
Blockbuster: Losing the plot - ColinCochrane
http://daindunston.com/blockbuster-losing-the-plot/
======
JeremyMorgan
The biggest problem was a complete lack of understanding of the industry
within corporate leadership.

I spent many years in at Hollywood Video corporate in the late 2000s and saw
much of it first hand. Blockbuster didn't understand what was going on and
Hollywood was too busy trying to copy Blockbuster. Neither of them saw Netflix
as a threat until it was too late.

Just as the article mentions, the VCR revolutionized the viewing experience
for Boomers who were used to waiting for something to come on TV. The video
chains experienced insane success, and thought they could ride that formula
out for decades.

Netflix revolutionized movie entertainment for Gen-X and millennials who were
used to and unimpressed by VHS/DVD rental models. The execs at the top
(boomers) ignored the new fangled streaming stuff because they didn't use it,
didn't understand it, and most of all didn't see the value.

The younger of us working at Hollywood saw the writing on the wall in the
early 2000s as Netflix was making it's climb. The even younger folks working
at the stores knew it even better. But none of us could convince anyone at the
top that it was important, until the late 2000s when they made a half assed
attempt to be an "also does" to the then dominant Netflix.

When you're in a fast moving business, you don't bet everything on what's
happening now, you've got to think about what's coming soon...

~~~
mikestew
Though your "biggest problem" might tie in with mine, I saw Blockbuster's
biggest problem being that they didn't realize how much their customer loathed
them. All it took was someone, _anyone_ to come along and offer an alternative
the model of: 1\. Go to a physical store. 2\. Pick out your second or third
tier choice, because all copies of the one you want are gone. 3\. Pray you
don't forget to bring it back on time.

Customers hated them, and it would appear that Blockbuster hated them back.
Maybe it didn't have to be Netflix, but someone was going to come along
eventually and pull off an alternative that has no late fees, always has what
you want, and you don't have to drive there. Could have been Redbox. You still
have to drive there, sometimes the kiosk is out (in which case the web or app
can tell you not to bother to get in the car), but at least if you're late
it's only another dollar.

Blockbuster tried to fake it, but it still came off as the same weaselly
company with the same weaselly fine print ("no late fees" comes to mind).
Hollywood kind of tried, and they seemed a little more sincere, but it was
still the doomed physical model.

~~~
platz
It will be interesting to see how Redbox fares in the next few years.

~~~
jonnathanson
As far as I can tell, Redbox targets a different consumer base from Netflix's.
The majority of Redbox machines are placed outside of Safeways, Walgreens,
Walmarts, 7-Elevens, and so forth. The sort of customer who rents DVDs from
these machines is likely to be of lower socioeconomic status than your typical
Netflix subscriber. He or she may not have a cable subscription, may not have
high-speed internet access [1], and may deem Netflix's monthly fee to be too
expensive. He or she could be a working-class parent, a college student on a
tight budget, or maybe a reasonably affluent professional who, for one reason
or another, doesn't consume enough entertainment to find Netflix worthwhile.
On top of this base, you have a small proportion of ad hoc Redbox usage from
people who happen to stop by, see a movie they can't get on Netflix, and check
it out. And you have a _very_ small proportion of film buffs who prefer the AV
quality of physical media, like Blu-Ray.

Time will tell how long this strategy will work for Redbox. In their favor:
their 36,000 kiosks are placed _directly_ in the footpath of hundreds of
millions of shoppers every week. (Walmart alone sees over 100M shoppers per
week in the US, and 3,700 Walmart stores have Redbox kiosks). Working against
them: broadband penetration, Netflix, Amazon, and the steady transition away
from physical media.

[1] About a quarter of US households do not have high-speed broadband. That
number will shrink over time, obviously, but perhaps not as quickly as we like
to think it will.

~~~
exelius
It's actually more than a quarter depending how you define "high-speed
broadband". A good number of households in the US are on <6mbps ADSL
connections, which realistically aren't fast enough to stream video. Most
statistics I've seen show streaming video penetration is closer to 40% of US
households.

And you're right about adoption: there are a lot of people in the US who just
don't care about the Internet. They will be increasingly less relevant as time
goes on (this is already causing social angst at some levels) but they will
persist. Usually you don't see 100% adoption of things like this until all the
old people die and are replaced in the consumer pool by younger generations
(aka generational cyclicality).

