blockbuster innovation case study

Digital Innovation and Transformation

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Blockbuster: It’s Failure and Lessons to Digital Transformers

Blockbuster, a wildly successful national movie-rental chain, filed for bankruptcy 6 years after achieving $6 billion dollars in revenue. Why did this happen and what lessons can we learn from it?

As a teenager growing up in America in the late 1990s/early 2000s, I was a frequent customer of Blockbuster – the largest movie rental retail chain with a strong brand and stores across the country. Its revenues impressively climbed to around $6 billion dollars in 2004 only to suffer a crashing descent into bankruptcy in 2010. [1] The reasons behind this failure reveal valuable lessons to future digital transformers and business leaders. I will first summarize the original business model in terms of value creation and value capture and then will offer an analysis of its failure with accompanying lessons.

Business Model

Value Creation

Blockbuster movie rental retail stores offered a wide selection of movies, but focused mainly on new releases. It’s 9,000 stores allowed customers to easily walk through aisles of movies advertised with their DVD cases in order to make a selection. [2] It built a strong brand with 100% recognition and attempted to offer a customer-friendly experience with movie popcorn, candy, and snacks also available for purchase. [3]

Pathways to a Just Digital Future

Value Capture

Blockbuster captured value by owning physical copies of movies that could be rented enough times to exceed the cost of purchasing. It cost from $2-$5 typically to rent a film, new releases commanding higher prices than old films. Each time a customer rented a movie, they agreed to a time and day for return. Late fees, which comprised an estimated 70% of profits, were added to a customer’s account if they did not meet the return deadline. [3]

Why it failed?

After synthesizing analyses on its unraveling, I think these things most contributed to the failure:

• They were making a lot of money : While Netflix was just beginning its DVD-by-mail service and later its streaming/online service, Blockbuster was still earning billions of dollars in revenue using its current model. Additionally, the margins and markets for these new offerings did not appear as attractive as its established model. [3] Why even pay attention to these new ideas if the markets are small and the margins slim?
• Changing competitive landscape: Blockbuster was challenged not only by the startup Netflix, but also eventually by powerful technology companies (Apple and Amazon) and cable companies with streaming and video-on-demand services. It struggled to compete against both, especially when it was late to the game (see number 4 below).
• Operating model implications: Pursuing a new business model with either a DVD-by-mail or streaming/online service required the current operating model to change significantly as Blockbuster would need to shift from its brick-and-mortar approach with retail stores to an entirely new way of functioning that was unknown. This only further encouraged Blockbuster to continue focusing on where it was still earning profit.
• Failure to recognize timing: Blockbuster actually responded to all of its perceived competitive threats with similar models, but it was too late. It eventually tried a DVD-by-mail service, rental kiosks similar to Redbox, and put up its own website for online streaming after acquiring a smaller player in the field. [4] While Blockbuster’s CEO from 2007-2011, Jim Keyes, recognized that his organization was behind the curve in DVD-by-mail and kiosk services, he thought that they were not late to the streaming/online service world, and confidently stated that Blockbuster could leverage its strong brand to win:

http://www.nbcnews.com/video/cnbc/35710480#35710480

In this industry, changes occur rapidly, and Blockbuster was left in the dust.

Lessons learned

Blockbuster’s demise offers many lessons. Here are some of the salient ones to me:

• Currently unattractive opportunities can become very attractive opportunities in our changing world.
• Current success is easily distracting and can blur vision when considering new opportunities or threats.
• Transformation can happen very quickly, and if you miss it, it can be very unforgiving.
• Brand strength and/or past successes are not enough to compete against new digital transformers.
• It didn’t have to end this way – Blockbuster had a chance to purchase Netflix for $50 million  [5] and could have identified the streaming/online trend much earlier.

[1]  https://dealbook.nytimes.com/2010/09/23/blockbuster-files-for-bankruptcy/?_r=0

[2]  http://www.ibtimes.com/sad-end-blockbuster-video-onetime-5-billion-company-being-liquidated-competition-1496962

[3]  http://hbswk.hbs.edu/item/clayton-christensens-how-will-you-measure-your-life

[4]  http://www.nytimes.com/2007/08/09/business/09movie.html

[5]  http://www.businessinsider.com/blockbuster-ceo-passed-up-chance-to-buy-netflix-for-50-million-2015-7

Image sources:

https://www.linkedin.com/pulse/4-lessons-from-blockbuster-failure-david-reiss

http://go-digital.net/blog/wp-content/uploads/2011/02/netflix-vs-blockbuster-revenues.gif

http://mentalfloss.com/article/77285/11-secrets-former-blockbuster-employees

https://qz.com/144372/a-brief-illustrated-history-of-blockbuster-which-is-closing-the-last-of-its-us-stores/

Student comments on Blockbuster: It’s Failure and Lessons to Digital Transformers

Nicely summarized the battle between Blockbuster and Netflix Tyler! I agree to your assessment that in today’s dynamic digital age past success is no guarantee for future successes for established companies. Based on the Blockbuster-Netflix saga and other similar happenings in different industries what do you think can the big players do or adopt as a strategy to keep themselves from becoming irrelevant (since the new digital business model seems unlucrative to them in its infancy)?

• May 2, 2019 User deleted this comment on May 8, 2019

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More From Forbes

A look back at why blockbuster really failed and why it didn't have to.

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In 2000, Reed Hastings , the founder of a fledgling company called Netflix, flew to Dallas to propose a partnership to Blockbuster CEO John Antioco and his team.  The idea was that Netflix would run Blockbuster’s brand online and Antioco’s firm would promote Netflix in its stores.  Hastings got laughed out of the room.

We all know what happened next.  Blockbuster went bankrupt in 2010 and Netflix is now a $28 billion dollar company, about ten times what Blockbuster was worth.  Today, Hastings is widely hailed as a genius and Antioco is considered a fool. Yet that is far too facile an explanation.

Antioco was, in fact, a very competent executive—many considered him a retail genius—with a long history of success.  Yet for all his operational acumen, he failed to see that networks of unseen connections would bring about his downfall.  Over the past 15 years, scientists have learned much about how these networks function and how his fate could have been avoided.

A Social Epidemi c

When Hastings flew to Dallas and proposed his deal in 2000, Blockbuster sat atop the video rental industry.  With thousands of retail locations, millions of customers, massive marketing budgets and efficient operations, it dominated the competition.  So it’s not surprising that Antioco and his team balked at simply handing over the brand they had worked hard to build.

Yet Blockbuster’s model had a weakness that wasn’t clear at the time.  It earned an enormous amount of money by charging its customers late fees, which had become an important part of Blockbuster’s revenue model.  The ugly truth—and the company’s achilles heel—was that the company’s profits were highly dependent on penalizing its patrons.

At the same time, Netflix had certain advantages.  By eschewing retail locations, it lowered costs and could afford to offer its customers far greater variety.  Instead of charging to rent videos, it offered subscriptions, which made annoying late fees unnecessary.  Customers could watch a video for as long as they wanted or return it and get a new one.

