The Decline of Blockbuster...What Happened?

[Music] everyone remember blockbuster not the blockbuster that's been reduced to a punchline the blockbuster from back in the day the video rental store you used to frequent remember walking through the doors and heading over to the new releases around the outer walls recognizing some of them from the week before and getting excited when you saw something new making your way around the store pathetically looking at each movie until you've reached the other end picking up a movie you're sure you're going to rent and one that you may put back if you see something better taking a minute to make sure you're happy with your selections because it was a big decision back then there was no starting the movie just to see what it is and turning it off and searching for a new one those were your movies for the weekend taking a quick look through the aisles with the old releases before heading to the checkout counter maybe you would pick up some popcorn or candy on your way and then checking out and paying $20 for a handful of movies and some red vines it wasn't all good but I'm willing to bet most of us have these positive memories associated with the store at the time it was the best way to get movies sure you can go to the store and buy them at an outrageous price you could wait until something came on TV or pay for the movie channels and increase your chances of something good coming on and there were many competing movie rental stores such as family video and Hollywood video but they just didn't compare personally whenever I would go to one of those other stores I just didn't get that same feeling as being in a blockbuster like they were just cheap imitations there's no doubt about it blockbuster was the place for movie rentals the company started in 1985 it wasn't long before that when most people didn't even have a VCR the company expanded fast and by the time the 1990s came around blockbuster was pretty much the standard for video rentals it's a decent business idea buy a bunch of VHS a--'s and rent them to people until you recover your cost and once you're done renting it out just sell it they would buy them in bulk and have the benefits of some substantial discounts as well and if the cost did get to hide they would work out revenue sharing deals with the studio's there's definitely opportunity to make a profit not to mention they did the exact same thing with video games and the rentals weren't their only source of revenue I took these numbers from 2003 just randomly so I have some figures to illustrate what I'm saying the rentals brought in about seventy-seven percent of their revenue 22 percent was from merchandise and about one and a half percent is from other what is merchandise and what is other merchandise is the movie and game sales not rentals but sales which is about 70 percent of it and the other 30 percent is general merchandise meaning the popcorn or the Milk Duds or anything else they sell in the store and what's the other portion of revenue I'm not sure there always seems to be a mysterious other category but it's a small percentage it's all a cool idea it's a good business model for its time in fact it was a fantastic business model so when did the transition happen when did they stop being that beloved video store and start being nothing but a late-night punchline looking at their revenue and number of store locations it appears that around 2004-2005 was their peak and everything after that was downhill hard to say exactly when the transition happened I'm going to say it was somewhere in the middle of that decade when it began but wasn't fully completed until the end of it so here's the big question what happened to Blockbuster I'm guessing the answer in everyone's head right now is that Netflix happened and I'm sure it's going to be all over the comments section but my conclusion at the end of the video is not that not exactly but Netflix did survive when blockbuster didn't so what we should investigate is what separates the two companies and I'm talking about the classic Netflix not the streaming content but sending DVDs to your house because that's what Netflix was during this time they didn't start streaming until around 10 years ago as far as I see it there were two big differences one is what I just said with Netflix the movies come to you whereas with blockbuster you go to the movies so with Netflix it's easier for the customer but it's also more confining there's more freedom with blockbuster because you can get movies at any time without having to wait for the mail this aspect is really just a matter of personal preference but the other big difference is that Netflix is a subscription charge where blockbuster charges per movie this is where Netflix has the edge for what you pay during your weekly trip to Blockbuster you could get a full month of unlimited rentals so the logical thing for blockbuster to do to compete would be to offer subscriptions for unlimited rentals at their stores but it's not as simple as it sounds in fact none of this is as simple as it sounds today people seem to look at Blockbuster as a group of boneheads that fail to see the changing climate of video rentals that's right I said boneheads I'll get back to the Netflix thing in a second the public seems to have this perception that blockbuster thought in-store rentals was the only way to do business and just laughed at the idea of mail and streaming services this isn't true you may have heard this one before in the year 2000 Blockbuster declined a deal to purchase netflix for fifty million dollars a company that is worth billions today but at the time blockbuster preferred to compete with them because they thought they could win it wasn't that they were ignoring the business model that Netflix established it's simply that they didn't think purchasing that company at that time was the right move sure looking back it's probably the worst decision they ever made but how are they to know it at the time I would have completely respected their decision to pass on the deal and I'm sure most others would too in fact right around the same time they entered into a 20-year deal that involves streaming video on-demand using fiber optic technology