------
cm2012
The second page of the article ([http://daindunston.com/blockbuster-the-
customer-owns-your-pu...](http://daindunston.com/blockbuster-the-customer-
owns-your-purpose/)) paints a fairly convincing picture that Jim Keyes was a
disastrous idiot as CEO that basically wrecked the company, and that Carl
Icahn was an idiot for ousting the previous CEO and installing Keyes. Is there
any evidence to the contrary? It seems so clear cut in the article that I want
to question it.

~~~
ColinCochrane
Some supporting evidence in a letter from Blockbuster's shareholders to the
company when it filed for bankruptcy.

 _" Jim Keyes and all involved will be held accountable for their actions that
led to this today," former shareholder, Niko Celentano, wrote at the time of
the bankruptcy filing. "Jim Keyes and his BOD's have failed all shareholders
in their fiduciary responsibilities due to them. Jim Keyes is the main reason
Blockbuster is in this position today due to his denial of being in a business
model that did not work anymore. If Jim Keyes would have seen the changes that
were evolving in this industry in the past few years, Blockbuster would not
have been in the courts today filing Chapter 11 bk protection.... Jim Keyes
has failed in his job as CEO of Blockbuster and should resign immediately."_

From [http://www.thestreet.com/story/10886236/1/should-
blockbuster...](http://www.thestreet.com/story/10886236/1/should-blockbusters-
ceo-be-replaced.html).

~~~
scintill76
Armchair investor here, but I get the feeling this is a person looking to
blame someone. If it was so obvious that the CEO was incompetent or taking the
wrong strategic path, wouldn't you have some better option than to wait for
bankruptcy, then complain about how you knew it was going down the toilet all
along?

That article, and some other things I skimmed over, allege some more serious
malfeasance, but this quote doesn't say "Jim Keyes has lied to us" or "filed
fraudulent documents with the SEC" or something like that. I don't know much
about fiduciary duty, but this statement doesn't seem to identify specific
ways Jeff Keyes failed to execute the duty. He may have made some bad choices
over "the past few years", but apparently this investor chose not to bail out.
Why shouldn't he share the blame?

------
panzagl
I miss Blockbuster, or at least video rental stores. I'm way past the phase of
life where owning a collection of movies seems like a good idea, and am tired
of companies with their hand in my pocket every month. There was also a sense
of occasion- it was a place to go to, everybody got something they wanted, and
the family was committed to spending a couple hours together afterward.
Browsing the Netflix isn't the same- talk about “managed dissatisfaction"...

~~~
stormbrew
I feel this way about all sorts of shopping now. Online shopping of all sorts
is very different from physical, in-store shopping. Online there is no tactile
element at all, no sense of place and no ability to examine products or be
surprised by what you find. I'm not saying it's necessarily better or worse,
but I do think it results in buying very different things.

The thing I miss most is book shopping. Particularly for technical books. You
can't buy them on any basis but recommendation now because it's not worth it
for any book store to carry them.

~~~
npsimons
It's odd, but I feel almost _exactly_ the opposite to you and GP - I _hate_
shopping. I _hate_ having to drive through traffic, I _hate_ looking for
something for even five minutes and not finding it, and I _hate_ dealing with
people (well, not all people, and hate may be too strong a word, but it
follows the other two).

I am hardly ever surprised by what I order online - on the contrary, I _know_
they have it, and I am almost always guaranteed to have good quality. How many
brick and mortars have even an agregrate rating of their products listed right
next to them? And no brick and mortar can compare with the selection you get
online.

The tactile and "sense of place" seem very subjective, especially when you
consider that 95% of your time with a product will be spent with it away from
where you purchased it.

I'm all for buying locally to keep taxes going to local funding and employing
people in my community, but if I go to a brick and mortar and can't find
something once, in 5 minutes, I'll never buy it in a brick and mortar again.

~~~
stormbrew
When I know exactly what I want I hate shopping, but that's pretty rarely true
for certain classes of things. When I buy books, videos, etc. I want to be
surprised and be able to learn a bit more about it in place. But there is also
the "I have it now" instead of "I have it whenever the delivery man can be
assed to find my apartment and actually deliver it to me" factor even when I
know what I want, and then it's just stores that make it hard for me to buy
something that bother me.

> How many brick and mortars have even an agregrate rating of their products
> listed right next to them?

On this specific point, I have a phone. I don't need (or really want) the
store to have this, I can have it any time I want to. When I'm surprised by
something in a store, unless it's immediately obvious that it's something that
I want and it doesn't suck, there's my phone to tell me if it's a sham.

That said, I went out of my way to point out that I don't think it's better,
just different. So yes, it is subjective.

------
tantalor
> Know what business you are in.

This is the same point Steve Jobs makes in this clip,

[https://www.youtube.com/watch?v=ZBma82g3Uag](https://www.youtube.com/watch?v=ZBma82g3Uag)

------
RankingMember
I think this was more a perfect storm of problems: Netflix coming on the
scene, Blockbuster having terrible customer service/fees, and the wishy-washy
corporate leadership.

