I know the obvious answer is brick and mortar video stores were on their way out.
But I remember a decade ago Blockbuster had kiosks like redbox everywhere. Blockbuster also had a streaming service and they had a DVD by mail service just like netflix.
So is there a reason Blockbuster failed using the same business model that worked for redbox and netflix? Did they just get into the business too late?
My recollection a little over a decade ago I switched from netflix to blockbuster online. I’d rent movies through the mail, then drive to the blockbuster in person near me and trade them in for videos. Also I’d use the kiosks.
Is there a reason they failed at the same business models that took over the brick and mortar video store (streaming, kiosks, DVDs by mail)?
The kiosks for Blockbuster Express weren’t run by Blockbuster, they were licensed to a company called NCR, so that probably shows how much faith Blockbuster had in the concept. IIRC, the BE rentals were at first like $3, vs $1 for Redbox rentals so that probably didn’t help. BE had more exclusive titles than Redbox, but apparently that didn’t make up the difference. Redbox also had way more kiosks, presumably in better locations. Either way, kiosks weren’t going to keep Blockbuster afloat.
As for streaming, Blockbuster was never really a competitor to Netflix because it never (I think) offered an all-you-can-eat subscription service like Netflix, it only ever offered online rentals and sales. Or if there was a subscription service at some point (when it came to Blockbuster and streaming, there were lots of stutter steps along the way, never a long lasting cohesive strategy) it was way too late in the game for it to ever take off.
The Netflix-like mail rental Total Access service was a success at first, but it was expensive for Blockbuster to keep up. Then a new CEO came in and purposefully curtailed its growth to cut costs.
Plus, never underestimate the power of mindshare. Blockbuster never had a sterling reputation in the first place, while Netflix was looked at as an exciting young company leading the way into a new home video future. I mean, Blockbusters first push into video on demand was a partnership with Enron, for chrissakes.
Anyway, those are just a few reasons, I’m sure there are more.
Operated by NCR, or just made by them? NCR is one of the biggest companies that manufactures and services cash registers, POS systems, self-serve kiosks, ATMs, and the like. In my 20+ years in the service industry, every register/POS I’ve ever used was an NCR product.
When they closed my local Blockbuster video they literally put a Blockbuster Express kiosk right in front of the former location, which was the only time I ever saw one of those in the wild. It’s both smart but also kind of self-defeating if you only seem to place them in locations where you already abandoned.
The best theory I have heard is that you really can’t transition to a new business model when it involves destroying the old one. The Brave New World of streaming and kiosks was going to put the actual stores out of business, and no one whose job depended on the existence of those stores (corporate or franchise) was going work towards their own unemployment. So as they cast around for models, keeping the actual stores relevant was a key priority. But there was no way the stores wouldn’t be deadweight.
Besides the physical location problem, and the streaming movie problem which was later on, Blockbuster didn’t want to change to an all you can eat monthly subscription model and wanted to stick to it’s fee per rental and add on late fees model. In the way too late stages they made the switch but too little too late at that point, the closing credits were already rolling.
While people tolerated late fees, because that was the only model, people normally don’t like late fees, and it was that resentment which was underestimated by Blockbuster. Not realizing that someone returning a movie a week late and getting a big fee tacked on to their next buy sometimes pissed people off enough to take impulsive action. And enough did once an alternative came about.
Likewise Netflix heavily advertised ‘never any late fees’, as they realized that is a way to get people to switch. Netflix also worked very hard with the post office to get the disks out fast at great costs to themselves, trying to minimize their weakness, the lack of instant gratification as one had to wait for it to arrive. They also allowed the next disk to be sent before you actually sent back the one you have to help minimize that mail transit time. All that did eat into their bottom line, however that did 2 things, it made it much harder for others to compete in this model as they would have to up their game to get the disks out fast (Blockbuster’s location were set up for physical distrubutiion Netflix for postal), made the consumer feel good and trusted by allowing you to mark a disk returned on your honor (the opposite of the late fees making a person feel bad).
When Netflix began to disrupt the rental business with their mailing service, Blockbuster didn’t respond for a long time. When they finally did respond, it was with an “all you can rent” subscription service that still required you to go into the store and still limited you to what they had in stock.
I lived a short walk from a Blockbuster and loved it because I could pop over there after work and pick up something to watch that evening. The clerks got to know me and would let me skip any lines on my way out since it was so easy for them to process my rental. I loved it because it was super convenient, but if the store hadn’t been so close it likely would have been a different story.
The late fee / monthly model wasn’t fatally disruptive, because Blockbuster could have in theory dealt with it even though they didn’t. I’m not a businessperson but I’m envisaging a hybrid between Redbox and an old-school huge video store where they have a large back catalog that’s available for instant rental or a certain large number of rentals per month, and then a decent selection of new titles that are not on the subscription model. They would have even been able to charge a premium over Netflix because going to a video store immediately is more convenient, at least to me and a lot of other people, than waiting several days to get the video in the mail, even if they wouldn’t have been able to have as large a back catalog as Netflix.
However, I don’t think they could have dealt with streaming, because instantly watching a movie from home is even more convenient than going to a store and getting it the same day.
This in a nutshell (or clamshell? Whatever those VHS container boxes were called).
I remember when I first saw a commercial for Blockbuster’s video-by-mail service. An animated BB employee explains how you can now receive and send BB videos in the mail! As if it was a new and revolutionary idea, loooong after Netflix had cornered that market. You could almost smell the catch-up desperation emanating off the TV screen.
