Years before Netflix or anyone else posed a threat, Blockbuster was hard at work killing itself. A brief history of the chain below.
In 1997, for the first time ever, the video rental industry was in trouble. Though demand was high, fewer people were renting because new releases were rarely in stock. The reason was simple: The movie studios charged Blockbuster and its competitors a hefty $65 per VHS tape. If they bought too many of one title, it was a multi-million dollar write-off. If they bought too few, they turned away customers with few alternatives. They too often chose the latter. Only thing was, some customers weren’t coming back, and nearly 30% of the ones who did were still walking out the door empty-handed.
Realizing that something had to give, Blockbuster negotiated a new deal with the movie studios in which they shared their rental revenues in exchange for an endless supply of new releases. It was a smart move that put a ton of cash in Blockbuster’s and the studios’ pockets, and guaranteed every American that copy of Spice World they so longed for. Everyone went home happy.
A few months later, the studios offered Blockbuster an identical deal for a new format called DVD. High on their recent success and confident video discs would be slow to catch on, the chain turned the deal down and the studios cut them out of the picture. Just like that, retail giants like Wal-Mart started selling new release DVDs directly to consumers, often at wholesale prices to get people to buy higher-margin items like DVD players and flat-screens. A few years later, the VHS tape was dead and in-store video rentals were dying fast. Still, Blockbuster had one more chance to rebound.
In 1999, a startup called Neflix resurrected the movie rental industry by bringing it online and ditching late fees. Consumers loved it, but Blockbuster was unconvinced. So much so that when Netflix offerred to sell themselves to Blockbuster for a mere $50 million, the chain turned them down and instead cut a 20-year video-on-demand pact with a company called Enron. Fast forward a few years, and Netfix grew to be the biggest name in movie rentals. In 2004, Blockbuster launches is own online play, honestly thinking they can beat Netflix at their own game. It doesn’t happen.
It’s 2008. While Netflix stays cutting-edge with instant downloads and set-top boxes, Blockbuster’s barely breathing and neck-deep in denial. In fact, just two weeks ago they announced they’re testing a new digital strategy centered around downloadable movies via kiosks located in their stores. I’m saying, you almost have to feel bad for them.
You do it to yourself, you do
And that’s what really hurts
- Radiohead