~~~
smacktoward
I always get frustrated when I hear people describe a failure as the result of
a "perfect storm," because it lets the people behind the failure off the hook.
"Nothing we could have done! Perfect storm!"

The article cites problems with Blockbuster's management that go all the way
back to 1996, before Netflix even existed. And if anything, it sounds like the
various cadres of corporate leadership weren't "wishy-washy" so much as they
were laser-focused on a single idea -- the one-stop retail "7-11 for the mind"
concept. It's just that the idea they were focused on was terrible.

~~~
rhino369
I'm not sure there was a way forward for Blockbuster. Netflix and Redbox
replaced it's core market with alternatives that were both better and more
efficient by an order of magnitude.

A massive nationwide retail chain can't just pivot like a startup can.
Blockbuster's retail footprint was massive. It had 9,000 stores. Worse, it had
franchise stores which it owed a duty to.

Even if Blockbuster could have had a profitable online rental business, it
would have been brought down by the retail failure. It would have gone
bankrupt anyway.

~~~
defen
Did you read the article? It claims that Blockbuster had Netflix on the ropes
with their "Blockbuster Total Access" thing, which was basically Netflix but
_better_ due to the physical stores and 10x more customers. Then they decided
not to pay the CEO what he was due, he quit, the whole leadership team left,
they brought in a new CEO who was terrible, and they abandoned the Total
Access plan and were bankrupt within 2 years.

~~~
rhino369
Actually I didn't see the next segment button, so thanks for letting me know.

But Total Access isn't the 800 lbs Gorilla that the author believes it to be.
I actually subscribed to total access. It is certainly a cool feature, but I'm
not sure it was very profitable. For essentially the same price as netflix, I
could also get 2-3 instore rentals a month. All for what blockbuster used to
charge for 3-4 rentals total.

But blockbuster could have survived Netflix. What it couldn't survive was
netflix, redbox, and instant streams. Netflix took away the heavy movie fans.
Redbox took aware the family movie night segment. Blockbuster couldn't survive
on 1-1.50 a night, but Redbox could.

~~~
lurkinggrue
When Total Access came out I remember Blockbuster still had a death stench on
it.

------
GotAnyMegadeth
Took me a few seconds to realise that the article meant USA pissed and not UK
pissed

~~~
itsathrowaway
What is the UK definition?

~~~
rmc
Incredibly drunk.

------
spb
It seems to me there are two components involved in being a successful
disruptor:

1\. Be competent at what you do. 2\. Have your main competitor be grossly
incompetent.

What this article and its successor indicate is that Netflix satisfied both of
these criteria: when, in 2007, Blockbuster had a fairly sensible Netflix-style
plan in place, Carl Icahn instated a new CEO who chose to completely demolish
it. Had Blockbuster not done this, it's entirely possible Netflix would have
not have had room to grow (as Lyft experienced after Uber launched UberX to
muscle out Lyft's not-just-black-car model).

I feel that Hacker Newsies get a little wrapped up in the party line of
libertarian economics being the ultimate meritocracy, ignoring that capitalism
is essentially just an oligopoly with the meritocratic potential to fail only
in the case of gross incompetence (which, incidentally and curiously in
practice, happens on a fairly regular basis).

Also, I feel things will work better as we try to structure things in a way
that disabuses ourselves of the notion that things are working the way they
should. Companies still ask questions in the hiring process under the pretext
that their employees should want to perpetuate their current operating
procedure. Admitting that things are broken, even slightly, leads to smart,
sensible people being cast aside, in favor of those who will blindly go down
with the ship. This teaches the workforce to be more lemming-like, in order to
be hireable.

------
Animats
Even if Blockbuster management had done everything right in the stores, the
stores would still be dead. The _entire video rental store industry_ is gone
in the US.

~~~
tantalor
It doesn't matter what happens to the stores. Their business was
entertainment, not stores.

Netflix understood this, and that's why their revenue from streaming is >10x
that of the rental side.
[http://ir.netflix.com/results.cfm](http://ir.netflix.com/results.cfm)

------
bit_by_bit
I'm surprised they made no mention of how Netflix had an important role in the
demise of Blockbuster.

~~~
chrisbolt
Read the next page: [http://daindunston.com/blockbuster-the-customer-owns-
your-pu...](http://daindunston.com/blockbuster-the-customer-owns-your-
purpose/)

~~~
jobu
Thanks! I didn't even notice the link at the bottom. The second page is about
Blockbuster struggling to turn it around, and is actually more interesting
than the first.

*Interesting side-note: This is the third article I've read today that mentioned Carl Icahn. That guy has his fingers in everything!

------
smrtinsert
I don't miss Blockbuster as much as I miss Tower Records. For a music and book
fan it was a true community center. The only problem is that I would
inevitably end the book store tour at Borders so I guess too many retailers
was a common thread those days.

