The Fall of Blockbuster: How Success Changes Over Time
Those who grew up in the early 2000s might vaguely remember going to a place with shelf after shelf stocked with all the movies anyone could ever want to watch: Blockbuster. Customers had membership cards and could buy theater foods — like candy and popcorn. Some stores even had video games! As great as Blockbuster seemed to the general public back then, the company was on the road to obsolescence. The world barely heard from Blockbuster on social media, but then on August 11, 2020 — after a six-year hiatus — the company posted on Twitter. In the next few hours, Blockbuster also announced that its last location in Bend, Oregon is becoming an Airbnb.
Before the Fall
Before its last building became a lone 90’s themed rental space, Blockbuster was a well-known store chain. As stated by Business Insider, “Blockbuster was at its peak in 2004. That year, Blockbuster had 9,000 stores globally, 60,000 employees, and earned $5.9 billion in revenue.” Even in its earlier years, the company was successful. When Blockbuster opened in the mid-’80s, it was immediately popular because consumers had few options when it came to watching their favorite movies out of theaters.
While Blockbuster was enjoying its growing success in the late 90s, Reed Hastings and Marc Randolph founded Netflix. Netflix started as a rental company that did not charge late fees (Investopedia). Meanwhile, Blockbuster’s late fees were adding up to large sums: “In 2000 Blockbuster collected nearly $800 million in late fees, accounting for 16 percent of its revenue” (NBC News). Netflix was not the only company trying to combat Blockbuster’s late-fees — Redbox did the same. Blockbuster had to make changes so that it was not driven out by competitors. Although Blockbuster did have some new initiates throughout the years — such as starting Blockbuster Online — its competitors grew more popular. Netflix and other at-home streaming services, mixed with other advancements in technology developed too quickly for Blockbuster to keep up. Ultimately, Blockbuster had to file for bankruptcy in 2010.
The Fall
Bankruptcy is not necessarily the end of a business. A company is considered bankrupt when it is “declared in law unable to pay outstanding debts” (Intuit). That does not mean that the company can not get help paying off these debts from a third party. In 2011, DISH Network won Blockbuster at an auction for $320 million (FastCompany). Dish Network’s goal was to keep Blockbuster from completely shutting down by keeping at least 600 stores open. However, two years later that goal was not met. CEO of DISH, Joe Clayton, announced the remaining Blockbuster stores would be closed with the reasoning that “Consumer demand is clearly moving to digital distribution of video entertainment.” With that, Blockbuster’s popularity declined, and its stores slowly shut down.
After the Fall
For anyone interested in business, there were lessons to be learned from Blockbuster. One of the most important lessons involves revenue streams and profit. The term “bad profit” originates from The Ultimate Question by Fred Reichheld, and is described as “money made off customers by being deceptive or misleading” (Forbes). Brett Hurt from Wharton Magazine described the effects of these bad profits: “Anytime bad profits are your primary source of profits, you are due for a hard knock. That knock came from Netflix. Their original ad campaign, ‘The end of late fees,’ was pretty much all they needed to say.” He goes on to stress the importance of a good Net Promoter Score (NPS). NPS can be used as an alternative to traditional methods of measuring customer satisfaction or customer-and-company relationships. Nowadays, NPS is used by many companies — even Airbnb and Amazon (Retently).
Entrepreneurs, financial advisors, technology officers, and many others learned from Blockbuster’s mistakes. Blockbuster was so successful in the late 90s and early 2000s that most people probably would not have predicted its bankruptcy. The thought that today’s popular streaming services — like Netflix — might suffer the same fate as Blockbuster seems unrealistic. As technology develops, personal preferences change, and business models improve, certain companies may or may not succeed, but one thing is for sure — it will work out in favor of the consumer.
