From 9000 locations to bankruptcy – The story of Blockbuster
Blockbuster was founded in 1985 and quickly became a household name in the home video rental industry. It pioneered the concept of the video rental store, offering a vast selection of movies and video games for customers to rent. Blockbuster’s retail locations were omnipresent, with thousands of stores across the United States and around the world by the 1990s. Blockbuster’s success was built on a simple and effective business model. Customers could rent VHS tapes and later DVDs for a fixed period, and late fees were a significant source of revenue. Blockbuster’s extensive inventory and convenience made it a popular destination for movie and entertainment enthusiasts.
But in the late 1990s, Netflix entered the scene with a disruptive new business model. At the start Netflix offered DVD rentals by mail, allowing customers to keep movies for as long as they wanted without late fees. This innovation appealed to consumers looking for convenience and cost savings.
Blockbuster initially dismissed the threat posed by Netflix. In fact, in 2000, Netflix’s co-founder, Reed Hastings, approached Blockbuster with an offer to sell his company for $50 million. Blockbuster’s leadership, however, declined the offer, underestimating the potential of online streaming and the changing preferences of consumers. “Blockbuster executives laughed us out of the room” said Netflix co-founder Marc Randolph. John Antioco, Blockbuster’s CEO at the time, considered Netflix a niche business and downplayed the significance of the dot-com era. This decision would later come to haunt Blockbuster.
As technology advanced, the entertainment industry underwent a significant transformation. The rise of high-speed internet and the proliferation of streaming services like Netflix, Amazon Prime Video, and Hulu changed the way people consumed content. Blockbuster, unfortunately, was slow to adapt to this shift. They continued to rely on its brick-and-mortar stores and a rental-by-mail service, but these business models became increasingly outdated. By 2010, Blockbuster filed for bankruptcy due to mounting debt and declining revenue. Not that this was only ten years after being offered to buy Netflix. The company struggled to compete with the convenience and cost-effectiveness of streaming services, and its store closures were a common sight across the USA.
In 2013, Dish Network, which had acquired Blockbuster in 2011, announced the closure of all remaining company-owned Blockbuster stores. The once-mighty video rental giant had become a relic of the past.
Blockbuster’s revenue declined substantially as its core rental business faced competition from digital streaming services. At its peak in the early 2000s, Blockbuster reported annual revenues of over $6 billion. However, by the time the company filed for bankruptcy in 2010, its annual revenues had fallen to around $3 billion, representing a 50% drop. As Blockbuster faced financial challenges and declining revenue, it incurred substantial losses. The company’s financial difficulties were a key factor in its decision to file for bankruptcy. Blockbuster had thousands of retail stores around the world during its heyday. However, as the company struggled to compete with digital streaming services, it began closing stores. By the time of its bankruptcy filing, Blockbuster had already closed many of its locations, and the process continued during and after the bankruptcy proceedings. Blockbuster attempted to pivot toward digital streaming with its own online rental service, but they were late to the game, facing stiff competition from established players like Netflix and Amazon Prime Video.
During Blockbusters’ prime days when their turnover was 6 billion, they had the opportunity to buy Netflix for a small sum of $50 Million but laughed them out of the room. This turned out to be a multi-billion-dollar mistake. Netflix was as of September 2023 valued at $175.82 Billion. Nearly 30 times more than Blockbuster were in its prime days.
Today (2023) only one Blockbuster store remains, located in Bend, Oregon. It serves as a nostalgic reminder of a bygone era in entertainment history.
Avoid making the same mistake as Blockbuster
Many organizations today struggle with rapid changes caused by technology, but you don’t have to repeat the mistakes blockbuster made. You need to ensure you and your organization have the ability to learn and change fast to adapt to changing market conditions.
One thing you need to make sure of is to constantly adapt and drive innovation. I love how Mark Zuckerberg approached disruptive innovation when he founded Facebook:
“If we fail to create the next big thing that could potentially replace Facebook, someone else will.”
– Mark Zuckerberg
I believe this is one of the key reasons for Facebook’s success and the reason why Blockbuster failed. They did not invent the next big thing. They did not even realize they had a meeting with the next big thing and were offered to buy it before it replaced their business. They made the mistake of resting on past success. Don’t repeat this mistake.
What can you learn from Blockbuster?
The 3 biggest learning points from Blockbuster are:
- Drive innovation
One of my favourite quotes is: The best way to predict the future is to create it, as President Abraham Lincoln presumably said. The Blockbuster story illustrate how important innovation is. You need to be innovative or you risk losing your business.
Do you operate with a relentless innovation mind shift in your organisation today?
- Don’t rest on past success!
Remember that it doesn’t matter that Blockbuster dominated the market, when no one wanted their old and replaced offerings! Don’t make the mistake of resting on past success! Rather than letting leaders base all decisions on past performance you need to base decisions on customer behaviours, on customer data. This is why validating your ideas quickly to see how customers react is key in the disruptive world.
Do you have the same risks as Blockbuster in your existing product portfolio?
- Pay attention to the customer journey and make it easy for the customer
This story also shows how important it is to pay attention to the customer journey.
Blockbuster did not consider the customer convenience of streaming vs video rental. They did not consider the customer journey and user friendliness at all. If they would have, they probably would have bought Netflix when they had the chance.
Do you pay attention to the customer journey and make it easy for the customer?
An example of a similar company that adapted
A company akin to Blockbuster called Hemmakväll, meaning “A Night at Home.” Shifted away from a traditional video rental model, they redirected their focus towards enhancing the at-home entertainment experience for customers. This involved selling movie night accessories such as snacks and sweets. Presently, they boast a thriving business and even introduced a “Home Evening Candy Club.” Despite the potential fate faced by Blockbuster, Hemmakväll successfully avoided a similar downfall.
Do you feel confident that you will avoid making the same mistake as Blockbuster?
Do you need to learn more on how to handle disruption?
