How Blockbuster Could Have Owned Netflix

schnell writes "Your age probably determines whether you think of Blockbuster Video as a fond memory or a dinosaur predestined for extinction. While the last Blockbuster rental at the last remaining Blockbuster video store took place last week, Variety retells a now-classic story of how Blockbuster could have bought Netflix for a song, but didn't because it failed to take the new DVD-by-mail and video streaming markets seriously. Who is next to join Blockbuster, Polaroid, Borders and Best Buy on the ash heap of superseded retail business models?"

Comments

Who's next?

[Anonymous Coward]

Slashdot!

Re:Who's next?

[Anonymous Coward]

Slashdot!

Dice, Dice, Baby!

Pretty much.

[Anonymous Coward]

I remember when netflix first started out, it took blockbuster YEARS to FINALLY get a dvd by mail system, and it was still overpriced as hell.
They continued to make moves acting as a monopoly, refusing to believe they could ever have any competition.
This was a fatal mistake.

Re:Pretty much.

[fermion]

I recall reading an article about the guy who built blockbuster. He was originally in trash. That is, he rented the big bins for commercial trash. He stated that blockbuster and trash collection were basically the same thing. One has some initial investment that does not degrade much over time, and after a while that investment is covered with rental fees. After that it is pure profit. So the idea of blockbuster was to turn over product as quickly as possible to pay for the initial product and get into a profit position. Obviously things like late fees helped. The idea of paying a flat fee for as much product as you wanted for as long as you wanted did not.

Of course this guy has long left Blockbuster and is doing other things, so there was room for new management to do other things. OTOH, I can see how blockbuster might be attached to their original business model, brick and mortar and all that. Really what has killed them is the long term decline in the value of movie you watch at home. There was a time when you were paying $50-100 to buy a video, so paying $5 to rent it was a value. Eventually studios realized how much money they were leaving on the table, dropped prices for many movies, and cut sweetheart deals with blockbuster, which further eroded the value of home video, and made Blockbuster prices seem expensive. Finally the internet made movies free, Netflix figured out how to compete with free, and blockbuster did not. Really, blockbuster, like other firms simply could not keep the legacy structure and succeed.

Re:Pretty much.

[L. J. Beauregard]

What I most dislike about the rental versions is that they often have trailer after trailer and they disable the "skip this" button. (Note to DVD vendors: DO. NOT. DO. THAT. If I choose to skip the trailer, you have already lost the sale. Giving me that damned icon instead of doing as I asked only annoys me.)

Every print magazine left.

[Narcocide]

Followed shortly thereafter by the USPS, unless Amazon just outright buys them.

Re:Every print magazine left.

[The Phantom Mensch]

I'm not sure I'd right off the USPS. Their parcel business seems to be growing rapidly, with very competitive prices for small fixed price boxes.

I think the big shopping mall anchor stores (Macy's, JC Penney, etc) are all likely to fail in the next 20 years. Sears is already a dead man walking, Penney's is close and the others are living on borrowed time.

Blockbuster Business Model

[Greyfox]

They'd have tried to shoe-horn late fees into Netflix. That's where all Blockbuster's money came from. Renting videos was just a loss leader for late fees. They didn't take Netflix seriously because they didn't have late fees and Blockbuster didn't see how anyone could make money just renting videos.

Re:Blockbuster Business Model

[dunezone]

Blockbuster had a service like Netflix and it was launched in 2004. The Blockbuster DVD-by-Mail was an interesting endeavor because everyone thought they were going to compete head to head with Netflix. The problem is that when you examined the Blockbuster DVD-by-Mail service it had a hidden agenda and that was getting people to come back to the stores.

With Netflix they sent you a DVD, you send it back through the mail, they send you another. With Blockbusters service they send you a DVD and you could either send it back and they send you a new movie OR bring it back to the stores and exchange it for a so-called rental. Except that new rental is subject to late fees and restocking fees WHICH they announced in 2005 they were getting rid of which they secretly didn't and this brought upon them a massive lawsuit.

http://en.wikipedia.org/wiki/Blockbuster_LLC#Misleading_advertising

This was their way of getting people to come back to their stores and adding on late fees which was their cash cow.

Blockbuster is the perfect example of a company that knew the industry was changing and somewhat attempted to adapt but wouldn't let go of the past completely.In my opinion Netflix wasn't what damned them it was just the beginning. Redbox is what really killed them.

About Polaroid...

[TheloniousToady]

Polaroid is already gone. For the last few years, ever since they stopped making instant film, Polaroid has been nothing more than a brand name to be licensed out (presumably, to attract folks who still have fond memories of instant film.) For example, all those cheap portable Polaroid-brand DVD players are made by somebody else. That's in contrast to Best Buy, which is a real corporation, and Borders, which is at least a division of a real corporation, Barnes & Noble.