Netflix proved to be a very disruptive innovation , because Blockbuster would have to alter its business model—and damage its profitability—in order to compete with the startup.  Despite being a small, niche service at the time, it had the potential to upend Blockbuster’s well oiled machine.

The Threshold Model

While Netflix’s model clearly had some compelling aspects, it also had some obvious disadvantages.  Without retail locations, it was hard for people to find it.  Moreover, because its customers received their videos by mail, the service was somewhat slow and cumbersome.  People couldn’t just pick up a movie for the night on their way home.

Still, customers loved the service and told their friends.  Some were reluctant at first, they actually liked being able to browse movies at the store and pick one up at a moments notice, but others jumped right in.  And as more of their friends raved about Netflix, the laggards tried it too, fell in love with it and convinced people they knew to give it a shot.

Network scientists call this the threshold model of collective behavior .  For any given idea, there are going to be people with varying levels of resistance.  As those who are more willing begin to adopt the new concept, the more resistant ones become more likely to join in.  Under the right conditions, a viral cascade can ensue.

The best way to understand thresholds is to look at the diffusion of ideas model formulated by Everett Rogers in the 1960’s.

While ideas usually take hold in small niches of innovators, they can often spread to early adopters, who are only slightly more resistant to join in.  Once they’re on board, those in the early majority begin to feel comfortable giving it a try.  As each threshold is past, the next group becomes more likely to adopt the new idea.  That’s how disruption happens .

Unfortunately, this effect is devilishly hard to quantify.   Duncan Watts , a pioneer in network theory, is quick to point out that social dynamics tend to be idiosyncratic and it’s not always clear exactly where thresholds exist.  Still, you can use conventional marketing analysis to evaluate whether an idea is spreading to new groups or just growing within a niche.

It is not clear whether Antioco’s team did such an analysis or not, but by 2004—six years before the company went bankrupt—he sensed that Netflix had become a significant threat and sought to change his firm’s policies.  Yet how he went about doing that sealed his, and ultimately Blockbuster’s, fate.

A Different Network Altogether

Once John Antioco became convinced that Netflix, and to a lesser extent Redbox , was a threat, he used his authority as CEO—as well as the credibility he had earned by nearly doubling Blockbuster’s revenues during his tenure—to discontinue the late fees that annoyed customers and invest heavily into a digital platform to ensure the brand’s future.

Antioco’s article in Harvard Business Review describes what happened next.  While he convinced the board to back his plan, one of his lieutenants, Jim Keyes , led a rear guard action.  He pointed out that the costs of Antioco’s changes — about $200 million to drop late fees and another $200 million to launch Blockbuster Online—were damaging profitability.

Eventually, an activist investor, Carl Icahn , began to question Antioco’s leadership.  Antioco lost the board’s confidence and was fired over a compensation dispute in 2005.  Keyes was named CEO and immediately reversed Antioco’s changes in order to increase profitability.  Blockbuster went bankrupt five years later.

Icahn would later write:

Keyes felt the company couldn’t afford to keep losing so much money, so we pulled the plug. To this day I don’t know what would have happened if we’d avoided the big blowup over Antioco’s bonus and he’d continued growing Total Access. Things might have turned out differently.

So the inability to understand the networks that would determine his fate struck John Antioco twice.  First, he failed to realize how quickly a niche idea could snowball into a viral cascade.  Second, he failed to construct a network that could carry his ideas of change throughout his own organization.

Strategy In A Networked World

For all the excitement surrounding online social platforms such as Facebook and Twitter, we really haven’t scratched the surface on the networks we encounter in real life: The networks of consumers that make up our brands and industries as well as the organizational networks that determine how things get done—or don’t get done—in our enterprises.

And it’s imperative that we start thinking about them more seriously.  We need to stop acting as if there is a recipe for business—like a cake or a casserole—and start thinking in terms of how factors are connected .  The structure of those unseen connections, their context and how they relate to our objectives increasingly makes the difference between success and failure.

Unfortunately, there are no definitive answers.  As Duncan Watts told me, “You have to test and learn as you’re going along, but if you understand how networks work and are willing to invest resources into researching the ones that affect your business, you can significantly improve decision making.”

Watts points to recent research done at Facebook as an example how a well designed study can reveal much about how influence spreads through networks.  He also notes that that digital trails left by emails and electronic calendars can be very useful for mapping organizational networks.  Fortunately, we have far more tools today than Antioco did then.

The irony is that Blockbuster failed because its leadership had built a well-oiled operational machine.  It was a very tight network that could execute with extreme efficiency, but poorly suited to let in new information.  Antioco’s fatal flaw wasn’t one of intelligence or capability, but a failure to understand the networks that would determine his fate.

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Lessons From a Blockbuster Failure

A few months ago, Blockbuster announced that it will close all of its remaining U.S. stores, about 300 of them. This has been a long time in the making, and there is still a lot you can learn from it.

Prior to Netflix, Blockbuster thrived on its use of “bad profits.” Bad profits, a term from Fred Reichheld’s book, The Ultimate Question , which introduced the concept of the Net Promoter Score (NPS) , are a highly disruptive source of negative word of mouth. Blockbuster’s bad profits were, of course, late fees. Everyone I know who was a Blockbuster customer, including me and my wife, hated late fees. You knew Blockbuster “got you,” and you felt that you only had yourself to blame because you were the one who was late returning the rental video. Sometimes, you would plead for mercy with the store associate. Late fees eventually became the primary source of Blockbuster’s profits.

“Thank goodness for Net Promoter.” —Brad Smith, CEO of Intuit

Anytime bad profits are your primary source of profits, you are due for a hard knock. That knock came from Netflix. Their original ad campaign, “The end of late fees,” was pretty much all they needed to say. Their business model was designed very differently, leveraging the Internet and network economic effects—a nod to another favorite book, Net Gain by John Hagel III . When Netflix proclaimed the end of late fees, word of mouth took care of the rest.

This is why NPS has become so important to companies as a way to measure their most important external stakeholders—their customers. NPS is used by thousands of companies, including many Fortune 500 companies. Brad Smith, CEO of Intuit, said, “Thank goodness for Net Promoter. It provided a framework for thinking about—and managing—in this social media world … our teams call it the love metric.” Tony Hsieh, CEO of Zappos, said, “We use NPS every day to make sure we are wowing customers and employees.”

I wrote a four-part series on the Bazaarvoice blog about what could be learned from the Netflix versus Blockbuster battle. My goal for writing this was to move our industry, still a very nascent one today, to think hard about the power of word of mouth. This eventually led to our mission statement: “changing the world, one authentic conversation at a time.” We saw companies change the way they operate based on the customer data and insights that they were accumulating as a result of deploying Bazaarvoice.

There is a lot to be learned here, and there is no doubt that books like Clayton Christensen’s The Innovator’s Dilemma help all of us think about steering clear of bad profits, lest we be vulnerable to someone like Netflix coming along and disrupting our business model, in this case to Blockbuster’s ultimate extinction. Blockbuster used to have 8,500 stores located in 29 countries, and was worth $5 billion at one point. But the company was addicted to bad profits, and it was caught in the downward spiral that only The Innovator’s Dilemma can best explain. What could Blockbuster have done differently? A lot—and it is best explained in Christensen’s follow-up book, The Innovator’s Solution .

