Blockbuster News! Video Stores Follow Dinosaurs
It’s not as if everyone didn’t see this coming from a long way off, but Blockbuster, the video rental chain owned by Dish Network, announced it would close its remaining 300 stores by early January. The company also announced it would close its Blockbuster By Mail DVD service in mid-December.
"This is not an easy decision, yet consumer demand is clearly moving to digital distribution of video entertainment," said Joseph Clayton, DISH president and chief executive officer, in a statement. "Despite our closing of the physical distribution elements of the business, we continue to see value in the Blockbuster brand, and we expect to leverage that brand as we continue to expand our digital offerings."
Blockbuster’s fall was steep from the early 2000’s when it dominated the video rental market. At one point the chain had 9,000 stores and was referred to in monopoly-like terms by smaller competitors.
"It’s an interesting footnote to business history. [Dish] thought [Blockbuster] had a longer tail than it did. But digital distribution happened faster than people may have thought," Matthew Harrigan, a media analyst at Wunderlich Securities, told USA Today.
Dish Network said it would retain the licensing rights to the Blockbuster brand and the company’s video library. It will continue to offer the Blockbuster @Home service to its satellite TV customers as well as Blockbuster On Demand.
Discussion Questions
What is your postmortem on Blockbuster? Do you expect Netflix to end its DVD by mail service in the near term? Is there a new disruptive technology or service offering that will further upset the video rental business in the years to come?
Blockbuster, after an amazing start, lost its creative entrepreneurial drive when the retailer started hiring recycled executives from more traditional retail chains. Time continually passed Blockbuster by while its brand faded into the sunset because it continually lacked vision, foresight, and the ability to adjust and lead, which ironically are the characteristics it had when it first hit the marketplace.
What Blockbuster missed was the importance of convenience over price. Netflix would have to convert all their DVD offerings to online before abandoning them as much of their older inventory is only available by mail. Again, convenience.
Blockbuster had competitive offerings that matched Netflix and Redbox, but it was late to the game and never figured out how to execute outside its stores. It’s really hard to abandon the cash-cow and take risks on something new.
Blockbuster is a retailer whose time came and went. At one point it dominated the video marketplace; now it seems antiquated. After the Dish purchase, the stores that remained were inconvenient, shabby and not well stocked. Blockbuster by mail frequently subjected consumers to long waits for desired titles.
Netflix has a deep library for its DVD by mail service, its streaming service does not. There is a place for someone, say Amazon, to enter the streaming video marketplace with a deep library, great customer service and good value.
While I do not have a crystal ball, today’s rapid technology changes suggest that we are not done yet. However, I do believe that the any service via snail mail has its days numbered.
Blockbuster was the victim of a paradigm shift. When such a shift occurs, everyone, including the well known current offering, goes back to zero.
The key going forward for any product or service is to identify all of the ways customers are made to compromise to access your offering. Having to go to the store to physically pick up a DVD or wait for the mail to arrive are two such examples of compromises eliminated by technology. However, don’t wait until someone else solves the compromise for your customers.
Not much of a postmortem: Blockbuster had an incurable disease that could have been avoided years ago if it took a dose of hard medicine and changed its ways.
The disappearance of the company will have little effect on the combatants in digital video distribution and I doubt it will even be a yardstick for Netflix to determine when to stop mailing discs. Netflix will know when the moment is right by disc vs. digital consumption metrics from its customers.
There are still plenty of ideas and start-ups in the digital video space, but I’m betting on the big players to settle into market dominance and battles over percentage points for a long, long time, just as we had three major networks and accepted that for decades. Upstarts will come and go, but I don’t think they are likely to disrupt much. We’ll see though….
Here’s further proof of the accelerating life-cycle of innovation. Big ideas, like Blockbuster rentals, can grow to near-institutional status in a matter of a few years, but pass into obsolescence just as rapidly, as they are displaced by new, more relevant concepts.
The folks who are investing today in the Twitter IPO should take note, and plan their exit contingencies now.
I’m only sorry to see DVD rentals displaced by more costly on-demand services from cable and satellite TV providers. Hopefully online competition will keep prices within reason.
I’m not sure when Netflix will end its DVD by mail service, but the assortment by mail is so much greater than what’s available through streaming, that it will sure hurt choice if they do it soon.
If I hadn’t read the news I never would have known there were actually any stores still open! With a good internet connection people are shedding their cable TV subscriptions at a decently rapid rate. That puts snail mail 2 strikes behind. Will the only DVD mail service left be Saturday postal deliveries to rural areas?
At the end of the day it is about innovation and execution against competition. Blockbuster had the brand equity when Netflix first started but failed to invest to reboot itself when it is obvious that the branch concept wasn’t working in the long run. Institution inertia is one of the biggest enemies of survival for any company.
