Blockbuster was a retailer of home movie and video game rental services. At its peak back in 2004, the company consisted of approximately 60,000 employees and 9,000 stores that generated revenues of $5.9 billion.
Back in the year 2000 Reed Hastings, the founder of Netflix, approached former Blockbuster CEO John Antioco and asked for $50 million in return for the ownership of his company.
Antioco however, viewed Netflix as a “very small niche business” and promptly ended the negotiations. At the time, Netflix was a DVD mailing service but the company now has a market value of $67 billion.
Barry McCarthy, Netflix’s then Chief Financial Officer said, “I remember getting on a plane, I think sometime in 2000, with Reed [Hastings] and [Netflix co-founder] Marc Randolph and flying down to Dallas, Texas and meeting with John Antioco. Reed had the chutzpah to propose to them that we run their brand online and that they run our brand in the stores and they just about laughed us out of their office. At least initially, they thought we were a very small niche business. Gradually over time, as we grew our market, his thinking evolved but initially they ignored us and that was much to our advantage.”
As popular as the Blockbuster brand was at the time, going down to the video store in order to take advantage of the company’s services was a hassle for customers – as was returning the videos on time to avoid paying late fees. The rise of Netflix from outside the traditional retail space meant that these problems were instantly solved in one fell swoop.
Netflix started off by offering a monthly fee for movies – DVDs by mail with no limits placed on how long customers could keep the movies in question. With no retail estate of its own driving up costs, Netflix was able to out-innovate Blockbuster with a service that solved the late-fee problem and didn’t require its customers to leave their homes.
Blockbuster ultimately attempted to copy the Netflix model with its own mail-order service that had the added benefit of making already-watched DVDs at its retail locations available, but its actions ultimately proved to be little, too late.
John Antioco was respected as a tough negotiator and a strong manager, but the Blockbuster chief lacked the vision to see where the home video industry was going and the changing shifts that were taking place under his feet.
“Management and vision are two separate things,” said a former high-ranking Blockbuster exec at the time who recalled, “We had the option to buy Netflix for $50 million and we didn’t do it. They were losing money. They came around a few times.”
The rapid rise of online film streaming offered by the likes of Lovefilm and Netflix made Blockbuster’s video and DVD business model practically obsolete and the company closed the last of its stores in December 2013.
“It was Reed’s insight that the subscription model would resonate with consumers in a compelling way,” McCarthy said. “He re-engineered the Web site and software to support a subscription model…we began to grow exponentially overnight. In 1998, I think the business did $1 million in revenue. In 1999, we did $5 million, then $35 million and then $75 million and $150 million and then almost $300 million…We were I think five years to $500 million and another three years to a $1 billion, all because of the subscription model.”
The demise of Blockbuster was a classic case of the innovator’s dilemma: “You end up competing with a business that you initially ignored.”
All we’d like to say on the matter is that if anybody wants to offer us $50 million to purchase The W1nners’ Club, we’ll throw a few of the DVDs we have lying around in the office that were never returned to Blockbuster as a makeweight in the deal.
Last chance! BLOCKBUSTER stores close at 5 pm today! Discounts up to 90%! Get DVDs and Blu-rays for 99¢! http://t.co/OMKNh7z0Gx
— Blockbuster (@blockbuster) January 12, 2014