Have you or the company you worked for used bad profits before? What happened as a result? Did you or your employer have the courage to change in the gut-wrenching way that books like The Innovator’s Solution detail?

Tell me below in the comments section.

Editor’s note: For further background on Brett’s views on the Blockbuster decline, read his blog series:

Feb. 2006: Bad Profits and the Incredible Power of Word of Mouth

Dec. 2006: Netflix vs. Blockbuster: Round Two

Jan. 2007: Netflix vs. Blockbuster: Round Three

Mar. 2009: Netflix vs. Blockbuster: Round Four (Lights Out?)

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Blockbuster Failure! Ignoring Innovation is Not a Strategy.

This case study looks at Blockbuster Inc. at the turn of 2005 shortly after it separated from media giant Viacom and examines what steps may have saved the company, specifically whether or not then Chief Executive Officer John Antioco should have stepped down or forced out.

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Innovation Blog

When failure to innovate becomes a blockbuster problem (and the netflix inverse).

• Published on: August 28, 2020
• Author: masschallenge

In Recode’s Land of the Giants podcast, an early episode covers a popular case study of contrasting businesses. Infamous to a degree, the details of the rise of Netflix to digital dominance and the spectacular fall of Blockbuster as both a brand and service presents remarkable lessons for innovation teams, both corporate and startup alike.

The timeline specifically provides the most salient takeaways of how Netflix continually pushed innovation at every chance and how Blockbuster dismissed an agile, adaptive mindsight even with multiple opportunities. And this was no small business. At its peak, Blockbuster had $6B in revenue and more than 9,000 stores world-wide.

Now they have only one. It’s in Bend, Oregon.

Source: voanews.com

This post will layout the key dates of the Netflix/ Blockbuster history, and then look to other examples for how to apply this information to the general economic uncertainty for innovation in 2020.

The Netflix/ Blockbuster timeline

1997: netflix was founded..

While it seems strange to think, Netflix is almost a 25-year-old company. The main motivator for creating the company was that the technology of DVDs was much easier to store and mail than VHS tapes.

Netflix founder Reed Hastings saw an opportunity similar to early Amazon with bookselling. Netflix offered an easy, browsable experience that included the renter not needing to go to a brick and mortar, and most importantly, no late fees. Out of all its shortcomings, Blockbuster customers hated late fees the most, though they made up, at one time, 70% of Blockbusters profit.

2000: Netflix was for sale.

Right around the dot com bust, Netflix offered the company to Blockbuster for $50M, really not an extravagant cost for a $6B revenue business. However, Blockbuster felt unthreatened and declined the sale.

Netflix decided to double down on their strength, delivering a wide variety of titles to people fast and simply.

2004: Blockbuster starts an online delivery service.

A full seven years after Netflix began, Blockbuster launched their online service that looked to duplicate, almost exactly, the Netflix experience. They have one upper hand – brand recognition. So with a huge Superbowl ad, they gain a million subscribers in nine months. It took Netflix five years to gain that many subscribers.

2005: Blockbuster tries to corner the market.

To try and win the market, Blockbuster took away late fees, and also offered in-store returns with immediate new rental for online subscribers. They were losing about $2 every time someone returned their mail rental to a store, but it was working. Netflix started to lose subscribers.

Takeaway: They largest takeaway from this tactic is that Blockbuster was actively RESPONDING to Netflix. They were not particularly at all interested in actually INNOVATING for the market place, or at all for its customers.

2006: Netflix innovates, again.

With a subscription war, Netflix begins to offer online streaming of their content. Blockbuster does not have this capability.

2008: Recession.

Lack of financial regulatory oversight leads to a global economic recession.

Blockbuster faces problems with repaying debt they’ve accrued, hindering their strategy to drive Netflix out of business. Retrospectively, Hastings, Netflix’s CEO, admits that had Blockbuster not had problems with debt, they would have won the subscription battle, and drove Netflix out of business.

2009: More innovating from Netflix.

Netflix offers a  $1,000,000 prize for the contest of who can write a better algorithm for their video suggesting technology.

Takeaway: Even in a recession, Netflix pushed for continuous innovation.

2010: Blockbuster filed for bankruptcy.

The beginning of the end.

2013: Netflix started providing original content.

With competitors diminishing, Netflix continued forward with their own original content, allowing them to own more of the rights of what they offer on their platform and to their customers.

2016: Netflix jumps into feature films.

Netflix starts producing feature films that have wide theatrical release in international cinemas. This allows them to be considered for film awards and start to disrupt large feature studios.

2019: Netflix purchased their own cinema.

Netflix takes over the lease for The Paris theater , a 71 year old cinema in Manhattan. This allows an all-Netflix all the time physical cinema.

Innovation Is Constant

As noted above, the two biggest takeaways from this time of two different companies is:

• Blockbuster: Failure to think forward and responding to the competition instead of proactively leading the market.
• Netflix: a persistence to be agile and always be evolving – leading the market.

A further important note about Netflix is that even over the span of two different economic recissions in 2001 and in 2008, they pushed forward with innovation instead of acting conservatively. Had Blockbuster been more open to market evolution and the roles new startups can serve to help an established corporation, they would have purchased Netflix, and perhaps even allowed them to drive their online presence.

As 2020 continues forward in an economic nightmare, innovation needs to be top of mind for both startups and corporations alike.

We wrote two different pieces recently about corporate innovation with startups and startup accelerators, and particularly how corporations need to invest hard into innovation right now, during economic recessions.

7 Ways Corporations Benefit From Startup Accelerators

In Recessions, Investing in Innovation is Essential

Two Concluding Examples

In addition to the saga of Netflix and Blockbuster, there are many other examples of established companies failing to innovate, however the two below, one big and one small, are good food for thought.

Apple did something gigantic in 2001, which extraordinarily reshaped their identity.

From the Huffington Post :

“While Apple actually got its start in 1975, the Apple we know today largely came of age… by the middle of 2001. The dot-com bubble had burst – leaving a sour taste in the mouths of many when it came to anything involving newfangled technology. That didn’t stop Apple’s Steve Jobs from commissioning a team of engineers to whip up a prototype for a new personal music player, a gadget later dubbed the iPod.”

Oracle and Ksplice

It doesn’t even have to be that big and flashy as monoliths. A smaller example that comes to mind is in 2010, when Ksplice , a startup that eliminated rebooting for system updates, fresh off of winning $100k at the MassChallenge awards, was quickly bought by Oracle. Even in low economic times, Oracle remained invested in innovation.

