The Rise And Fall Of Blockbuster

The Rise And Fall Of Blockbuster


Irene Kim: At its peak in the late ’90s, Blockbuster owned over
9,000 video-rental stores in the United States, employed 84,000 people worldwide, and had 65 million registered customers. Once valued as a $3 billion company, in just one year, Blockbuster earned $800 million in late fees alone. ♪ Blockbuster Video, wow! ♪ But fast-forward a decade, and Blockbuster ceased to exist, having filed for bankruptcy with over $900 million in debt. So, what happened? Blockbuster was founded by David Cook, a software supplier in
the oil and gas industry. After studying the potential
of a video-store business for a friend, he realized
that a well-franchised chain could grow to 1,500 units. And so the first Blockbuster store opened in Dallas on October 19, 1985. Andy Ash: According to David
Cook, the opening night of that first Blockbuster
store was a huge success. The story goes that they
actually had to lock the doors because of overcrowding. The thing that really set
Blockbuster apart at that time was their huge range of titles. Other independent video stores could only keep track of 100 or so movies. Blockbuster had an innovative
new barcode system, which meant that they could
track up to 10,000 VHSs per store to each registered customer, which also meant that
they could keep an eye on those lucrative late fees. Kim: Off the back of this success, Cook built a $6 million
distribution center, not only so that new stores
could pop up quickly, but also to house a huge range of titles, so that each store’s inventory could be tailored to local demographics. Commercial: Wow! Wow! Wow! Kim: In 1987, Blockbuster received $18.5 million from a trio of investors, including Waste Management
founder Wayne Huizenga, in return for voting control, but after two months of
intense disagreements, Cook left Blockbuster and
Huizenga assumed control. Under Huizenga, Blockbuster embarked on an aggressive expansion plan, buying out existing video-rental chains while opening new stores
at a rate of one per day. By 1988, just three years
after the first store opened, Blockbuster was America’s
No. 1 video chain, with over 400 stores nationwide. But as Blockbuster became a
multibillion-dollar company in the early ’90s, adding music and video-game
rental to its stores, Huizenga was worried about
how emerging technology like cable television could hurt Blockbuster’s
video-store model. After briefly considering
buying a cable company and even receiving approval
from the Florida Legislature to build a Blockbuster
amusement park in Miami, Huizenga offloaded Blockbuster
to media giant Viacom for $8 billion in 1994. In only two years under Viacom, Blockbuster lost half of its value. Commercial: You can go one of two ways. Kim: While Blockbuster and
its new boss, John Antioco, focused on brick-and-mortar video stores, technological innovations meant that competition was on the rise. In 1997, Reed Hastings founded Netflix, a DVD-by-mail rental service at the time, in part after being frustrated with a $40 late fee from Blockbuster. Two years later, having
passed on an opportunity to buy Netflix for $50 million, Blockbuster teamed up with Enron to create a video-on-demand service. In a deal that saw Enron
do most of the work, a robust video-on-demand
platform was successfully built and tested with customers. But it soon became clear to Enron that Blockbuster was so focused on its lucrative video stores that it had little time or commitment for the video-on-demand business. As a result, in 2001, Blockbuster walked away from the first major development of
wide-scale movie streaming. Within a few years, Netflix
and other competitors began to eat into Blockbuster’s profits, not by undercutting it, but by reimagining video
rental in the digital age. Commercial: There’s a
better way to rent movies. Go to Netflix.com, make a list of the movies you wanna see, and in about one business
day you’ll get three DVDs. Keep them as long as you
want, without late fees. Then, when you’re done,
look: prepaid envelopes. Return one and they’ll send you another movie from your list. Netflix. All the movies you want, 20 bucks a month, and no late fees. Kim: It took Blockbuster almost five years to introduce its own DVD-by-mail service and even longer to scrap late fees. Commercial: No more late fees! No more late fees! No more late fees? Kim: By that time, Netflix had amassed almost 3 million customers, had no store overheads, and was preparing to launch its revolutionary streaming service. Blockbuster’s troubles
continued through the mid-2000s. After parting from Viacom and experimenting with in-store concepts such as DVD and game trading, Blockbuster was in the
midst of an identity crisis. In 2009, Netflix posted earnings of $116 million. Meanwhile, Blockbuster, with its continuing business problems and legal battles, lost $518 million. On July 1, 2010, Blockbuster was delisted from the New York Stock Exchange. Its foray into video-on-demand streaming came too late, and over
the next three years, Blockbuster died a slow and painful death. DVD-by-mail services stopped, its various partnerships folded, and stores worldwide were rapidly plunged into administration. Commercial: We’re closing early. Kim: Its 9,000-strong chain had been reduced to one single franchise in Bend, Oregon. As a result of Blockbuster’s
complete shutdown, one can only speculate
about what could have been for the once home-movie giant. Ash: They were too busy making money in their video stores to imagine a time when people would no longer want or need them. And in a bid to rescue their business, their answer at the time
was to fight fire with fire. At one point they even
opened up rental kiosks, a little bit like a vending machine, but all of these attempts were based on either outdated technology or outdated business models, whereas Netflix at the time, they did the opposite; they streamlined, they were able to see the
future of video rentals and then innovate for that future. Blockbuster, they didn’t
seem to understand how the next generation,
particularly millennials, who grew up in a world
without hard-copy media like DVDs and CDs, how they would react to video-on-demand as technology improved. And that’s why Netflix, Amazon Prime, YouTube, and Hulu, they’re still all in business, whilst Blockbuster got left behind. Kim: According to Netflix’s former Chief Financial Officer Barry McCarthy, as part of the failed 2000
Blockbuster-Netflix buyout, Reed Hastings proposed that Netflix would run the Blockbuster brand online. If that deal had been successful and Hastings had replicated Netflix’s innovation for Blockbuster, the face of home video would likely still be blue and yellow. The last-ever Blockbuster movie was rented on November 9, 2013. Fittingly, the film in
question was “This Is the End.”

