24 March 2016 ~ 0 Comments

Don’t be Blockbuster – The Fall of a Legend

It’s easy for people with foggy memories to look back on Blockbuster and point their eventual collapse to Netflix or Redbox, but what really killed Blockbuster — Was Blockbuster.

With the amount of streaming options available, it’s hard to imagine Blockbuster surviving in today’s market, but Redbox is a DVD rental company and it still manages to survive, though it’s likely do to their low overhead and convenient locations in foot-traffic heavy environments.

But Blockbuster didn’t go out of business today, or two years ago, they went bankrupt in 2010, after falling from it’s 2004 peak.

Netflix didn’t kill Blockbuster… at least not in the way you might think.  Keep in mind that in 2010, streaming wasn’t mainstream yet, so while streaming TV shows and movies is now part of every day life for many people, in fact it didn’t even offer it’s streaming service at all until 2007, and didn’t expand it outside of the US until Blockbuster had already been declared bankrupt.

Netflix actually started in 1998, and it was a DVD By Mail service, I know this because I was one of their original customers… Blockbuster had a huge advantage because your Netflix DVD would take 2 days to mail to you, and when you returned it, you wouldn’t get your next DVD for at least 4 days.

Netflix didn’t Kill Blockbuster.

Redbox was a convenient new technology.  Their vending-machine style business model kept overhead low and allowed their product to be placed inside of places that people already go, being placed in high traffic locations created a customer base that they didn’t need to advertise for.

But Redbox didn’t expand until 2012, two years after Blockbusters Bankruptcy.

Redbox didn’t Kill Blockbuster.

So who really Killed Blockbuster?

Blockbuster did.

The first Blockbuster opened in 1985, they were a new idea with the VCR picking up popularity, being able to go to a place and rent movies and TV shows was a new idea.

They expanded through a series of investments allowing them to purchase distribution and retail stores.   Blockbuster really started to take off in the mid 90s, but there was one hole in their business model that ultimately lead to their demise within 2 decades later.

The problem was the way in which Blockbuster made money.  They had spent so much revenue on expanding and growth, that they had to come with additional profit streams, and the late fee was born.

The late fees turned into the driver of profit for Blockbuster, generating nearly 85% of the companies profits.

The problem, which is obvious if you ever used Blockbuster, was that while the late fee was intended to make sure people bring back movies in time, and get them in the store more frequently, was penalizing their customers.

Their business model had shifted into one whose profits relied on punishing their customers, making them jump through hoops and inconvenience them to be able to just pay the advertised price, and not be hammered with massive late fees.

Growing up, I had many friends who actually COULDN’T go to Blockbuster, because they missed a couple of days on returning a movie and now had monsterous late fees that made it so they couldn’t rent again even if they wanted to.  It was easier to just not go back.

What killed Blockbuster wasn’t Netflix, and it wasn’t Redbox…. Blockbuster’s fall just made it easier for these companies to take Blockbuster’s market share, but it wasn’t what killed them.

What killed Blockbuster… was Blockbuster.

It was disrespecting the one thing that keeps a business going — it’s customers.

Technology does change, and innovations disrupt business, Blockbuster may or may not have survived through the changes of Streaming, though their streaming service actually still exists, despite several rebrandings and ownership changes, the Blockbuster Streaming service still exists as Sling TV…

If you want to say Netflix killed Blockbuster, it was because they never charged a late fee.  Even waiting 4 days for a DVD from Netflix was better than being charged $20, $60, $100+ because you were too exhausted after work to drop off that movie.

So while most people like to use Blockbuster as an example of how you need to adapt and innovate your business, it wasn’t innovations that killed Blockbuster, it was basing it’s profit model off of punishing it’s customers, and they simply ran out of customers who would be willing to be punished.