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The Rise and Fall of Blockbuster: A Cautionary Tale in Digital Transformation

In a world where digital transformation is reshaping industries, the story of Blockbuster serves as a cautionary tale. Once a giant in the entertainment sector, Blockbuster's failure to adapt to technological advancements led to its downfall. This comprehensive blog post explores the rise and fall of Blockbuster, contrasting it with Netflix—a company that not only adapted to change but also became a disruptor. From the importance of staying ahead of tech trends to the key lessons businesses can learn from Blockbuster's mistakes, this article is a must-read for anyone looking to succeed in today's digital landscape. Don't just witness change; be the change. Read on to find out how you can avoid the pitfalls of digital stagnation and position your business for success in the digital age.

Introduction

The blockbuster phenomenon.

In the late '80s and throughout the '90s, Blockbuster was the undisputed king of home entertainment. With its iconic blue and yellow signage, the video rental giant became a cultural cornerstone, a place where families and friends gathered to pick out films for movie nights, and gamers went to rent the latest releases. At its peak, Blockbuster boasted over 9,000 stores worldwide and raked in billions in revenue. The company's business model was simple yet effective: offer a wide variety of movies and video games for rent at affordable prices, all while capitalizing on late fees that contributed significantly to its bottom line.

The Crux of the Matter

But as the saying goes, "All good things must come to an end." Blockbuster's downfall wasn't just a result of bad luck or poor management; it was a failure to adapt to a rapidly changing digital landscape. While competitors like Netflix were quick to pivot and embrace the digital revolution, Blockbuster clung to its old ways, ultimately leading to its demise.

The Objective of This Article

The purpose of this article is twofold. First, we'll take a nostalgic trip down memory lane to explore the rise of Blockbuster and how it became a household name. But more importantly, we'll dissect the critical errors that led to its downfall, focusing on its inability to adapt to digital transformation. In doing so, we aim to provide actionable insights and lessons that businesses of all sizes can learn from to avoid a similar fate.

So, whether you're an entrepreneur, a brand aiming for impact, or simply a curious reader, buckle up as we delve deep into the rise and fall of Blockbuster—a cautionary tale that underscores the importance of staying ahead in the digital age.

The Golden Years of Blockbuster

A blockbuster beginning.

Founded in 1985 by David Cook, Blockbuster Video quickly became the go-to destination for movie rentals. Within just a few years, the company expanded exponentially, going from a single store in Dallas, Texas, to over 1,000 locations by the end of the decade. By 1994, Blockbuster was making headlines as it was acquired by Viacom for a staggering $8.4 billion.

The Business Model: Convenience and Selection

Blockbuster's business model was ingeniously simple: offer a wide selection of movies and video games in a convenient, family-friendly environment. Unlike smaller mom-and-pop video stores, Blockbuster locations were spacious, well-lit, and stocked with thousands of titles across various genres. This extensive selection was a major selling point, attracting a broad range of customers from different age groups and backgrounds.

The Late Fee Goldmine

One of the most lucrative aspects of Blockbuster's business model was its late fee structure. Customers were charged a daily late fee for each day a movie or game was overdue, which contributed significantly to the company's revenue. In fact, late fees accounted for as much as 16% of Blockbuster's income at its peak.

The Social Experience

Blockbuster wasn't just a video rental store; it was a social hub. Friday nights at Blockbuster were a ritual for many families, who would browse the aisles, debate over which movies to rent, and maybe even pick up some popcorn or candy at the checkout. This sense of community and shared experience was something that online platforms initially couldn't replicate.

Market Dominance

At the height of its success, Blockbuster was an entertainment behemoth, boasting over 9,000 stores worldwide and employing more than 84,000 people. In the year 2000, the company reported revenues of approximately $5.9 billion, solidifying its position as the leader in the video rental market.

Why It Worked

Blockbuster's success can be attributed to a combination of factors: a wide selection of titles, convenient locations, a simple pricing model, and the social experience it offered. These elements came together to create a brand that was not just functional but also deeply ingrained in the cultural zeitgeist of the time.

The Digital Revolution

What is digital transformation.

Before we delve into the specifics, it's crucial to understand what digital transformation entails. In its simplest form, digital transformation is the integration of digital technology into all aspects of a business, fundamentally changing how it operates and delivers value to customers. It's not just about swapping out old tech for new; it's a seismic shift in culture, operations, and strategy. For the entertainment industry, this transformation meant a move from physical media and in-person experiences to digital content and online platforms.

The Rise of the Internet

The late '90s and early 2000s saw the internet becoming increasingly accessible to the average household. With this newfound accessibility came a shift in consumer behaviour. People started to prefer the convenience of online services, which allowed them to access content from the comfort of their homes. The internet began to offer alternatives to traditional forms of entertainment, from online gaming to downloadable music, disrupting the status quo.

The Advent of Streaming Services

The real game-changer, however, was the advent of streaming services. Companies like Netflix, Hulu, and Amazon Prime Video started offering vast libraries of movies and TV shows that could be watched instantly, anytime, anywhere. No late fees, no trips to the store, and an ever-expanding selection made these platforms incredibly appealing to consumers.

The Impact on the Entertainment Landscape

The rise of streaming services had a profound impact on the entertainment industry. Box office sales saw a decline, DVD sales plummeted, and video rental stores, once a staple of American culture, began to disappear. According to a report by the Motion Picture Association, streaming revenue surpassed box office revenue for the first time in 2018, reaching $41.1 billion compared to the box office's $40 billion.

The Shift in Consumer Behaviour

The convenience and accessibility offered by digital platforms led to a significant shift in consumer behaviour. Binge-watching became a phenomenon, and the idea of "cord-cutting" gained traction as people started to abandon traditional cable TV in favour of streaming subscriptions. According to a survey by eMarketer, the number of cord-cutters in the U.S. is expected to reach 55.1 million by the end of 2022.

The Writing on the Wall

The digital revolution wasn't just a trend; it was a fundamental shift in how people consumed entertainment. Businesses that failed to adapt to this new landscape found themselves struggling to stay relevant, and as we'll see in the next sections, Blockbuster was no exception.

Netflix: The Disruptor

The humble beginnings.

Founded in 1997 by Reed Hastings and Marc Randolph, Netflix started as a DVD rental-by-mail service. The idea was simple yet revolutionary: instead of going to a physical store to rent a movie, you could have DVDs delivered straight to your doorstep. The service gained traction quickly, and by the year 2000, Netflix had already shipped its millionth DVD.

The Subscription Model

What set Netflix apart from Blockbuster and other video rental stores was its subscription model. For a flat monthly fee, customers could rent an unlimited number of DVDs, keeping them for as long as they wanted without incurring late fees. This customer-centric approach was a stark contrast to Blockbuster's late fee structure and became a major selling point for Netflix.

The Pivot to Streaming

Recognizing the potential of the burgeoning digital landscape, Netflix made a bold move in 2007 by launching its streaming service. Initially offered as a free add-on to existing DVD rental subscriptions, the streaming service allowed users to instantly watch a selection of movies and TV shows on their computers. This was a game-changing moment, not just for Netflix but for the entire entertainment industry.