that was much more costly than it would have been to purchase Netflix the only problem is that the deal was with Enron and the technology didn't work and Enron went bankrupt soon after and nothing came of it it's a deal that could have put blockbuster a couple steps ahead of Netflix here's some more evidence that blockbuster wasn't ignorant about the whole mail and streaming thing in a company's annual reports filed with the SEC they include a section that identifies possible threats to the company in almost every year that Netflix existed they were listed as a possible threat as well as video on-demand services and in the report from 2001 they actually talked about their efforts to enter into the market by teaming up with DIRECTV so don't make the mistake of thinking that blockbuster was just ignoring all this they were well aware of it and making efforts early on but let's get back to why it's not easy to offer subscriptions like Netflix does those rental revenue numbers that I showed you earlier include something called late fees something that's impossible to collect if the customer has an unlimited rental subscription they were generating a healthy amount of income from late fees and were resistant to change their structure to something that would completely eliminate them however in 2004 they started offering a subscription service called blockbuster movie paths and beginning the next year they announced the elimination of late fees but the thing is that if you're still renting out movies the traditional way late fees are sort of necessary they needed to have those movies back on time and the motivation for the customer to do it was through the late fees their system was a little sketchy where it gave the customer a grace period and after enough time they just said you owned it and charged the full price of the movie eventually they tried to enter every market at the end of 2006 they launched blockbuster total access which was another online subscription service that allowed customers to check out multiple movies at a time they could go through the mail just like Netflix or exchange them at any blockbuster store it gained a lot of subscribers initially but quickly went down it was more expensive than Netflix and I suppose the convenience of exchanging the movies in-store wasn't worth the extra money for the customer they even tried Blockbuster Express which was a DVD rental kiosk like red box which eventually ended up in the hands of the Redbox people in 2010 blockbuster went bankrupt Dish Network bought the company soon after but haven't been able to do much with it they've tried similar things integrating it into their satellite service but it seems they've basically given up if you go to Blockbuster comm today it's pretty vacant just a link to the DISH Network website and 1/2 a list of the remaining locations by the way there's 12 of them mostly in Alaska for some reason as far as I can tell blockbuster is done it would take some genius minds to make that name relevant again and I doubt it would even be worth it so here's how I see the whole situation the whole renting movies in store and taking them home model is obsolete today it was becoming obsolete with the DVD mail rentals and the streaming has finished the job the fact is that the service blockbuster provided became useless and the only way they would have been able to survive is changing everything and you're probably not surprised by the fact that restructuring an entire business is difficult to do they needed to break into that video on demand and video by mail industry and as we saw they gave it a try they tried it with Enron Direct TV and started providing their own services eventually but they didn't jump into it headfirst we see this by the fact that they continue to open more stores they were just experimenting with other services and seeing what would catch on and be profitable they predicted that it was the way of the future but it seems they underestimated how quickly the future came they didn't feel the urgency to do it early on and once they did it was too late but they're not exactly boneheads for going about it this way I'm sure if I pulled you aside 15 years ago and asked you if you thought that video rental stores would be completely irrelevant in five years you would have said of course not and that's what blockbuster thought but let's remember exactly what blockbuster provided Netflix provides movies but blockbuster also provided an experience that whole experience I described earlier that's something you don't get from Netflix or Redbox I think of it as being like a movie theater when you pay the $10 for the ticket you're not just paying for the movie you're paying for the whole experience and similar to blockbuster if new movies were legally able to be streamed right to people's homes the theaters would probably become irrelevant as well blockbuster is a victim of the world changing around them if they were able to tell the future they probably could have started restructuring their business model early enough to have an edge on Netflix but I can't fault them for not knowing the future in the early 2000s they were in a time where they needed to make changes fast but they weren't aware of it few companies would have been some companies aren't meant to last forever and maybe it was just time for blockbuster to fade into the sunset I don't like thinking of them as the joke that they've become I prefer to remember the positive experiences what I'm trying to say is to remember Shaq on the Lakers not on the Celtics sure there was a pretty significant decline toward the end but there was a time in the early 2000s where there was no one better I know there's hundreds of videos on YouTube already that ushak is a metaphor for blockbuster so I'm going to wrap it up here let me know in the comments any thought you have on blockbuster whether it be about its peak the decline or anything else I'd like to hear what you have to say thank you for watching [Music]

Channel: Company Man

Views: 1,202,727

Rating: 4.8814445 out of 5

Keywords: Blockbuster, Decline, What Happened?, DVD, VHS, Blockbuster Video, Netflix, Redbox

Id: 5sMXR7rK40U

Length: 12min 43sec (763 seconds)

Published: Wed Jun 21 2017