How Blockbuster Failed to Adapt

Before streaming services dominated the media consumption market, brick-and-mortar stores existed where people could go to rent DVDs and VHS tapes. In 1977, the first video-rental store was opened. Video rental stores quickly grew in popularity and became a massive revenue source for the movie industry. And “by 1992, Blockbuster was the undisputed video-rental leader” (Khanna).

Blockbuster reached its peak in the early 2000s, operating about 10,000 store locations. In 2010, Blockbuster filed for bankruptcy and was bought by DISH the next year for $229 million. And in 2013, announced that it would be closing its last physical locations.

One reason why Blockbuster failed to keep itself alive is that it refused to make any changes or adaptations in their business model in the face of competition, such as Netflix’s business model of mail-order DVD rentals which would eventually prove to be very disruptive to Blockbuster’s business. “It (Netflix) was almost as convenient as a neighborhood retail store but at a fraction of the price—and without the late fees that annoyed Blockbuster customers” (Downes, 2014). At this time, however, Netflix was not seen as a threat to Blockbuster, until they launched their streaming service.

Valuation of Netflix and Blockbuster from 1985-2017

Netflix would later continue its innovative business practices by vertically integrating itself in the film/streaming industry. In Empires of Entertainment, Jennifer Holt defines vertical integration as “ownership of all phases of a business from production to distribution and sale.” Netflix accomplished this by producing its own original series and also handling the distribution/exhibition through its web streaming service.

If Blockbuster had made some sort of attempt at horizontal integration with Netflix, maybe the company would still exist. Such as how “film studios combined with broadcast networks… thereby creating innovative alliances across formerly distinct industrial boundaries” (Holt). Blockbuster was actually offered a merger deal by CEO of Netflix, Reed Hastings, in 2000. “Hastings wanted $50 million for Netfix. And as part of the deal, the Netflix team would run Blockbuster’s online brand” (Devaney). This deal obviously never went through, but if Blockbuster had decided to create some sort of synergy with Netflix, Blockbuster might still exist in some form today.

Sources

Devaney, Erik. “3 Things Marketers Can Learn From The Rise Of Netflix (And The Fall Of Blockbuster).” Drift, 30 Aug. 2018, www.drift.com/blog/netflix-vs-blockbuster/ .

Downes, Larry. “Blockbuster Becomes a Casualty of Big Bang Disruption.” Harvard Business Review, 7 Aug. 2014, hbr.org/2013/11/blockbuster-becomes-a-casualty-of-big-bang-disruption.

Holt, Jennifer. Empires of Entertainment: Media Industries and the Politics of Deregulation, 1980-1996. Rutgers University Press, 2011.

Khanna, Derek. “A Look Back At How The Content Industry Almost Killed Blockbuster And Netflix (And The VCR).” TechCrunch, TechCrunch, 28 Dec. 2013, techcrunch.com/2013/12/27/how-the-content-industry-almost-killed-blockbuster-and-netflix/.

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