The Rise of Original Content

Netflix didn't stop at merely offering a platform for existing content; it ventured into content creation. Starting with "House of Cards" in 2013, Netflix began producing its own original series and movies, further solidifying its position as an entertainment powerhouse. As of 2021, Netflix had invested over $17 billion in original content.

The Numbers Speak for Themselves

Netflix's growth has been nothing short of meteoric. According to a report by Statista, the platform had over 208 million paid subscribers worldwide as of the first quarter of 2021. Its revenue for the year 2020 was an astonishing $25 billion, a significant leap from the $1.36 billion it generated in 2007 when it first introduced streaming.

The Global Impact

Netflix's influence extends beyond the U.S., with a presence in over 190 countries. The platform has also diversified its content to include shows and movies from various cultures and languages, making it a truly global entertainment service.

The Disruptor's Legacy

Netflix didn't just adapt to digital transformation; it led the charge. By continually evolving and taking calculated risks, Netflix has set the standard for what an entertainment platform can be in the digital age. Its success serves as a testament to the power of innovation and adaptability, qualities that any business looking to thrive in today's digital landscape should emulate.

Blockbuster's Missed Opportunities

The netflix acquisition that never was.

One of the most infamous missed opportunities for Blockbuster was its chance to acquire Netflix. In the early 2000s, Reed Hastings, co-founder of Netflix, approached Blockbuster with an offer to sell the fledgling DVD-by-mail service for $50 million. Blockbuster's management, unable to foresee the digital future, declined the offer. This decision would later become one of the most regrettable in corporate history, as Netflix's valuation soared to over $200 billion by 2021.

Ignoring the Subscription Model

Netflix's subscription-based model was a game-changer, offering customers the freedom to rent DVDs for an unlimited time without late fees. Blockbuster, however, stuck to its traditional rental and late fee model for far too long. When it finally did introduce a subscription service in 2004, it was too late—the market had already shifted.

The Failed Online Ventures

Blockbuster did attempt to go digital but with little success. In 2004, it launched Blockbuster Online, a DVD rental-by-mail service to compete with Netflix. While initially promising, the service failed to gain significant traction. Blockbuster also tried its hand at digital streaming with Blockbuster On Demand but couldn't match the user experience and content library that Netflix offered.

Lack of Investment in Technology

While Netflix was investing heavily in streaming technology and algorithms to personalize user experiences, Blockbuster was lagging. The company failed to invest adequately in technology that could have made its online services more competitive. This lack of foresight hindered its ability to adapt to the digital landscape effectively.

The Dish Network Experiment

In 2011, Dish Network acquired Blockbuster in a last-ditch effort to revive the brand. They launched a streaming service called Blockbuster Movie Pass, aiming to combine streaming with traditional TV services. However, the service was confusing to consumers and failed to differentiate itself from other streaming platforms, leading to its eventual discontinuation.

The Final Blow: Bankruptcy and Closure

All these missed opportunities culminated in Blockbuster filing for bankruptcy in 2010. By 2013, the company announced the closure of its remaining company-owned stores, marking the end of an era.

Lessons in Hindsight

Blockbuster's failure to adapt to digital transformation wasn't due to a single mistake but a series of missed opportunities and poor decisions. The company's inability to recognize the importance of technological trends and adapt its business model accordingly led to its downfall, offering a cautionary tale for businesses in the digital age.

The Importance of Staying Ahead

The fast-paced digital landscape.

We live in an era where technology is evolving at an unprecedented rate. From artificial intelligence to blockchain, new advancements are continually reshaping industries. In this fast-paced digital landscape, businesses that fail to adapt risk becoming obsolete, much like Blockbuster. Staying ahead of technological trends is no longer optional; it's a necessity for survival.

The Competitive Edge

Adopting new technologies early gives businesses a competitive edge. It allows them to streamline operations, enhance customer experiences, and open new revenue streams. Companies that are quick to adapt can set industry standards, leaving competitors to play catch-up.

The Case of Amazon

Take Amazon, for example. What started as an online bookstore has transformed into a global e-commerce and cloud computing giant. Amazon's willingness to invest in technology, from its recommendation algorithms to Amazon Web Services (AWS), has kept it at the forefront of digital transformation. Its Prime subscription service, offering fast shipping and streaming services, has over 200 million subscribers as of 2021, showcasing the power of adapting to consumer needs.

The Airbnb Revolution

Another example is Airbnb. The company disrupted the traditional hospitality industry by leveraging technology to connect people looking for accommodation with those offering their homes. By embracing digital transformation, Airbnb has grown to over 4 million hosts and 5.6 million active listings as of 2021, fundamentally changing how people travel.

Small Businesses Aren't Exempt

It's not just large corporations that need to stay ahead; small businesses do too. With the advent of digital tools like social media advertising, e-commerce platforms, and customer relationship management software, even small businesses can compete with industry giants.

The Importance of Agility

Being agile and willing to pivot is crucial. Kodak, once a leader in the photography industry, missed the digital photography revolution but has since pivoted to new areas, including digital printing and brand licensing, to stay relevant.

The Cost of Complacency

Ignoring technological trends comes with a cost. Companies that are slow to adapt often find themselves burdened with outdated systems, inefficient processes, and dwindling customer bases. The cost of playing catch-up can be far greater than the initial investment required to adopt new technologies.

The Bottom Line

In today's digital age, staying ahead of technological trends is not just a strategy; it's a prerequisite for long-term success. Businesses that embrace change, invest in innovation, and are willing to disrupt their own models if needed are the ones that will thrive in the ever-evolving digital landscape.

Lessons Learned

The cost of ignorance.

The first and perhaps most glaring lesson from Blockbuster's downfall is the cost of ignoring technological advancements. Blockbuster's management failed to recognize the seismic shifts occurring in the entertainment industry, from the rise of the internet to the advent of streaming services. Ignorance is not bliss; it's a one-way ticket to obsolescence.

Adapt or Perish

The digital age is unforgiving to those who resist change. Blockbuster's inability to adapt its business model to meet evolving consumer needs was a significant factor in its decline. The lesson here is clear: adaptability is not just a competitive advantage; it's a survival skill.

Customer-Centricity Wins

Netflix's rise can be attributed to its focus on customer needs and convenience. Blockbuster's late fee model, on the other hand, was a point of frustration for many customers. Businesses must prioritize customer experience in their strategies, as a happy customer is a loyal customer.

Early Adoption is Key

Being an early adopter of new technologies can provide a significant competitive edge. Companies that are proactive about digital transformation are better positioned to capitalize on new opportunities and fend off potential disruptors.

Actionable Insights for Businesses

Conduct Regular Industry Analysis: Keep an eye on emerging trends and technologies in your industry. Ignorance is not an excuse in the digital age.

Invest in Innovation: Allocate resources for research and development. Experiment with new technologies and be willing to take calculated risks.

Prioritize Customer Experience: Use technology to enhance customer interactions with your brand. Whether it's through personalized recommendations or seamless online services, make your customers' lives easier.

Be Agile: Develop a culture of agility and continuous improvement. Be willing to pivot your business model or strategy in response to market changes.

