The Rise And Fall Of Blockbuster

Summary

Blockbuster, once a video-rental giant with over 9,000 U.S. stores and 65 million customers, peaked in the late '90s but failed to adapt to digital advancements. Despite an innovative barcode system and aggressive expansion, the company missed opportunities to acquire Netflix and develop its own streaming service. Overshadowed by digital competitors like Netflix, which offered a modern, mail-based and eventually streaming service without late fees, Blockbuster filed for bankruptcy in 2010, leaving a single franchise as a relic of its past dominance.

Takeaways

• 📈 Blockbuster was a dominant force in the '90s, with over 9,000 stores, 84,000 employees, and 65 million customers, earning $800 million in late fees in one year.
• 🚀 Founded by David Cook, Blockbuster's success was fueled by its franchise model and innovative barcode system for inventory management.
• 💸 After disagreements, Cook left the company, and Wayne Huizenga took over, leading to rapid expansion and making Blockbuster America's top video chain.
• 📉 Despite early success, Blockbuster failed to adapt to emerging technologies like cable TV and the internet, which eventually led to its downfall.
• 💡 Netflix, founded by Reed Hastings, was a direct response to Blockbuster's business model, offering a mail-order DVD service without late fees.
• 🤝 Blockbuster had the opportunity to acquire Netflix for $50 million but missed the chance, which later became a significant competitive advantage for Netflix.
• 📺 Blockbuster's partnership with Enron to create a video-on-demand service was abandoned due to a lack of commitment, allowing Netflix to innovate in the streaming space.
• 📦 Netflix's DVD-by-mail service and eventual streaming service disrupted Blockbuster's business model, while Blockbuster was slow to respond with its own services.
• 📉 Blockbuster's identity crisis in the mid-2000s, with attempts at in-store concepts and partnerships, failed to save the company from financial troubles.
• 📉 Blockbuster's bankruptcy in 2010 marked the end of an era, with the company eventually closing all but one franchise location.
• 🎥 The last Blockbuster movie rental, fittingly titled 'This Is the End,' symbolized the end of Blockbuster's dominance in the home video market.

Q & A

What was the peak status of Blockbuster in the late '90s?

At its peak in the late '90s, Blockbuster owned over 9,000 video-rental stores in the United States, employed 84,000 people worldwide, had 65 million registered customers, and was once valued as a $3 billion company.

How much did Blockbuster earn in late fees in just one year at its peak?

Blockbuster earned $800 million in late fees alone in just one year at its peak.

Who founded Blockbuster and when was the first store opened?

Blockbuster was founded by David Cook, and the first store opened in Dallas on October 19, 1985.

What was the innovative feature of Blockbuster that set it apart from other video stores?

Blockbuster had an innovative new barcode system that allowed them to track up to 10,000 VHSs per store, which also enabled them to monitor late fees effectively.

How did Blockbuster expand its business after its initial success?

After its initial success, Blockbuster's founder, David Cook, built a $6 million distribution center to support the quick expansion of new stores and to manage a large inventory tailored to local demographics.

Who took over Blockbuster after David Cook left, and what was the outcome of this change?

After disagreements with the investors who provided $18.5 million, David Cook left Blockbuster, and Wayne Huizenga assumed control. Under Huizenga, Blockbuster embarked on an aggressive expansion plan, becoming America's No. 1 video chain with over 400 stores nationwide by 1988.

Why did Blockbuster sell to Viacom, and for how much?

Worried about the impact of emerging technologies like cable television, Wayne Huizenga offloaded Blockbuster to media giant Viacom for $8 billion in 1994.

What was the turning point for Blockbuster when it came to competition from new technologies?

The turning point was when Blockbuster passed on an opportunity to buy Netflix for $50 million and instead teamed up with Enron to create a video-on-demand service, which they eventually abandoned due to lack of commitment.

How did Netflix's business model differ from Blockbuster's, and what advantage did it give them?

Netflix introduced a DVD-by-mail rental service without late fees, which was a significant departure from Blockbuster's model. This allowed Netflix to amass almost 3 million customers without the overhead of physical stores.

What was the financial situation of Blockbuster in 2009, and how did it compare to Netflix's earnings?

In 2009, Blockbuster lost $518 million due to ongoing business problems and legal battles, while Netflix posted earnings of $116 million.

What was the final fate of Blockbuster, and what was the last movie rented?

Blockbuster eventually filed for bankruptcy, ceased to exist, and was delisted from the New York Stock Exchange. The last-ever Blockbuster movie rented was fittingly titled 'This Is the End' on November 9, 2013.

Outlines

00:00

📺 The Rise and Fall of Blockbuster

Blockbuster, founded by David Cook, experienced a meteoric rise in the late '90s, boasting over 9,000 stores, 84,000 employees, and 65 million customers. The company was valued at $3 billion and earned $800 million in late fees in a single year. Cook's innovative barcode system allowed Blockbuster to track a vast inventory, catering to local demographics. After an aggressive expansion led by Wayne Huizenga, who took over from Cook, Blockbuster became America's leading video chain. However, the advent of new technologies like cable TV and the internet posed a threat, leading to Blockbuster's sale to Viacom for $8 billion in 1994. Despite this, Blockbuster failed to adapt to the changing market and eventually filed for bankruptcy with over $900 million in debt.