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About the Author: Oren Garnes

100 Comments

  1. How has Blockbuster Video survived against the odds so long in Alaska, and what will its decline mean? Find out on our latest episode of Brought to you by… https://apple.co/30yoxBn

  2. 800 million n late fees damn no wonder why it was hard to find the movie I wanted to rent 🤣🤣🤣 mf was late bringing it back

  3. If only Blockbusters would off innovated instead of focusing their stores they would still be around with a huge streaming service

  4. In my town it wasn't Netflix that killed Blockbuster, it was Redbox. Blockbuster was like $6 for a new 1 day rental. In around 2005 Redbox-es started popping up everywhere and by early 2007 Blockbuster closed it's doors in my town. To be fair Blockbuster was never as popular as Movie Gallery here. Movie Gallery was cheaper, rental periods were longer, even for new movies. And if you were late returning a movie they would just re-check the movie out to you at the same low price.

  5. Um… I’m a millennial and I grew up with VHS, DVDs, CDs. Very much hard copy media. Don’t know what you’re on about around the @7:25 mark there mate.

  6. Business Insider left one key part of the discussion: The CEO shakeup.

    After a boardroom shakeup with Carl Icahn (yes, that Carl Icahn) replacing John Antioco with Jim Keyes, Blockbuster reshuffled their business strategy.

    Instead of trying to directly compete the ongoing Netflix competition, Jim decided to make Blockbuster a convenience retailer. After all, he used to run 7-11.

    With this questionable strategy, along with the inability to restructure their debt due to the recession and numerous bad bets including their bet on Circuit City, Blockbuster folded by 2010.

  7. Charlie/ aka Penguinz0 : I’m gonna make a video about blockbuster and how it failed

    Business insider : let me just take that idea

  8. I will never forget Blockbuster. The late fees……too much. Charged for late fees on holidays when they were close. Some employees were rude too. I miss the fun but glad Blockbuster is gone. Redbox and Netflix are innovators.

  9. Funnily enough, video stores could make a comeback not just IN but BECAUSE of the streaming age.

    No one is going to purchase so many streaming services. A video store could then rent out TV seasons and movies to these frustrated people.

    They could also sell popcorn and nachos and tie-in merchandise.

  10. *sigh*. i miss renting videos. back in university (2003ish) after a tuesday evening class I'd often run into the Blockbuster on Wellington street in Verdun to check out the new releases on DVD, then get home and order a pizza and I was all set for the night. i don't miss the late fees, though.

  11. I remember when my local Blockbuster was closing and selling their movies for cheap… felt like a kid in a candy store!

  12. I remember going to BB and fighting over the 3 movies we were gonna rent. I remember watching Enchanted so much my mom ended up buying the movie. I'm glad I got to experience it because going to Blockbuster is something that will never be experienced again (except that one in Alaska 🤷🏿‍♀️)
    I know Blockbuster is clenching their fist rn. If they weren't stubborn and changed with the times we would've been like "Netflix who?"

  13. Hell, I couldnt afford Blockbuster back then so I rented from a convenience store. One dollar VHS LOL, those were the days.

  14. Every Saturday morning, my mom and I would go rent 3-5 movies and just binge them all day Sunday. It was such a big deal when DVDs came out!

  15. This is what happens when you have “old fashioned – traditional” leaders who have no innovation and REFUSED to change.

  16. The one thing kids today will never experience is the excitement and thrill of Friday evenings and running through the aisles looking for your new favorite movie and grabbing popcorn and candy for the weekend! Streaming will never come close.

  17. i used to work at a blockbuster as a teen in the early nineties, and i hated it…..christian owned business……and i already know why it failed, i just delight in watching it fail while i slowly touch myself a little

  18. By definition a millennial was born 1981-1996. We grew up with blockbuster and saw the change from vhs to dvd to streaming

  19. I wonder if that very last blockbuster movie ever rented was returned late or never at all? Bussiness shut down so doubt he could even return it =)

  20. Got to love America. When my kids ask me about Blockbuster I will tell them they are just an old dinosaur…no need to waste brain space on them.

  21. They’re just like GameStop: they had a shitty business model built on ripping people off, and finally tech has changed enough that their fundamentally useless “service” collapses.

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