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...
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.
I would say the problems Blockbuster had mirrored the problems the author of the article implied, but for different reasons.
Retailers think of technology as a pure cost center: The products on their shelves are what the customers want; having the physical location and the right products in your inventory are enough. Technology is for operational things like cash registers and warehouse systems, and you don't upgrade any of them before your business plan says so.
Entertainment companies have to think differently about technology. Their product is intellectual property, and as technology evolves, so do the way customers interact with their product. This is nothing new - entertainment companies have had to adapt to FM radio, broadcast TV, color TV, cable TV, HD video, VHS, DVD, etc. But distribution has always been tightly controlled, and technology is a key component of this. So entertainment companies in general are pretty forward-looking in a technology sense - at least moreso than retailers.
In retail, the general customer interaction hasn't changed in a long time (or rather, in 1998 it hadn't changed fundamentally since the advent of credit cards). So the thought that technology could revolutionize the customer experience hadn't even crossed their minds. They had DVDs and VHS tapes - physical goods that they sold. But the product in entertainment is NOT physical, it's the intellectual property: and the retail guys never understood that. Once the consumers realized that, it was game over, man.
Realistically, there was probably very little Blockbuster could have done to challenge Netflix. Netflix was lean and able to move fast - Blockbuster was tied to an aging and slow-moving brick and mortar retail business. Even if Blockbuster had tried to close all their stores and move to a Netflix model, it's ridiculously hard for a large company to disrupt itself. Politically, you'll have a lot of resistance from within and meddling by the "old guard" to make sure the new "disruptive" product isn't going to be good enough to make them obsolete. There is also just a lot of capital overhead involved in running a retail business - obstacles that Netflix didn't have.
> Realistically, there was probably very little Blockbuster could have done to challenge Netflix.
I disagree completely. There's nothing that would have prevented BlockBuster from doing a few really great things:
1. Get customers email address and email them the day before the day of and every day thereafter a DVD is due with options to renew the rental at some kind of reduced rate right in the email, as well as perhaps some kind of option to buy.
2. Implement a "lottery" system. Blockbuster doesn't hold on to inventory forever, so eventually they sell off old rentals. Occasionally give them away. Give them away at a rate which is high enough to keep people renting, but low enough to not decimate profits. Maybe 1:50 or so? And only movies that are getting sold off anyhow. Some people might "game" this system, but they're renting to do so!
3. Make suggestions. BB had my entire friggin rental history for a couple of years and not once did they recommend anything to me that I might like. Could they have thrown in the occasional suggested rental for free with some other rental I was making? Sure. Even better if it was the first disc of the first season of a TV show; I'd be back for all the rest of the discs of all the rest of the seasons.
These all would have required hiring a CXO (customer experience officer) and giving them a lot of budget and authority to do things which seem like they'd hurt the bottom line for the sake of keeping the company afloat. Would it have worked for sure? Maybe, maybe not. But they would have had a better chance of keeping everything afloat.
Trying to sell me overpriced popcorn and whatever was a total joke; I can get that stuff much, much cheaper at the grocery store. Blockbuster isn't a movie theater than can charge outrageous premiums because customers are trapped once they're on the premises.
But Blockbuster didn't do anything to try and turn their ubiquity and huge collection of data into competitive advantage. So they failed.
If you watch only a few movies a month, Redbox is more economic than Netflix. If you only watch two movies per month, paying $3-$4 at Blockbuster is on par with Netflix.
Sure Netflix economics are great if you already have broadband, have stopped paying for cable TV, and you hate driving to the places where Redbox has kiosks. But if any of those conditions aren't met, Netflix doesn't look quite as genius.
Redbox "proves" that there is still demand for physical media rentals. Blockbuster had a kiosk at my local grocery store for a while and that meant I could return a movie or rent a new one every trip if I so desired at something like $1.50 a pop. That was pretty compelling.
Even more compelling would have been a store with a couple of people who really knew movies and could recommend things and with a deep, deep back catalog. Cutting the customer-facing square footage in half would allow each and every store to pack damn near every movie ever made in. Yeah it might take a guy a minute or three to head to the back and pull the movie you're looking for, but it could be done.
The ownership of the movies is a model that Netflix SORELY wishes they had at the moment. Netflix is publicly traded. And because they're publicly traded it means they have to file financials. And filing financials means a profit & loss kind of statement. And because Netflix doesn't actually OWN much IP, it means they have to rent or lease it. And that means the studios which own the IP that Netflix desperately needs to stay in business are perfectly informed of Netflix's financials. So they know just how much they can squeeze Netflix for every time a contract negotiation comes up.