Best Buy

[Danathar]

It's not dead yet.

http://blogs.wsj.com/moneybeat/2013/11/11/best-buy-sp-500s-best-performer-getting-still-more-praise/

They are not out of the woods, but things like price matching amazon have helped a lot. I've personally not bought from Best Buy in a long time, but recently after buying something on Amazon I checked how much it would of cost at Best Buy and realized for a little more I could of had it that day for about the same price.

Polaroid? Borders? That's old news.

Easily applied to any new/old tech pair

[JoeMerchant]

How could Blockbuster have eaten Netflix's Breakfast, Lunch, and Dinner? Easy: take all the same risks Netflix took, invest more capital (which Blockbuster had at the time), and abandon their proven business models earlier than they did.

The buggy whip makers could have beaten AC/Delco to the punch if they only followed this same crystal ball strategy.

What everybody forgets is: Pets.com et. al. Sure, they look silly today, but there was a time that they attracted investment dollars that Netflix didn't get.

Blockbuster would have dragged them down

[TechHSV]

If Blockbuster had purchased them, they never would have made the leap to delivering over the Internet.

Blockbuster failure sits at the CEO's feet

[Lumpy]

They could have killed/bought redbox and netflix easily. But the Executives at Blockbuster are still too stupid to realize that they had to change models. I guarantee they still deny they did anything wrong.

If you are only looking at next quarter, then as an executive you are a complete and utter moron.

Blockbuster died...

[Bartles]

...for me when they claimed they could not stop the computer from charging a fine to my credit card when I returned a movie 2 hours late. I cut my BB card in half in front of the cashier. Circa 2002.

Fitting rooms

[tepples]

I think the big shopping mall anchor stores (Macy's, JC Penney, etc) are all likely to fail in the next 20 years.

Department stores have one big advantage over online stores: fitting rooms.

Re:Fitting rooms

[Anonymous Coward]

As a slashdotter this may shock you: The malls are busy and very profitable. Department store space isn't going to be cheap anytime soon. Even in failing malls retailers like Target are happy to buy the big anchor store spaces.

People still buy their clothes at local stores, and the main reasons are probably:
  1. Your computer still can't accurately represent colors, which are key to dressing.
  2. Manufacturers still can't cut clothes correctly, so you have to try on things in your size in brands you know.
  3. Manufacturers still don't know what an inch is, so no one actually follows a sizing standard.
  4. The sort of people who pay 3 times what their clothes are worth like to make a day out of shopping.

Old "failed to take seriously" argument

[T.E.D.]

I hear this argument every time for companies that fail to shift to a new market reality. Examples are Xerox (with their PARC stuff), Polariod, Blackberry, IBM back in the day, record companies, etc. That's a complete misreading of the issue. It isn't about having some misguided sense of humor, its about fear.

The problem entrenched companies have is that while they have a market that they dominate that is acting as the company gravy-train, all the incentives in the world are acting upon them to protect that gravy train. This works well for them with normal competitors, but if someone finds a way to undermine the entire system (eg: online distribution for music), no matter how inevitable the coming change may be, it is a direct attack on their gravy train, and they will attack it back. If they tried to do the same thing themselves, at best they'd only cannibalize their own sales. What good is that?

Yes, it may be short-sighted. But we are a short-sighted species. A company's employees don't take their salary "in the long run", and their families don't eat "in the long run" either.

Best Buy isn't Going Away

[Kagato]

Best Buy got rid of the C level staff that were associated with the old CEO/founder. The new CEO made a number of hard choices and focused on the fundamentals. That has lead to a significant recovery. The stock price has more than tripled and they are one of the best performing companies on the S&P500 right now.

Major point, the online pick-up is now part of check out area and not customer service. For years I hated using online pick-up because without fail I would be stuck waiting behind someone making the financial transaction of the century. I used to use Circuit City pick-up all the time because it was always ready when I got their. I found it less frustrating to use Amazon and wait the extra day instead of waiting in line. So it's a great change.

They making some good changes to the loyalty program. It's one of the easier ways of getting money back on purchasing rarely discounted Apple Hardware.

They got out of some really badly done deals internationally. The Cellphone Warehouse deal for UK expansion gave Cellphone Warehouse a cut of BB's US cell sales.

Certainly there is risk for them. If all the changes don't turn into great numbers for the holidays it could spell disaster. We'll know in a couple months.

Blockbuster had video on demand in beta in 2000

[GodBlessTexas]

While working at Enron Broadband Services in 2000, we had partnered with Blockbuster to create a video on demand service, and had all the main/regional CLEC/ILECs as partners to provide last mile connectivity. We were able to stream better than VHS, but slightly worse than DVD quality video over a 1Mbps Internet connection that required you to have a set top box. We had successfully demonstrated the technology in the lab and were going into the first run trials to beta customer homes when Blockbuster pulled the plug. So they could have beat Netflix to the punch by bypassing the DVD rental business entirely and going straight to VOD, but they decided not to. Also, a little known fact is that it was the pro-forma $150 million Enron booked as earning on that VOD project before it ever hit a customer home that brought increased scrutiny to their financials before they ultimately went out of business a year later.