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Remember Friday nights heading to the video rental store? It was a joy to walk into your local video rental store and find new movies to watch over the weekend. Or find video games to play over the weekend. The newest releases would be hard to obtain unless you got lucky or knew someone who worked at the store. The downside to video rental stores was being charged for late fees and if you’re ancient (god I’m getting old) getting charged for not rewinding the video cassette tape. The king of video rental stores was Blockbuster video. Yet we don’t hear about them anymore or any other video rental store for that matter. What happened? Redbox, video streaming and more importantly Netflix took over the market.
Blockbuster at its peak in 2004 employed 84,300 people worldwide and had 9,094 stores open with 4,500 of those being in the United States alone. Yet in 6 years it would be filing for bankruptcy, they were too blind to the changing current in the video rental market.
The Founder of Netflix, Reed Hastings returned a late copy of Apollo 13 to his local blockbuster and was charged a $40 late fee (ouch), this ticked him off so bad he founded Netflix 2 years later.
Netflix Started off as a DVD rental company by mail, meaning Netflix would mail you copies of DVD’s and when you finished watching them you would return them to Netflix through the mail in a pre-paid envelope. Netflix lacked the name recognition of Blockbuster however and though a good idea it struggled to gain traction in the industry. Reed Hastings approached Blockbuster and its then CEO John Antioco and proposed a deal where Blockbuster would buy Netflix for $50 Million, Blockbuster would promote Netflix in their stores and Netflix would introduce and run blockbuster video by mail service. Blockbuster, literally laughed Reed out of their offices. Blockbuster viewed Netflix as a little niche service, servicing a niche market and because Blockbuster worked so hard to build its name brand and goodwill and they didn’t want to just waste it on this little ”Niche” company. Blockbuster had a big Achilles heel though, a big part of its profit was charging customers late fees. Yes, people, Blockbuster wanted you to keep that video a few days or weeks after that due date, that’s how they came to rule the video rental market. Netflix plan, however, was a subscription model where you could rent as many DVDs or blu rays as you wanted a month and there were no late fees, and if you wanted a new movie, just return the one you were watching and select a new one through the website.
Netflix eventually grew through word of mouth to the point it started disrupting the video rental market and started being a pain in Blockbusters behind. Antioco proposed a new leg of Blockbuster video where it would do a video rental through mail program (Blockbuster total access), and do away with late fees. The Blockbuster board of directors weren’t happy with this new business model because it would cost 200 million to get total access up and running and it would also cost Blockbuster 200 million in lost revenue from not charging late fees anymore. Antico was eventually ousted over a pay dispute, and the new CEO put the Total Access plan on ice. Netflix continued to grow, and in 2007, Netflix introduced a video streaming plan. Even with Netflix growing success, Blockbuster stuck to its retail video rental guns. It viewed the internet and streaming as something utterly different from its retail business concept. In 2007 another competitor to Blockbuster, Redbox surpassed Blockbuster in the number of retail locations (Redbox are kiosks, blockbuster had box store locations). By February 2008 Redbox would have over 100 million video rentals. By 2011 little fledgling Netflix was no more. Its subscriber growth had grown to 24.4 million people. Back then a Netflix subscription only cost 7.99 a month (a bargain these days) so do the math on that, that’s $ 200 million in revenue a month! Blockbuster was struggling it tried to copy Netflix and Redbox’s success by introducing and reviving the total access idea, introducing a streaming component and also opening up video kiosks. The problem was that Netflix and Redbox were so far out in front of Blockbuster in these markets that most of Blockbusters customers had already left Blockbuster for these companies services and had no plans of returning to Blockbuster.
In 2018 Netflix brought in more than $ 15.8 billion in revenue. It has grown to producing its own content and has risen to such prominence in the entertainment industry that it regularly has its own shows, and movies nominated for Emmys and Oscars. in 2012 Redbox would purchase Blockbuster express (its kiosk business model) for 100 million dollars and in 2016 Redbox would grow to have 51.8% market share of the physical video rental market. In 2019 there is one, yes literally one Blockbuster video store still standing in the world (in Bend, Oregon). Blockbuster has long since gone bankrupt, sold off its assets and is now a footnote in history.
Mistakes Were Made:
Today we live in an age where you can order a movie, fine dining, groceries or even a dog walker all from the convenience of your smartphone, while sitting in your sweats and never getting off your couch. Convenience is and will continue to be in, and Blockbuster totally missed the boat on that aspect. It started with DVD’s you could get through the mail, then little DVD kiosks you could get movies from while you were out getting groceries, buying fast food or even getting something from the drug store. Then with the onset of better, faster internet speeds convenience moved online. Today you can watch a movie or show through Netflix while you sit on the train on your way to work.
Blockbuster was too enamored with the revenue stream it was getting from late fees and its retail business model to see that change was a coming. The technology was moving ahead at blazing speeds and Blockbuster refusal to embrace or hop on the technology train until it was too late, ultimately led to its demise. Once again Blockbuster had the chance to buy Netflix for $ 50 million in 2000, but because it only saw it as a niche company in a niche area it passed. Netflix kept growing and then hopped on the video streaming model before everybody, and that’s why Netflix is where it is today, and I’m writing this article about Blockbuster.
You see this trend in history where the established company sees the technological change on the horizon and has a chance to either get out in front of it or buy off the upstarts that are embracing it first, and they pass on either method because they are too entrenched in their current business model. Arrogance also plays a part in it; they are usually number one in their fields and don’t feel the need to change, and they are eventually left behind in the dust.
