Why did blockbuster video fail

A 5yo business reinventing itself is now on the hook for an entirely new round of investment, with barely having a chance to profit from the initial round of investment. That is very difficult. Netflix has been and continues to be a forward looking business, not content to say “we are doing great at X, let’s keep doing X until it stops being profitable”.

Netflix is on their 3rd round of reinvention, from Mailed DVDs to Streaming to Original Content Creators. Blockbuster did exactly one thing, b&m movie rentals, they let others break ground on new movie rental ideas, and came in after the fact with a less effective version that failed.

Netflix had some advantage in pivoting in that their business model was predicated on engaging customers in their homes. Switching from mail-in to digital only wasn’t as radical a shift as switching from retail to engaging customers directly in their homes.

My bold. It should be clear that Netflix has yet to switch to digital only. They still do DVD by mail which generated $300 Million dollars (according to wired) in 2019. They make more from digital subscriptions, but DVD by mail is still part of the company. Neflix did not pivot from one to the other, they just added to their offering to the point that it became its dominant product. This important because it underscores that Blockbuster could have made changes that still allowed it to maintain the store rental model (maybe make them more a hang-out place?), but did not figure out how to do so. Netflix could have similarly decided it was too much trouble to do streaming and we would be discussing it today in the same terms as Blockbuster.

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At one point, even though the DVD-by-mail service was practically ignored by management, it was making money while the streaming service was bleeding money. They did try getting rid of the DVD-by-mail service at one point (remember Qwikster?) but changed their minds. They did rebrand the service as netflix.dvd.com, so perhaps to make it easier to spin it off as its own brand.

Being a long time subscriber to Netflix I remember the whole Qwiskter moment. I would call it a fiasco except that they came to their senses quickly enough that it did not affect them in the long run.

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Except the stock dropped like a rock and it would have been a good time to buy in, had I been smart enough to do so.

Sometimes you’re just making buggy whips. If, even in hindsight, Blockbuster’s only real move was “become Netflix before Netflix became Netflix,” it’s pretty evident that they were screwed. And of course it wasn’t just Blockbuster. Most of the big chains are long gone, and the last holdout just closed the last of its stores.

And while it sucked for Blockbuster, disruptive innovation is a good thing. As a consumer, I benefited in the following ways:

  1. In the short-run, I got to enjoy Blockbuster’s unlimited rental service, which was only created because of external pressure from Netflix.
  2. In the almost-as-short-run, Blockbuster (and Hollywood Video) started selling used DVDs on the cheap, I guess as they worked to have higher turnover in their store to compete with the Netflix catalogue.
  3. In the mid-run, Netflix and its competitors began slowly strangling the cable television conglomerates to death, which I approve of out of principle.
  4. And it took a while, but the inevitable fragmentation of the streaming markets is creating affordable “a la carte” menus for content, especially if you have a circle of family/friends that you share logins with.*

If Blockbuster was the chicken on the altar that we needed to summon streaming media, I’m cool with it.

*while of course adhering to the specific ToS agreements of each streaming service

Given these two scenarios:

  • Stick with the B&M stores until the company trickled away to nothing
  • Attempt to pivot to streaming, fail, and trickle away to nothing

Which scenario makes more for BB over the life of the company? Attempting to pivot is not free nor is it guaranteed to succeed. Pivoting may have caused BB to lose a lot of cash quickly and hasten their failure.

Pivoting hard to the rental kiosks before Redbox got entrenched would have probably had the best chance of succeeding. They did have something like 10,000 of their own kiosks at the end - they just got started way too late.

But even the best-case scenario would have still meant shuttering the B&M stores and firing most of their employees.

A bit of a postscript to the Blockbuster story. There actually is still one surviving Blockbuster Video store located in Bend, Oregon. They’ve found a niche and survive in this small community by offering a sort of extreme customer service. Like the owner is familiar with everyone’s movie tastes and personally recommends movies for customers - who are addressed on a first name basis - that she’s confident they’ll enjoy based on knowledge of their personality. and the feedback they’ve given about previous movies.

At that point, while I’m sure the name still has some value, isn’t that less about “Being the last Blockbuster store” and more about “Being a retail video rental store in the age of streaming and kiosks”?

DVD by mail can more easily scale up or down and still make a profit. If they lost 50% of their volume to streaming, they can close a few distribution centers and be nearly invisible to the customer.
Also, they already had a website and focus on title recommendation algorithms. Even before streaming, they were holding competitions for better recommendations based on likes. Those types of things work for both services.

For the streaming service, though, I’ve heard they track what people watch, what people watch again, what scenes people rewind and rewatch. All sorts of data that influences their decisions. Supposedly they greenlit the American adaptation of House of Cards after noting that people liked to watch the original UK programme, other political thrillers, David Fincher movies and Kevin Spacey movies.

Absolutely. I doubt their recommendation algorithm has gone more then 6 months without a change. They got rid of the star rating years ago and replaced it with thumbs up and down. On streaming they can do so much more. Titles viewed, titles started, titles finished, titles rewatched, etc. The point was that a major part of their organization is dedicated to providing recommendations to keep viewers engaged, which I am sure is being leveraged to pick content to produce or buy.
My biggest problem with this model for content production, is that their goal is not the same as most older production communities. They don’t really care how many of their customer want to watch something as much how many people will subscribe to see it. That is why popular, but expensive shows may be less likely to get additional seasons, compared to broadcast. As long there is enough content that no one can see it all, they figure existing customers will stay with them. If they think a season 3 of Prestige Show #8 will draw in less new subscribers than 1st season of Prestige Show #9, that is the way they will.

After so many late fees, the second I had an alternative I took it. I’m sure I’m not the only one.

The Blockbuster Late Fee system was ever-changing and deliberately confusing. I remember for a good part of it’s existence if you were even a day late on a rental it was better to just keep it for an additional week since they’d charge you another week automatically. Then they caught wise to this and started charging late fees on a day by day basis. Then they started offering rentals in 2 to 3 day variations that were cheaper but they were even more draconian with their late fee policies on those leading to it being more expensive to rent a film for 2 days and being late than just renting it for a week. Then they “Got rid” of late fees only for them to start charging “Restocking Fees” on a per day basis instead. Then they just gave up and made it so a weekly rental just gave it to you for an entire month but if you didn’t return it within a month they charged you $50 and let you keep it.

it’s funny because i used to rent games from a cd/DVD store called “warehouse music and video” they were a music store chain that had gotten into renting games and there were no late fees you simply kept it and paid when you returned it what kept people honest was you dropped between a 40-70 dollar (per item ) deposit that if the items didnt come back they simply cashed the check

Well, I figured out how to game the system since the video games 8/16 bit games never had a deposit over 60 bucks i acquired several hard to games for less than retail … all it took was " Mr me are you going to be finished with the game or should i just cash the check as usual "

most of the time they just cashed the check …

That’s what it really comes down to. You have these stores that cost a ton of money to run vs a centralized mail, then streaming service. At it’s peak, Blockbuster employed 85,000 people. Netflix employs a tenth of that. And at the end of the day, it’s just a lot more convenient to stream a movie than run to the video store, then remember to return the video.