What Happened to Blockbuster? The Beginning of an End

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Blockbuster used to be the largest video rental chain in the world that provided home video and video game rental services through rental shops, streaming, video on demand, and DVD-by-mail. However, in 2000, Blockbuster’s CEO John Antioco made one of the worst decisions in his life which he must surely regret to this day. This is because this one decision changed the very course of the company and eventually led to its demise.

Blockbuster store

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The Incident That Changed the History of Digital Entertainment

In 2000, Reed Hastings, the founder of a modest Netflix, met with Antioco in Dallas to propose a partnership in which Netflix would advertise Blockbuster’s brand online and Antioco would promote Netflix in his stores. However, Antioco laughed at the proposition and sent Hastings away without a second thought. The rest is history.

Blockbuster started losing the customers left and right shortly after that event and went out of business in a decade. On the other hand, Netflix grew to become one of the most popular online streaming companies in the history and is currently valued at a whopping $138 billion! People from all corners of the world are binge-watching their favorite shows on Netflix and millions are enjoying the original TV series and movies that it’s publishing.  Due to censorship and guidelines, some of the popular series are banned in certain demographics, so if you’re a native or visiting those demographics, you must be wondering how to get US Netflix so that you can enjoy your favourite episodes. Netflix now has nearly 118 million users worldwide, and they are the kings of the online streaming industries.

Looking Back in Time

Almost everyone who uses the Internet regularly knows what Netflix is. It’s easily one of the biggest online streaming portals today with a massive and ever-growing content library. It even has its own virtual reality application for Google Daydream View headsets which takes digital entertainment to a whole new level. It allows you to watch your favorite shows on a massive TV television with a home theatre that make for a unique TV experience. You can even change the size and position of the TV screen to suit your preferences.

Although Netflix has become an entertainment giant today, it’s interesting to look at the past when it continued to fight even after facing rejection from Blockbuster and grew strong enough to take it out of the competition.

A Tough Competitor

When Hastings met Antioco with the proposal in 2000, it was easy for him to turn it down. After all, at that time Blockbuster was the king of the video rental industry. It had customers in millions that were spread across the entire country, and controlled thousands of video rental locations that made for a powerful network and far-reaching market penetration.  However, there was a major flaw in its business model.

blockbuster vs netflix

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Blockbuster used to charge a huge late fee for video rentals which actually made for a sizeable portion of its entire cashflow. In fact, in 2000 which was the year when Netflix proposed to join hands with the then video rental giant, it collected nearly $800 million in late fees which is believed to be one the things that led to Blockbuster’s end.  The strategy was doomed from the start and was certainly a big turn off for the customers too. However, that’s exactly where Netflix shined and used Blockbuster’s flaw to its advantage.

Rather than making massive profits through penalization, which Blockbuster was doing blatantly, Netflix offered a subscription model in which the customers didn’t have to worry about late fees. They could simply watch a movie or TV show for as long as they wanted and return as per their convenience to get a new one. They paid a fixed price which was fair and made their experience a lot more satisfying and comfortable than Blockbuster.

It didn’t take long for Blockbuster to realize that a new competitor had entered the market which had the potential to dethrone it in just a few years. However, it also knew that to overcome the challenges that this new rival had created, it had to revamp its entire revenue model which would not be easy.

The Beginning of an End

Antioco was convinced that Netflix was on its way to destroy his business completely unless he didn’t do something about it. He knew that the late fee had begun to annoy his customers more than ever as there were better alternatives available in the market. So, he decided to drop the fees altogether. In addition to that, he figured it would be best to create a digital platform that could take his brand to the next level.

Although Antioco was able to convince the board to support his ideas, Jim Keyes strongly disapproved the same. He said that discontinuing late fees meant a direct loss of $200 million. He also opposed the idea of launching an online Blockbuster portal that would cost another $200 million.

Carl Icahn, an activist investor backed Keyes and even went as far as to question Antioco’s authority and business acumen. Anicoco lost the board’s confidence that day and was eventually replaced by Keyes himself after 5 years. However, even Keyes couldn’t do much to protect the company from the massive disaster that was waiting to happen, and in 2010, the company filed for bankruptcy. In 2013, it officially became defunct.

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