Learn from Others: Keep an eye on competitors, but also look at businesses in other industries that are successfully navigating digital transformation. There's often much to learn from the success—and failures—of others.

Embrace Change: Cultivate a company culture that views change as an opportunity, not a threat. Employees should be encouraged to innovate, experiment, and learn from both successes and failures.

The Inescapable Reality

If there's one thing that the rise and fall of Blockbuster has made abundantly clear, it's that digital transformation is not a buzzword—it's an inescapable reality. In today's fast-paced, ever-changing business landscape, the ability to adapt and evolve is more than just a competitive advantage; it's a necessity for survival. Companies that ignore this fundamental truth do so at their own peril, risking obsolescence and, ultimately, failure.

The Power of Adaptability

Netflix's meteoric rise and Blockbuster's tragic downfall serve as powerful case studies in the importance of adaptability. While Blockbuster clung to an outdated business model, Netflix was willing to pivot, innovate, and take calculated risks. The result? One became a cautionary tale, while the other became a global entertainment powerhouse.

The Universal Relevance

And let's be clear: the lessons here aren't just for giants in the entertainment industry. Whether you're a small business owner, an entrepreneur, or a leader in a large corporation, the principles of digital transformation apply to you. From leveraging data analytics to improving customer experiences, the opportunities for innovation are boundless.

Your Next Steps

So, what's stopping you from taking the leap? It's time to evaluate your own business strategies in light of digital transformation. Are you keeping up with industry trends? Are you investing in new technologies? Are you putting your customers' needs at the forefront of your business decisions?

Don't wait for change to happen; be the change. Take a hard look at your business model, identify areas for improvement, and make digital transformation a priority. Remember, in the digital age, standing still is moving backward. So, take action today to ensure that your business not only survives but thrives in the years to come.

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Netflix & Blockbuster – Case Study Of Disruptive Innovation

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It’s rare for a week without me tuning into Netflix to watch something or at least browse its offerings to find my next binge-worthy series. I know I’m not alone in this habit; countless others probably engage in the same routine.

That’s why examining the Netflix and Blockbuster case study is so enlightening. It offers a riveting look at how disruptive innovation can permanently alter the digital landscape. One company survived and flourished, while the other faded into business irrelevance. As we delve into key learnings from this case study, we also discuss what contemporary companies can do to avoid meeting the same fate as Blockbuster.

Table of Contents

Understanding disruptive innovation, netflix’s early challenges, low-end footholds, new market footholds, blockbuster’s missed opportunities, the importance of transformation in business, 1. adapt or perish, 2. recognize low-end footholds, 3. embrace technology early, 4. customer-centric approach, 5. stay ahead through innovation, 6. use data intelligently, 7. anticipate future trends, 8. understand market signals, 9. transformation is continuous, listen to our podcast about streaming wars chronicles: the netflix & blockbuster case study of disruptive innovation below or by clicking here., 5 questions to ask when considering a solid wood furniture manufacturer, what is solid wood vs. engineered wood, hardwood solids furniture, what does the term mean, netflix & blockbuster: a case study in disruptive innovation.

One of the most compelling case studies in disruptive innovation is the saga of Netflix and Blockbuster. This story provides valuable insights into how Netflix managed to upend the industry, positioning itself as a dominant force in today’s digital landscape.

Continue reading as we delve deeper into the disruptive journey of Netflix and Blockbuster.

Digital disruption has been a game-changer in entrepreneurial strategies since the late 20th Century. Contrary to popular belief, disruptive innovation is not the same as mere creativity.

While creating a fuel-efficient engine might draw a new consumer base, the minor variations from standard engines do not categorize it as disruptive. True disruption focuses on targeting sectors that established companies overlook or revolutionizing an existing system.

This case study delves into how Netflix applied disruptive innovation to dethrone Blockbuster in the home entertainment industry.

Brief History Of Netflix

Understanding its history is crucial to grasp the scale of Netflix’s disruption fully. Netflix was founded in 1998 by Reed Hastings and Marc Randolph in Scott’s Valley, California, with an initial investment of $2.5 million from Hastings.

Opting to distribute DVDs rather than bulky and fragile VHS tapes, Netflix started with 30 employees and 925 available titles. Over time, the company introduced a monthly subscription model, eliminating the single rental system. It positioned itself as a consumer-friendly alternative to Blockbuster’s model, often including late fees and hidden charges.

Netflix wasn’t always the giant we know today. In 2000, the company even offered to sell itself to Blockbuster for $50 million—an offer that Blockbuster refused.

Following the dot-com bubble burst and the 9/11 attacks, Netflix was forced to lay off two-thirds of its staff. However, the proliferation of affordable DVD players and an IPO in 2002 helped the company regain its footing.

Disruptive Strategies Used By Netflix

Netflix employed various disruptive approaches to outmaneuver Blockbuster in the market. Continue reading to uncover two of these critical, innovative strategies.

Netflix initially targeted lower-end markets that Blockbuster ignored. It presented itself as a hassle-free alternative to Blockbuster by eliminating late fees. This allowed Netflix to grow its customer base steadily.

The company focused on improving service speed and video quality, gradually becoming a preferred choice over Blockbuster for many consumers.

Netflix further disrupted the industry by introducing DVDs and streaming services. Their easy-to-use online interface and innovative recommendation algorithm provided an experience Blockbuster couldn’t match.

They also invested in creating original content, widening their market appeal, and keeping audiences engaged.

Blockbuster’s business model worked well for a time, but their complacency in innovation left them vulnerable to disruption. They continued to rely on an aging model that included late fees and did not adapt quickly enough to new technologies.

When they finally attempted to catch up, it was too late, and they were already in decline.

While disruptive innovation is crucial for capturing market share, continual transformation is essential. Netflix’s willingness to adapt allowed it to evolve from a DVD rental service to a streaming giant.

Conversely, Blockbuster’s resistance to change led to its downfall. The case of Netflix vs. Blockbuster is a compelling example of how disruptive innovation can reshape industries and why companies must adapt to survive.

Lessons From The Netflix & Blockbuster Case Study On Disruptive Innovation

The evolution of Netflix and the decline of Blockbuster serve as an epic tale of disruptive innovation in the business landscape. This case study provides insights into strategic decision-making and offers lessons on how to deal with market transformation.

Here are ten key lessons companies can learn from this saga.

The inability of Blockbuster to adapt to emerging technologies and new consumer preferences, especially around the convenience of movie rentals, was a critical downfall. Companies must be agile and willing to adapt their business models to remain relevant.

Netflix capitalized on the aspects of the market that Blockbuster ignored, primarily around consumer annoyance with late fees. Companies should be cautious not to ignore market segments that might seem less profitable or secondary, as they may become entry points for disruptive competitors.

Netflix took a risk by betting on DVDs and online streaming. Companies should look towards emerging technologies as opportunities for future growth and be willing to invest early, even if the technology hasn’t yet reached mass adoption.

Netflix’s recommendation algorithm, easy-to-use interface, and concern for customer experience made them a consumer favorite. Companies should place the customer at the center of their business model and continually strive to improve the user experience.