I haven’t seen anyone mention what I thought would be obvious: as the market switched to streaming, Blockbuster was still saddled with an enormous amount of property that they were paying for. Plus the staff to run those stores, and when the walk-in business model collapsed, there would be no way to have your online business be so profitable that it could make up for the losses in the buildings.
Yep. Blockbuster had a lock on the old-style brick and mortar disc rental model. But upstarts like Netflix came up with a completely new way of doing things- rental by mail, and then a little while later, streaming video.
Blockbuster IMO, exhibited the typical arrogance and blindness of companies that dominate their particular business. My personal theory is that they get blinded because they get fixed on trailing indicators like sales/rental figures, profit, etc… and interpret those as proof that they’re doing well in a strategic sense when those indicators are good.
But when you’re dominant like that, it’s like turning the Titanic, in that until some tipping point is reached (seems to be very common in tech/innovative situations like this), the indicators look good enough, and the pressure to do something else or do something new isn’t there until it’s too late.
The writing was on the wall as far back as 2002-2003 for those paying attention. I think I’ve mentioned it before, but in MBA school in 2002, we wrote a paper for strategy class about how Blockbuster needed to adapt to changing trends- we got it a little bit wrong, in that we suggested they merge with Columbia House and take advantage of their mail-order channels, but we got it a lot right, in that we identified that Blockbuster’s current model was on borrowed time, and that mail-order or streaming was the wave of the future. In fact, we suggested that they only do the mail-order merger stuff as a stop gap until they could move into streaming full-bore and use their (at the time) ubiquitous branding as a way to drive awareness and adoption of streaming video and dominate that market.
That would have taken leadership at Blockbuster who weren’t entirely ingrained in the brick and mortar/rental mindset, and who would have believed that by the early-mid 2010s or so, streaming video would be THE thing. I’m not convinced that most fifty-something/sixty-something execs out there were or are necessarily that tuned in to technological and social trends in ways that would let them identify that far enough ahead of time to do something about it though.
I think it’s more than that. I don’t think they saw their business as “sell video access” , it was “run video stores”. To pivot, in 2002 they would need to have started cancelling franchise contracts and closing profitable corporate stores, leading to thousands upon thousands of lost jobs. At a time when they were still profitable. Has any industry proactively transitioned away from brick and mortar?
At the very top of the ladder, the thinking may be “how to maximize profits”. But for a lot of the middle, the thinking is “how to keep everyone employed, ideally with raises”. Even if individual employees understood very clearly that the writing was on the wall, no one was walking into their bosses’ office and saying “you should fire me. In fact, you should fire my whole department and hire a bunch of people with a totally different skill set”. And how can you pivot if literally the whole company will undercut anything to do to try?
Lots of people hated BB because of their excessive late fees and crappy service. Even if they had successfully pivoted, many people would have rejected them because they just didn’t like the company. I’m glad they failed because I’m sure they would have tainted the streaming business if they had become the market leader.
I’m not sure it was an either/or type situation though; they could have done brick and mortar as well as the other channels simultaneously had they been sufficiently willing, and then just shut down the brick and mortar side of things as it ceased to be profitable.
But you’re absolutely right when you say they didn’t see their business as “selling video access”- that’s what I was getting at; they were very convinced that they were running video stores. If that’s your mindset, it’s going to be nearly impossible to change, no matter what else is going on.
I don’t know if they could have: the B&M division would have seen the online division as direct competitors and understood that they were on the chopping block. How do you get the franchise owners and even corporate store managers to enthusiastically promote products that will make them obsolete? Blockbuster always tried to add some component to their system that kept the store in the loop, but that just made it less efficient and responsive than the competition.
There may be some silicon valley mythology surrounding the early days of Netflix but the switch to streaming was a very difficult technical challenge and Netflix’s success was not a foregone conclusion. Netflix built itself out as a technology company first and foremost, with some of the most grueling silicon valley tech interviews. They had the VC and the foresight to pay top dollar for the sort of engineering talent they needed to make streaming even feasible at a time when broadband was still shoddy and data centers weren’t in every town.
I’m sure Blockbuster had a typically competent IT department with engineers who did a fine job managing their internal BI software and POS systems, but in order for them to compete with Netflix they would have had to essentially create Netflix inside their own company – use their pile of cash to build a team of talented, ludicrously paid engineers to build a ground-up streaming service and associated data center. Then they would have essentially dissolved the rest of the company. And they were headquartered in Dallas, so it probably would have been a satellite facility somewhere on the West Coast.
At that point it’s a bit like my grandfather’s ax. If Blockbuster were a streaming service today, would it really be the same Blockbuster in anything but name?
I don’t know that there really had to be too much interaction- just set up a mostly independent division that would have done the mail order and/or streaming stuff, under the Blockbuster name, and taking advantage of the relationships with the studios and distributors.
I agree about trying to keep the stores involved being a braking influence. But what other choice did they have? It was basically to pivot to streaming or die, and that was pretty clear starting in the late 2000s.
Sure, but outside of the brick and mortar store network, Blockbuster’s biggest assets were its brand and its relationships with the studios/distributors, both of which could easily have played well in the streaming space.
And having a company doing something totally unrelated to their present operations is not unheard of; look at Humana. We think of them today as an insurance company. But they started as a nursing home company, transitioned into owning hospitals, and then into health insurance. Or hell, Amazon -they started out as an online bookstore, moved into online retail, but now earn most of their cash in other semi-related ventures, like AWS and ad sales.