05:01

🚀 Netflix's Innovation and Blockbuster's Demise

While Blockbuster clung to its traditional video-rental model, Netflix, founded by Reed Hastings in 1997, innovated with a DVD-by-mail service, later evolving into a streaming service. Blockbuster's slow response to market changes, such as introducing its own DVD-by-mail service and scrapping late fees, came too late. Netflix, with no physical store overheads, quickly amassed millions of customers and prepared to launch its streaming service. Blockbuster's identity crisis in the mid-2000s, legal battles, and failed attempts at innovation like rental kiosks, contrasted with Netflix's foresight and adaptation to digital media consumption habits. Blockbuster's final chapter saw its once vast chain reduced to a single franchise, and its last movie rental, fittingly, was 'This Is the End' on November 9, 2013.

Keywords

💡Blockbuster

Blockbuster was a leading video-rental chain in the late 20th century, known for its extensive network of physical stores where customers could rent movies, video games, and other media. The company's peak in the late '90s is highlighted by its 9,000 stores in the U.S., 84,000 employees worldwide, and 65 million registered customers. The term 'Blockbuster' in the script symbolizes the era of physical media rental and the company's dominance before the digital revolution.

💡Video-rental stores

Video-rental stores were businesses where customers could rent movies and other video content, typically on VHS tapes or DVDs. Blockbuster owned over 9,000 of these stores at its peak, making it a dominant force in home entertainment. The script mentions the success of these stores and how they contributed to Blockbuster's wealth, as well as their eventual decline with the advent of digital streaming services.

💡Late fees

Late fees were charges imposed on customers for returning rented videos after their due date. Blockbuster earned $800 million in late fees alone in one year, as mentioned in the script, making it a significant revenue stream for the company. However, this practice became a point of contention and contributed to customer dissatisfaction, which was later exploited by competitors like Netflix.

💡Franchise

A franchise is a business model where a company, like Blockbuster, allows individuals to operate a business under its brand. The script refers to Blockbuster's potential to grow to 1,500 franchised units, indicating the company's expansion strategy through franchising rather than solely company-owned stores.

💡Barcode system

The barcode system mentioned in the script was an innovative method used by Blockbuster to track inventory, allowing them to manage up to 10,000 VHS tapes per store. This system was crucial for inventory management and for monitoring late fees, which were a significant source of income for Blockbuster.

💡Expansion plan

An expansion plan refers to a strategy for growing a business, often by opening new locations or entering new markets. Under Wayne Huizenga's leadership, Blockbuster embarked on an aggressive expansion plan, buying out competitors and opening new stores at a rapid pace, which contributed to its status as America's No. 1 video chain.

💡Cable television

Cable television is a system that delivers a wide range of television services to consumers via radio frequency electrical signals transmitted through coaxial cables. The script notes Huizenga's concerns about how cable television could impact Blockbuster's business model, as it represented an emerging form of home entertainment competition.

💡Netflix

Netflix is a streaming service and DVD-by-mail rental service that was founded by Reed Hastings, partly in response to his frustration with Blockbuster's late fees. The script highlights Netflix as a key competitor that disrupted Blockbuster's business model by offering a more convenient and modern approach to video rental, eventually leading the transition to digital streaming.

💡Video-on-demand

Video-on-demand (VOD) is a service that allows users to watch videos at any time rather than at a scheduled broadcast time. Blockbuster had an opportunity to develop a VOD service in partnership with Enron, as detailed in the script, but ultimately walked away from this venture, missing the chance to innovate and adapt to changing consumer preferences.

💡Digital age

The digital age refers to a period influenced by digital technology, particularly in how we consume media. The script discusses how Blockbuster failed to adapt to the digital age, unlike competitors like Netflix, which reimagined video rental for this new era and thrived by offering services like streaming and mail-order DVDs without late fees.

💡Identity crisis

An identity crisis in a business context refers to a period of uncertainty or confusion about a company's direction or brand positioning. The script describes Blockbuster's identity crisis in the mid-2000s as it struggled to find its place in a market increasingly dominated by digital services, trying various unsuccessful strategies to stay relevant.

Highlights

Blockbuster had over 9,000 video-rental stores in the US at its peak, employing 84,000 people and serving 65 million customers.

The company was once valued at $3 billion and earned $800 million in late fees in a single year.

Blockbuster was founded by David Cook, who saw potential in a franchised video store model.

The first Blockbuster store opened in Dallas in 1985 and was an immediate success, needing to lock doors due to overcrowding.

Blockbuster innovated with a barcode system that allowed tracking of up to 10,000 VHS tapes per store.

Cook built a $6 million distribution center to support rapid store expansion and inventory tailored to local demographics.

After receiving $18.5 million in investment, Blockbuster expanded aggressively, buying out competitors and opening new stores.

Wayne Huizenga took control of Blockbuster and made it the No. 1 video chain in America within three years.

Huizenga sold Blockbuster to Viacom for $8 billion in 1994, but the company lost half its value under Viacom's management.

Blockbuster missed opportunities to innovate, passing on a chance to buy Netflix for $50 million.

Blockbuster walked away from a video-on-demand partnership with Enron, choosing to focus on its physical stores.

Netflix, founded by Reed Hastings, offered a disruptive DVD-by-mail service, challenging Blockbuster's model.

Blockbuster was slow to respond to digital competition, taking years to introduce its own mail service and eliminate late fees.

Netflix's success with streaming services further eroded Blockbuster's market share as they failed to adapt to digital trends.

Blockbuster's identity crisis in the mid-2000s led to financial losses and a delisting from the New York Stock Exchange.

Blockbuster's attempts to innovate with rental kiosks and other concepts were too little, too late, and based on outdated models.

Netflix's strategic vision and innovation allowed it to thrive, while Blockbuster's failure to adapt led to its demise.

The last Blockbuster movie rental was fittingly the film 'This Is the End', rented on November 9, 2013.

Transcripts

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."