk to Blinkbox’s audience. TalkTalk has also bought Tesco’s broadband and landline customers, giving it a wider customer base.
However, TalkTalk has said it will not keep the Blinkbox brand, instead rebranding the service as part of TalkTalk TV while the broadband customers will be transferred over to its service.
“We are working through our plans and timings but our intention is that we will rebrand as part of TalkTalk TV, we will not operate it [Blinkbox] as a standalone business,” says a TalkTalk spokesperson.
However, the Blinkbox brand will not totally disappear, for now at least. Tesco still owns the music and books part of the business, although Lewis said it is in exclusive discussions about offloading them as well.
The move builds on TalkTalk’s quad-play ambitions. It is one of just three companies in the UK able to offer such packages, which include landline, internet, TV and mobile. The others are Virgin Media and BT (once it completes its £12.5bn acquisition of mobile operator EE).
TalkTalk has been keen to talk up the broad range of services it offers, with a new marketing campaign launched in June last year targeting current customers as it looks to reduce churn rates and encourage customers to take up more of its services. The ability to offer mobile TV as well should help with that.
Dido Harding, TalkTalk’s chief executive, says: “We are excited about the future of quad-play and this acquisition will help to further drive home our value for money advantage.”
However, the firm will need to be careful that the mobile TV and streaming services don’t add another layer of complexity to a business already struggling with customer perceptions.
TalkTalk remains at the bottom of YouGov BrandIndex’s TV and radio and tablet and broadband provider categories in terms of its Index score, which tracks consumer perception of brands across metrics including value, quality, satisfaction and reputation.
TalkTalk also continues to underperform the market in terms of customer satisfaction and came bottom in terms of customer complaints, according to Ofcom.