A major investment service recently reviewed the impact of VOD on the entertainment market. After reviewing all the likely “heirs to the throne” they concluded that the only sure way to cash in on the explosion of access to content is to invest in content!
Having followed this market intensely for many years on behalf of a client who is a major player, I can only conclude two things: 1) Digital distribution has finally reached the point where no one channel will dominate for long, and 2) There will always be SOME market for physical media. Whether it is books or records or art – people have a need to engage with it, perhaps even own it, in its physical form sometimes. I don’t think that will ever totally disappear.
Blockbuster was a company that got blindsided by the emergence of the Internet. Netflix radically lowered the cost and ease of doing business and Blockbuster was unprepared for the challenge.
I use 2 years as a definition of near term and no, I don’t think Netflix will end its physical distribution by 12/15. That being said, I think the pendulum is swinging towards digital distribution, so physical DVDs will not be the primary way people consume rental video at that point.
I have to agree with Peter. I did not know Blockbuster was still “open” until I read this. I guess that makes me too late to send a condolence message to them.
Blockbuster’s inevitable decline should not be surprising to anybody. They were arguably in a league similar to Starbucks and were best in class in the video rental category. Unfortunately, they did not see the future coming clearly enough and failed to adapt the company and carry the strong customer base.
Whenever I hear about Blockbuster’s slide into oblivion I can’t help but think about this video from 1992 where they and IBM predicted the digital content distribution model. Home internet was just getting off the ground (at slow speeds) so the ideal venue for delivery was on media at a store.
There will certainly be newer disruptive technologies and a race toward the most extensive online library. I predict that Netflix will either convert all inventory to digital or someone will beat them to the punch. Either way, DVD by mail is not here to stay.
Blockbuster demise is the same autospy report of Border Books, JR Music World and KB toys and Steve & Barry. All of these entities were leasing 20,000 to over 100,000 square feet of real estate properties filled with taxable and depreciating physical inventory.
Both Netflix and Redbox have a lower lease footprint and lower cost of operation. The postmortem is a warning to all retailers with large lease footprints holding onto physical inventory, that they are next unless they make radical changes to their storefront model.
Content distribution via plastic circle is obviously going away. The layer of dust on the floor of the BluRay Aisle at Best Buy will tell you that no new physical media players are being purchased by consumers… so once the current installed base is retired, physical distribution with be a niche.
As for the Blockbuster milestone, I was in the corporate marketing group during our rapid growth in the early nineties… a ton of really smart people worked very hard to open a store every twelve hours during my tenure. It was a great experience, and I learned a lot. No one was more aware than us that the business would eventually move to digital distribution (look what we built in 1992). The challenge is getting the timing right.
Back in 1994, we were regularly responding to business analysts and journalists who thought 1994 would be our last year of growth, due to the threat of video on demand. They were wrong… we added more than $9B in shareholder value after that point. We placed bets that digital distribution would happen to our 4,000 stores before it happened to homes… we were wrong (it look longer than we guessed, but when it happened it skipped the stores).
The innovation that really hurt us was the new distribution paradigm that moving from Cassette to DVD enabled… namely that the DVD fit in the mail, thus enters NetFlix. It shouldn’t surprise anyone that the DVD by mail business plan was in lots of desk drawers at One Blockbuster Plaza, but it’s a classic case of the innovators dilemma. Who wants to be the guy to burn down 4,000 stores to start a DVD by mail business?
The passing of Blockbuster reminds me that the days of bookstores have to be dated, not necessarily in the short term, but inevitably at some point in the future.
The history of the VHS/DVD rental business was relatively short in the big picture scheme of things, perhaps 25 or 30 years. People felt connected to the movies, but not the delivery system.
Books are different, in that books have existed for centuries. People (such as me) are attached to the books themselves, as well as the words contained within. Yet I can’t tell you the last time one of my kids actually bought a book. This delivery system will pass in time, as well as the wonderful stores that sell them.
BTW, when was the last time you bought an actual CD?
Once a regular visitor to the local video store several times a week, I look back on that as generally a frustrating experience even then.
I gave up on the Hollywood product a long time ago. I never signed up for or have used Netflix either, as there is so little quality entertainment available. I would have been just as frustrated with that as well.
I have used Redbox and appreciate it being there for that rare occasion I might use it in the ultimate fit of boredom.
If there were a book to be written as a case study on Blockbuster, it could easily be entitled “Heads in the Sand to the Bitter End!”
The ones to watch in this arena I believe is Amazon Prime and Hulu, as well as, .tv via the net.
It’s worth noting that in the last period Comcast lost a 400,000 customers as the entire video media delivery market is changing. How the majority of consumers receive whatever is displayed on their ever-growing flat screens, whether that be normal programming, news, thought, or movies, will be completely different in a shorter period of time than we all realize.