Netflix, Prime Video and the likes of Hulu and Philo have become synonymous with the activity of watching TV shows or films. Yet prior to this age, Blockbuster ruled the TV and film roost. At their height, Blockbuster operated 9,000 stores, employed 84,000 people worldwide, and generated healthy revenues year-after-year. But, due to a range of reasons, they were unable to maintain this success, and suffered an almighty fall from grace. In this article, we take a look at the history of Blockbuster, and see where it all went wrong.
Blockbuster offered its users a range of services. Home video rentals accounted for Blockbuster’s main revenue stream. They offered an enormous catalogue of films in VHS, DVD and Blu-Ray et cetera. The origins of the business date back to 1985, when the first Blockbuster store opened in Texas. American David Cook founded the company, which began with an inventory of 8,000 VHS videos. The store was instantly popular, leading to further Blockbuster outlets being opened.
Cook was keen on expanding Blockbuster across the United States. To facilitate this, he built a $6million warehouse in Texas, which proved key in organising and eventually creating a stunning supply chain. Waste Management’s co-founder Wayne Huizenga bought several Blockbuster stores, in the process pumping further funds into the business. Over the next few months, Blockbuster opened on average a store per day. Huizenga was key too in Blockbuster acquiring many competitors.
By 1990, Blockbuster had been consistently growing for several years. They bought rival Erol – who at the time had 250 stores. Further acquisitions were made, with their customer base growing hugely. Blockbuster diversified into areas like music and the gaming industry thanks to these purchases. Blockbuster went public, and had a valuation above a billion dollars. Huizenga had proven key throughout Blockbuster’s meteoric rise.
Yet in amongst the success of the early 1990s, there were fears regarding technology, especially cable television and video on demand. Huizenga attempted to come up with ways of overcoming technological concerns, but eventually sold Blockbuster to media conglomerate Viacom. Viacom acquired Blockbuster in 1994 for $8.4billion. While most analysts considered Viacom to have overpaid, the conglomerate were key in expanding Blockbuster to the United Kingdom, and starting a very popular loyalty program.
Yet one of the first big errors from Blockbuster came in 1998, when film studio Warner Bros. offered Blockbuster an exclusive rental deal, with the chance for Blockbuster to rent DVD releases exclusively before they went on sale to the general public. In return, the studio wanted to receive 40% of revenues. Blockbuster turned this down, but Walmart swooped to secure a deal. Many other mass retailers made similar deals, eating into Blockbuster’s market share.
A second significant error came in 2000. Blockbuster turned down the chance to purchase the then-young and loss-making Netflix business for $50million. Netflix offered to handle the online business in such a deal. Blockbuster rejected the deal – and would eventually be forced into administration due to Netflix. Moreover, Blockbuster’s reputation was knocked when they were accused of false advertising following changes to the firm’s late return policy.
While the 2000s weren’t proving as fruitful as the 1990s, the downfall of the company really began in 2007. At the time, Netflix were starting to attain a foothold in the market. Blockbuster initiated a ‘Total Access’ campaign which allowed users to rent a DVD online, before receiving a new movie for free upon return of the initial DVD. This was a very popular model. Netflix attempted to purchase the online arm of Blockbuster, but this was rejected.
Soon enough a new CEO was in place – James Keyes. Keyes put an end to the free movie deal, which led to their online growth quickly stalling. In hindsight, this was a key issue. Furthermore, Keyes stated he saw Apple and Walmart as rivals, as opposed to Netflix. Keyes put more of a focus on online streaming, but the company continued to see growth stall. In the first four months of 2010 alone, the number of stores in the US almost halved. Blockbuster were eventually deemed a ‘going concern’ by accountancy firm PricewaterhouseCoopers – casting doubt on Blockbuster’s chances of turning its business around.
While there were some minor victories – including securing strong deals with various film studios – Blockbuster failed to see a marked improvement. In July 2010, the company was delisted from the New York Stock Exchange. In September 2010 they filed for bankruptcy. They followed previous competitor MovieGallery into bankruptcy. Several stores were closed as part of a restructuring effort. Blockbuster was eventually sold in April 2011 to Dish Network. Dish set about on a radical overhaul of Blockbuster.
Blockbuster Movie Pass was launched by Dish in an attempt to compete with Netflix. Due to complications in users having to subscribe to Dish Network’s Pay-TV service in order to subscribe, the service struggled to attain many members. In 2012, Dish Network abandoned plans to make Blockbuster a competitor to Netflix. In 2013, the British arm of the business entered administration, with several international variants following suit. The following years would witness more and more store closures. As of September 2018, just one store remains – in Bend, Oregon.
Blockbuster had once been seen as a very innovative business – using a clever business model to become the world’s leading rental business. But the company struggled to cope with technological change and changes in consumer habits. Ultimately, a store only has so much space, while Netflix and others offer infinite space. In an age where advertising is hugely important too, online streaming services are able to provide advertisers with pertinent user information, helping them secure strong advertising deals.
Blockbuster was once an enormous business. They enjoyed huge domestic success, while making forays into many international markets. While for a significant time it was a successful company, it ultimately didn’t move with the times. There were other factors too that led to their collapse, but their lack of innovation in their final years was the overriding factor. It is a shame, given that Blockbuster’s beginning featured so much innovation.