Netflix invested in original content to differentiate itself further from Blockbuster and new competitors. Companies must continuously innovate and expand their offerings to keep customers engaged and deter potential entrants.

Netflix has been a pioneer in utilizing big data to understand customer behavior and preferences. Companies should leverage data analytics to make more informed decisions and to tailor their services/products to individual customer needs.

While Blockbuster remained committed to physical stores, Netflix anticipated the shift toward digital consumption. Forecasting and acting upon trends can differentiate between leading the market or becoming obsolete.

Blockbuster missed the signals when Netflix offered to sell itself for $50 million, and consumers began to show dissatisfaction with late fees. Recognizing and acting upon market signals, even subtle ones, can impact a company’s trajectory.

Even after establishing itself as a leader in streaming, Netflix continues to evolve and adapt. Understanding that transformation is an ongoing process rather than a one-time event is crucial for long-term success.

10. Learn From Failures

Both Netflix and Blockbuster had their share of mistakes. However, Netflix has shown an ability to learn from its failures, pivot, and recover. Companies should not only celebrate successes but also see failures as learning opportunities.

The tale of Netflix and Blockbuster is a masterclass in understanding disruptive innovation and market transformation mechanics. By recognizing early signs of disruption, staying adaptable, and being committed to continuous improvement and innovation, companies can remain competitive and relevant in their respective markets.

Find out more about how Mondoro can help you create, develop, and manufacture excellent home decor and home furniture products – don’t hesitate to contact me ,  Anita .  Check out my email by clicking here , or become a part of our community and  join our newsletter  by  clicking here .

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Related Questions

One of the things we look at when we go into a new solid wood furniture manufacturer is in-house kiln wood drying. We also want to know if they understand how to join the wood properly and have the equipment. Also, if the manufacturer is in a hot and tropical climate if they have a dry room to help control the wood moisture levels. We like to work with factories that cut and shape all the wood and have in-house finishing facilities.

You can discover more by reading our blog  5 Questions To Ask When Considering A Solid Wood Furniture Manufacturer ; read more by  clicking here.

Solid  wood is cut down from the tree , cut into wood boards, and then used for manufacturing. On the other hand, engineered wood is considered manmade as it is usually manufactured with wood chips, wood shavings, and an adhesive. Today the manufacturing of engineered wood is extremely technical.

You can discover more by reading our blog  All About Teak Wood And Outdod?  by  clicking here.

Hardwood solids can include non-solid woods such as engineered woods. Hardwood solids are used in furniture and other industries to classify what wood is used in a product. The terms usually do not classify what type of wood is used.

You can discover more by reading our blog  Hardwood Solids Furniture, What Does The Term Mean?  by  clicking here .

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Blockbuster: Lessons from Its Downfall

In the ever-evolving landscape of business, few stories offer as many lessons as the rise and fall of Blockbuster. Once a household name dominating the home entertainment industry, Blockbuster’s downfall is a cautionary tale for future entrepreneurs and business leaders. This article delves into the intricate details of Blockbuster’s journey, aiming to uncover the strategic missteps and market changes that led to its demise. For students of business faculties, understanding this story is crucial, not just as a historical account but as a rich source of lessons in adaptability, market awareness, and strategic decision-making in the face of rapid technological change.

Table of content

The Rise of Blockbuster

• Founding and Early Growth

Blockbuster’s story began in 1985, with its first store in Dallas, Texas. Founded by David Cook, a software supplier, the company quickly differentiated itself from its competitors. It offered a larger variety of movies, a computerized check-out process, and a family-friendly environment devoid of adult films. This innovative approach to video rental was a breath of fresh air and resonated with the American public.

• Business Model and Market Dominance

Blockbuster’s business model was a mix of high-volume, wide variety, and strategic store locations. Their blue and yellow sign became a beacon for movie enthusiasts. They capitalized on the VHS boom and later the transition to DVDs. By the 1990s, Blockbuster was a market leader and synonymous with home movie and video game rental.

• Key Strategies and Innovations During its Peak

Blockbuster’s key strategies included rapid expansion through franchising and acquisitions, creating an extensive network of stores nationwide. They also fostered strong relationships with movie studios, which allowed them early access to new releases, a significant draw for customers. Additionally, Blockbuster explored various revenue models, like late fees, which, while controversial, contributed significantly to its revenues.

During its initial years, Blockbuster appeared unstoppable, boasting a solid business model and dominating the home entertainment sector. Yet, as we’ll explore further, the attributes that made Blockbuster so strong were ironically the same ones that laid the groundwork for its later decline.

The Changing Market Landscape

• Evolution of Consumer Preferences

The late 1990s and early 2000s marked a significant shift in consumer behavior and preferences. The advent of the internet began to reshape how people accessed entertainment. Consumers started favoring convenience and instant access, traits not typically associated with the traditional video rental model. This change was gradual but unmistakable, setting the stage for a revolution in the home entertainment industry.

• Emergence of New Technologies

The rise of digital streaming technology was a game-changer. Companies like Netflix, founded in 1997, began offering DVD rental by mail and, later, streaming services. This model eliminated the need for physical stores and offered much broader content accessible from the comfort of one’s home. The convenience and innovation of streaming services directly challenged Blockbuster’s brick-and-mortar business model.

• Rise of Competitors

Netflix was one of many competitors to emerge. Video-on-demand services provided by cable companies and other online platforms began to gain traction. These services catered to the growing desire for instant and hassle-free entertainment. Blockbuster’s market dominance was being threatened from multiple fronts, requiring a swift and strategic response to stay relevant.

Blockbuster’s Strategic Missteps

• Failure to Adapt to Digital Transformation

One of Blockbuster’s most significant errors was its slow response to the digital transformation in the entertainment industry. While competitors like Netflix quickly embraced the internet and streaming technologies, Blockbuster remained focused on its physical rental model. This delay in adapting to digital trends put Blockbuster at a severe disadvantage.

• Misjudged Acquisitions and Investments

To diversify, Blockbuster made several acquisitions and investments, some of which did not align with its core business strengths or the changing market dynamics. For instance, its foray into the music retail business with the acquisition of Music Plus and Sound Warehouse did not yield the expected benefits. These diversifications drained resources that could have been better utilized to strengthen and evolve its primary video rental business.

• Over-Reliance on Traditional Brick-and-Mortar Model

Blockbuster’s heavy investment in its physical stores became a liability as the market evolved. The company was slow to reduce its reliance on this model, which increasingly became an operational and financial burden. In contrast, competitors with no physical stores to maintain could adapt more quickly and efficiently to market changes.

• Leadership and Management Decisions

Leadership plays a pivotal role in navigating a company through market shifts. Unfortunately, Blockbuster’s leadership was often criticized for a lack of vision and adaptability. Key decisions, such as passing up the opportunity to purchase Netflix early on and the reluctance to phase out late fees (a major source of revenue but a point of customer dissatisfaction), reflected a disconnect with the evolving market realities.