Blockbuster would not be in the same position because they would own the catalog. Purchases are expensive, but over any 20 year period they might be cheaper than renting.
It's interesting you say that. The very next article on the linked blog talks about Blockbuster Total Access (where you could rent online or in stores) taking a million customers a year from Netflix in 2007. Investor Carl Icahn ended up forcing out the CEO who championed Total Access and the new guy sold the membership list to Netflix for $1.4 billion. Streaming might have still catapulted Netflix past Blockbuster, but it would have been much tougher to sign all those content deals without the steady cash flow from DVD's.
Now it looks like Netflix was inevitable, but it took a few huge blunders by other companies for them to succeed. Remember when Starz basically gave away the rights to thousands of shows and movies (for $30 million/year)? We could just as likely be talking about Viacom Streaming and all those silly things that Netflix did.
Agreed. Everyone here saying that nothing could have stopped Netflix from triumphing needs to go read the second article you mention. According to it, seeing Blockbuster's demise as inevitable is a fiction born of hindsight.
Agreed, BB did not have a rabid fanbase, because of the 2 way loathing you speak of.
Hollywood Video may have been following BB in many ways, but had the opposite attitude toward customer service. In fact that was the differentiator they counted on. Treat people good and they'll always want to come in. Hollywood never stopped treating people good, but people stopped coming in.
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.
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).
Redbox will be fine, at least for as long as physical media hangs on. It's a different use case - an impulse buy for the less technologically adept. As technology adoption of streaming video solutions reaches saturation though, I can see Redbox fading away.
It won't be a spectacular implosion like Blockbuster because they have the benefit of low capital overhead: those kiosks aren't that expensive and the DVDs themselves are basically free (AFAIK Redbox prints copies of them as-needed in exchange for a share of rental revenue to the copyright owners). So they can keep running them as long as the rental revenue covers the maintenance and re-stocking of the kiosks. The kiosks aren't even using valuable real-estate: if you got rid of a Redbox kiosk, I don't know there's anything else you could really put there that would generate a lot of money.
I'm not sure where you mean Redbox prints DVDs. They don't do it in the machine, as popular titles can be "sold out". It was over a week before I could find that last Captain America movie at my nearest Redbox.
No; they print them at their warehouses on an as-needed basis. DVDs get destroyed and lost easily, and they don't cost much to print. Individual machines will still run out if they're not restocked, though.
If it's true, they probably use a system similar to library ebook loans. They have a certain number of licences that can run out, even though there's no technical reason for it. I don't know why copyright owners would do it with Redbox since they get money for each loan.
Yeah, it will. I still use Redbox when they have what they want if I want it in Blu-Ray. iTunes' HD is pretty good, but it's no match for physical media even on my ancient 42" 720p plasma. But I don't know that grabbing a dollar from my wallet once a month is a sustainable business model.
Redbox is giving streaming a whirl, but frankly when I saw Verizon's name attached to it I didn't even bother.
> 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.
> 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...
I work at a telco where the upper management still genuinely believe fax machines are great and we should be increasing the number of copper land lines to homes.
Heh heh. I work for a mobile company that still thinks it's going to soak its customers for things like driving directions and ring tones. As an employee I get all the company apps for free and I still don't use them because they're not as good as what I can get from google for free.
And then there's text messaging. How long did they really think they were going to be able to charge $0.20 for something their customers can do for free?
> How long did they really think they were going to be able to charge $0.20 for something their customers can do for free?
It is worse than that. When people tell others their preferred way of being contacted they will take convenience and pricing into account. The SMS charges mean they'll prefer other means (eg Facebook messages) which makes their phone number and service less and less relevant. It was a great way of forcing customers to go elsewhere.
It's taken years for Netflix to figure out how to stand in the wind. Even then, there are titles that are simply not available as streaming. Behind that is the First Sale issue, convoluted as it is - my understanding is that one effect of First Sale is that Netflix limits what it will stream.
I can't imagine Hollywood trying to emulate Blockbuster. Hollywood was actually a decent store. I could find something at Hollywood; I counted and the last 12 times I went to Blockbuster, after 30 minutes of scouring the store ... nothing.
Blockbuster had $1B in debt against estimated $500M in revenue in 2010. I can't help but think that like ClearChannel, Fender Musical Instrument Corp/Guitar Center all that debt is a big problem.
SFAIK, there are still a lot of Redbox out there, and the ones I see are always busy.
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...