Blockbuster: Losing the plot

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!

RankingMember• 12 years ago

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• 12 years ago

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.

cm20122• 12 years ago

The amazing part is that they had a CEO who really understood that and turned Blockbuster around, who was then ousted for stupid political reasons by Icahn and replaced with a fool.

rhino3692• 12 years ago

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.

Nelson69• 12 years ago

There was no perfect storm for Blockbuster...

They were competitive enough to wipe-out the mom and pop movie rental places that were common before them, but that was about it. They created a monopoly of sorts and then they milked it. The market was hungry for replacement.

It was a long time ago so some of the details are out of focus in my mind, but the one constant I can remember throughout the 6-9 year time span where by my family and I patronized Blockbuster video (wow, like 20 years ago) was that it was quite a bit more pricey than the independent stores we went to before BB crushed them. I know for fact that the local grocer has a video section and charged $1 a video, I want to say Blockbuster charged $4-$5, like in 1992 to 1995, very nearly as much as a movie ticket of the day cost. I'm sure people can tell tons of stories about how terrible they were but it wasn't a great experience and they charged a lot for it.

If you were a real cinemaphile type too, they had what looked like a large collection, but it wasn't as large as it looked, they sometimes had censored versions of movies.

cm20122• 12 years ago

The second page of the article (http://daindunston.com/blockbuster-the-customer-owns-your-pu...) 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.

ColinCochrane2• 12 years ago

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....

scintill76• 12 years ago

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?

jessaustin• 12 years ago

That painted Keyes as a latter-day Howard Hughes, never leaving his airplane hangar and letting his toenails grow out. Surely no one was surprised when the executives quit? Those toenails are gross! b^)

Seriously though, there seem to be some psychological irregularities in Keyes's behavior. He spends 21 years at 7-11, working his way up to President and CEO, and then he can't enjoy retiring with his millions? Well that's OK, lots of dudes in that position find it interesting to serve on boards or as high-priced consultants. Instead, he bribes a meddlesome private equity guy like Icahn into leadership of a company that was largely built by a former rival exec at 7-11? Jealous much? Usually private equity has to pay a premium to execs, because they're such a pain to work for. (Alternatively, because they disrupt much of the back-scratching pretense at corporate governance seen at publicly traded firms.) This guy must have had the mother of all mid-life crises.

JeremyMorgan2• 12 years ago

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...

mikestew2• 12 years ago

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.

platz2• 12 years ago

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

exelius4• 12 years ago

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.

JeremyMorgan2• 12 years ago

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.

grecy• 12 years ago

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.

Those two statements rang very, very true for me.

tsotha• 12 years ago

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?

ArkyBeagle• 12 years ago

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.

panzagl• 12 years ago

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"...

stormbrew2• 12 years ago

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• 12 years ago

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.

mirkules• 12 years ago

I feel the same about certain things, like video or music stores. It was kind of an event in and of itself to get up and go somewhere, maybe with friends or significant others. You could potentially meet new people, discuss movies or music with a total stranger.

"Honey, what do you want to watch?"

Before Netflix: "let's go to the store, see what we could find. Let's stop on the way, get some ice cream." Invariably you also run into someone you know on the way.

After Netflix: "I dunno, just pick something."

I'm not saying I miss Blockbuster or I under-appreciate the convenience of Netflix. I just miss that tiny sense of adventure.

nerfhammer• 12 years ago

In Australia video rental stores are still relatively popular, and people generally cite reasons similar to those you articulate

qzervaas• 12 years ago

Our Internet is also piss-poor, so streaming generally is not an option.

prawn2• 12 years ago

I'm in Adelaide and the two stores near me have disappeared and maybe one person that I know out of dozens and dozens would ever hire a DVD.

GP comment does resonate with me though; it's kind of sad that we've lost that. It's likely caused by having a single browsing device/screen.

lurkinggrue2• 12 years ago

I just data horde as I got sick of how much wasn't available or would just disappear at the whim of an executive.

Hey did you plan on watching Galactica? Sike!

smrtinsert• 12 years ago

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.

Animats• 12 years ago

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.

JoeAltmaier• 12 years ago

Huh. And here we just had one open up near me, doing great too. They rent videos, make pizza, sell pop. One-stop shopping! Lots of folks I know use it.

tantalor2• 12 years ago

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

spb• 12 years ago

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.

Blockbuster: Losing the plot

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