lockbuster – the story of how an industry leader can end up in bankruptcy.
If you grew up in the 1980s or 90s, you must remember the nostalgia of going to a Blockbuster store and renting your favorite movie on DVD or VHS tape. For the newest generation, it feels surreal that we were once physically going to a store and only being able to access it for a week.
Blockbuster dominated the entire entertainment industry, with over 9,000 physical video rental locations worldwide. Believe it or not, one Blockbuster store was opened every 17 hours. In fact, if you had asked someone back in the day that a store in Bend, Oregon, would become the last Blockbuster store (and a museum for most) in 2018 – no one would have believed you.
So, what happened with Blockbuster? When did Blockbuster close? What led to the Blockbuster failure?
One Word: Lack of Innovation
Blockbuster peaked in 2004 with a revenue of $5.9 billion. However, that was the beginning of the end for them.
Yes, they had many operational issues, but the reason why Blockbuster closed was simply their inability to keep up with the industry’s changes. While the internet and the online world were quickly advancing, Blockbuster refused to buy into the future of streaming services.
Many companies have dealt with accepting change in the past. AOL dialup, Borders bookstores, and Nokia all failed due to their inability to adapt to market dynamics and technology. They were afraid of hurting their initial business, which is exactly what led to their failure. This is also the case for Blockbuster Video stores.
“Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover.” – Reid Hastings, Netflix’s Co-Founder.
Can you believe that Netflix wanted to sell its business to Blockbuster in 2000 for only $50 million? Yes, this actually happened. Of course, at that time, Netflix was still an underdog, far from being the giant that it is today. Blockbuster stock was at its peak, so obviously, they could have afforded it. However, the former CFO of Netflix, Barry McCarthy, said that Blockbuster “laughed us out of their office.”
Lesson: The importance of innovating and adapting to market dynamics, emerging technologies, and consumer needs.
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Blockbuster Online – A Lack to Adapt Rapidly
Had Blockbuster accepted, Netflix would have been in charge of managing Blockbuster’s online business. But Blockbuster wasn’t entirely sold on online rentals and mailing them to their customers – just like Netflix was.
But Blockbuster didn’t understand that this was exactly what people liked about Netflix. We didn’t have to personally go to a Blockbuster store anymore. Now, all we had to do was hop online and pick a movie or game, and that’s it! In a couple of days, it would arrive in your mailbox.
Three years later, Netflix had more than a million subscribers. It was only in 2004 that they launched Blockbuster Online after seeing the success that Netflix started to gain.
“Companies rarely die from moving too fast, and they frequently die from moving too slowly.” – Reid Hastings, Netflix’s Co-Founder.
Unfortunately, Blockbuster Online was exactly the opposite of Netflix’s easy-to-use platform. It lacked user-friendliness and accessibility, and sadly, not that many people embraced it. However, Blockbuster’s strategy to encourage users to join them online was to launch a program – Total Access.
Total Access allowed online users to return rentals to physical Blockbuster video stores in exchange for a free DVD rental – all for a low, flat fee. This was extremely successful, but it came at a price. Unfortunately, it was Blockbuster stock and revenue who had to pay for it. Why? Well, for each exchange, Blockbuster was losing $2, which led to revenue losses. So, when they decided to increase the Total Access fee – as you might’ve expected – it resulted in a significant loss of customers.
Lesson: Learning how to position your business and making informed decisions based on it are the keys to success.
Blockbuster Video – A Pricy Business Model
Another reason Blockbuster closed was their business model – Blockbuster video stores. It goes beyond not adapting to the technological changes in the industry. Instead, their brick-and-mortar stores were extremely expensive since the company was investing heavily in them. And it makes sense! Their physical stores were usually large and located in prime yet pricy areas. Unfortunately, this led to significant overhead expenses.
Believe it or not, these issues were mainly caused by leadership disputes. Carl Icahn, Blockbuster’s board member, opposed the emergence of the online world, advocating to stay true to its traditional roots as brick-and-mortar stores.
In fact, Niko Celentano, former Blockbuster Video shareholder, stated in 2010, after Blockbuster announced its bankruptcy:
“Jim Keyes is the main reason Blockbuster is in this position today due to his denial of being in a business model that did not work anymore. If Jim Keyes would have seen the changes that were evolving in this industry in the past few years, Blockbuster would not have been in the courts today filing Chapter 11 bk protection.”
So, when did Blockbuster close?
Blockbuster Video filed for bankruptcy in 2010. As of 2024, there was one last Blockbuster store still standing in Bend, Oregon.
Blockbuster, a once leading player, represents a lesson in the importance of business innovation. Failing to embrace market trends and clinging to outdated models is exactly what might lead to company failure. So, as companies, we must learn to adapt and evolve to stay competitive.
By
Daria Dondea
•
December 16, 2024 9:00 PM
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