From humble beginnings when it opened its first store in 1985 in Dallas, it became a market leader for home video rental. Due to its market dominance, it should have been untouchable, even in the UK there was little competition for the home video rental giant. So how did it all go wrong, and when the entire business collapsed and last store closed its doors in 2014 and went into administration, why did it not come as a surprise?
The rise – think big and be fearless
It’s a simple formula – people want to be entertained and have a wide range of choice. Blockbuster offered this for years and expanded considerably in the 80’s with the popularity of home video systems which became accessible to the average consumer due to its now more affordable price tag. Blockbuster took a cutting edge approach by opening much much larger “superstores” than the nearest competitor and closing later, an at the time high-tech computer system scanner to track rental tapes, and also made the bold move of refusing to stock adult movies making stores a family-friendly destination.
Over the next few years, Blockbuster continued grow by expanding to 25 countries with what they referred to as “video superstores”.
Despite turbulent business figures, they still managed to single-handily take over the world and UK market by providing a one-stop shop for all your home video rental needs. Competition was stiff, and in the early 90’s it came in the form of Sky TV and cable TV services – this saw a drop in demand for their rental services but they were still able to overcome this, as these companies still only offered films that were over 1 year old. Blockbuster extended their product range by adding a range of confectionary such as crisps, dips and sweets, and of course popcorn which was synonymous with film and cinema. This offered a cinema experience from the comfort of your own living room – smart move when peoples perception of a cinema was an overpriced experience.
They further continued to extend their service range by offering the rental of console games. This was at a time when the video game industry had just recovered from the 16-bit decline and it was on a high due to the release of the technically advanced Sony’s PlayStation and Nintendo’s N64. The only issue with this generations console was the price tag of games which could be as much as £50. Blockbuster capitalised on this by offering video game rental for a fraction of the cost. Another smart move.
The fall – diversify and mistreat your customers
On the surface all seemed well and although accounts reported that Blockbuster were making a profit almost every year up until the late 90s, it also indicated that the market was volatile due to inconsistent business levels and industry technology changing. An example of this is the invention of unsuccessful Laser Disc and successful DVD, both of which required Blockbuster to make significant investment in their offering. Their large” video superstores” didn’t now seem quite as big with 3 different video formats, video games and food items eating into the square footage.
A large proportion of Blockbuster’s revenue was generated by the enormous amount of money it was charging its customers in late fees, which had become an important part of Blockbuster’s revenue model. The ugly truth was that the company’s profits were highly dependent on penalizing its patrons, something which over the years has created a lack of goodwill associated with the Blockbuster brand.
A new dawn for consumers
By the year 2000, something changed. The popularity of the internet and faster speeds meant that consumer habits and the way we shopped was changing. In the US internet speeds had reached a level where it was now possible to download video clips and full music albums within minutes, although the UK was still lagging behind. Downloading a full movie to a computer was becoming a reality, which the more tech savvy companies were realising.
Companies like Love Film and Netflix were offering DVD delivery service and on-demand streaming services, both of which Blockbuster adopted very late meaning it again lost market share.
So how did it really go wrong for Blockbuster? At the end of the day, it came down to arrogance, inconsistent management and good old fashioned complacency!
Although no one could have predicted it, the following in the opinion of business experts and analysts cemented the failure of Blockbuster:
“In 2000, Reed Hastings, the founder of a fledgling company called Netflix, flew to Dallas to propose a partnership to Blockbuster CEO John Antioco and his team. The idea was that Netflix would run Blockbuster’s brand online and Antioco’s firm would promote Netflix in its stores. Hastings got laughed out of the room.”
As we know, Netflix is now the market leader in online video streaming and rental, worth an estimated £32 billion, the Blockbuster brand is a faded memory which my 11 year old daughter does not even remember.
The simple lesson
Whichever industry you are a part of, do not get left behind with technological developments or you could face insolvency, even if you are riding high…..and of course never underestimate the little guy as Blockbuster did!
In my upcoming Blogs, I will be discussing the collapse of retailer Comet and the flat-pack giant MFI.