The Downfall of Blockbuster

• Financial Decline: Analysis of Key Financial Setbacks

Blockbuster’s financial troubles became increasingly apparent in the early 2000s. The company’s revenue started to decline steadily, burdened by the costs of maintaining its extensive network of physical stores. The introduction of the no-late-fee policy in 2005, while customer-friendly, further eroded its revenue base. These financial setbacks indicate a business model struggling to remain viable in a rapidly changing industry.

• Decline in Customer Base and Market Share

As streaming services gained popularity, Blockbuster’s customer base began to dwindle. The inconvenience of physically renting a movie and the rise of more flexible and varied online options led many customers to abandon Blockbuster. This loss of customers was a critical blow, leading to a steady decline in market share and influence.

• Bankruptcy and Final Closures

Blockbuster declared bankruptcy in 2010. Their efforts to reinvent themselves, including the introduction of Blockbuster Online, were insufficiently timely to rescue the business. The decisive blow came with Dish Network’s acquisition in 2011, resulting in the shutdown of most Blockbuster stores. By 2013, the once-iconic Blockbuster brand had nearly disappeared, signaling the close of a significant chapter in home entertainment history.

Lessons Learned

• Importance of Innovation and Adaptability in Business

Blockbuster’s story is a testament to the importance of innovation and adaptability. Businesses must be willing to evolve with changing market trends and technological advancements. Staying anchored to outdated models or being slow to embrace new opportunities can lead to obsolescence.

• Recognizing and Responding to Market Changes

Recognizing and responding to market changes is crucial for business survival. Blockbuster failed to acknowledge the threat posed by digital streaming and the shifting preferences of its customer base in time. Businesses must be vigilant and responsive to stay ahead or remain relevant in a dynamic market.

• Strategic Foresight and Risk Management

Blockbuster’s missteps highlight the need for strategic foresight and effective risk management. Diversifying into unrelated business ventures without a clear strategic focus can divert resources from core areas needing attention and innovation. Companies must make calculated decisions, balancing current success with future sustainability.

• Role of Leadership in Navigating Challenges

Effective leadership is critical in steering a company through challenges. Blockbuster’s leadership was often criticized for its lack of foresight and reluctance to adapt, contributing significantly to its downfall. Strong leadership involves managing current successes and anticipating and preparing for future challenges.

Blockbuster’s downfall serves as a powerful lesson in the world of business. It underscores the need for continual adaptation, market awareness, and strategic planning. For business faculty students, this case study is a rich source of learning, offering insights into the complexities of managing a business in a rapidly evolving technological landscape. By understanding and analyzing these failures, future business leaders can equip themselves with the knowledge to navigate their ventures successfully through the ever-changing business environment.

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Case study Blockbuster: Why is it necessary to innovate?

Blockbuster was an American video store franchise, specializing in movie and video game rentals through physical stores , mail-order, and on-demand services, during the 1990s and early 2000s. It was very thriving and popular in the audiovisual industry and had very high profits. But one day, it made a bad decision when it had the chance to grow which resulted in bankruptcy.

<<< Case study Sega: When a competitor sweeps >>>

Once again we return to the case studies of very popular and profitable companies that, due to making bad decisions or being induced by very serious economic crises, ended up in bankruptcy. This time, we will talk about the Blockbuster case , its success story, a missed opportunity, and the disastrous consequences of letting it pass.

What was Blockbuster?

Blockbuster was founded in 1985 by David Cook , who ran a software company for oil companies in Texas. After a couple of years, and when that industry had run out of steam in the 1980s, his wife advised him to create a home theater rental franchise , which at the time, movie rentals were a highly profitable business.

To distinguish itself from the competition, its establishment adapted to the demand for a broader catalog of up to 6,500 references , longer rentals so that people could take more films, and greater inventory control through its automated system, with which detected consumer preferences. Quite a novelty for the time, which is why it was positioned as an avant-garde company in terms of video rentals.

From that moment on, its growth in two years was quite rapid , since it managed to open 20 stores and 20 franchises . By then, Blockbuster had become the benchmark for video stores, and as of 1990, it was already expanding into the international markets of Europe and Latin America.

In 1997 , the board of directors appointed John Antioco as CEO, who successfully ran the movie rental business, first on VHS and, later on, DVD for several years. A year later, Blockbuster still controlled 25% of the world market , due to important strategic alliances with renowned production companies.

Strategic alliances to annul the competition.

Starting in 1987 , Blockbuster dedicated itself to absorbing video store chains and ended up ousting the competition , overtaken by a larger catalog. The explanation for this enormous catalog was because, unlike the small video stores, which paid a high amount of money per film and recovered their investment thanks to rentals, Blockbuster reached direct agreements with the production companies , for which they obtained movies at a lower cost.

While it is true that most of the business was with major production companies, class B production companies also provided very good profits, since they represented 70% of rentals during the 1980s.

The offer of movies was similar to that of other video stores, so premieres had higher priority. Over time, the remaining copies and those withdrawn from circulation were put up for sale.

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The Netflix proposal that Blockbuster rejected.

The popular Netflix , before becoming the most viewed platform worldwide, also operated as a movie rental store , only this one did it online , so, thinking about the future, Netflix was destined to succeed, unlike its rival Blockbuster. But it is time to tell you how the link between the two companies was born and the beginning of the end of Blockbuster.

In the early 2000s , Netflix was a small video rental company , but what set it apart from Blockbuster was that its business model accepted subscription payment and allowed users an unlimited number of movies and TV series . They could order online and there were no penalties for returning films late.

Instead, Blockbuster charged for DVD rentals and made their profits from the fines they collected for late DVD returns.

However, the beginnings of the relationship were not exactly cordial. It all started when the owner of Netflix, Reed Hastings, before creating the company, went to rent a movie from Blockbuster and took longer than indicated to return it , for which the rental store charged him a high surcharge that Hasting did not want to pay. So he decided to create a business , also a movie rental business, that didn't charge customers late fees for returning movies.

By the time Reed Hasting had already established his business, he thought that Blockbuster, being as important as it was, and Netflix should stop being rivals and create a strategic alliance to strengthen the market . But Antioco did not think it was a good deal and turned it down.

Netflix's strategy to establish that alliance was for Blockbuster to acquire it for 50 million . Then, the visionary project that Netflix aimed at was to offer its DVD rental service through email and via streaming. Although Blockbuster had the resources to do this business, it seemed more profitable to continue as it was. This is how Blockbuster lost the chance of a lifetime by resisting change .

A year after this offer, video rentals became obsolete in the United States and, later, in the rest of the world. In the following years, the company lost users due to the success of Netflix , and the streaming service it offered was much more interesting for Blockbuster customers, who preferred to switch to Netflix.

The bankruptcy and definitive closure of Blockbuster.

Since the mid-2000s, Blockbuster has not been able to face the obsolescence of the physical format in the face of new forms of consumption as disparate as cable television, self-service stores, video on demand, and even piracy, before which there was no planned strategy.

In some countries such as Spain and Ecuador, it was immediately withdrawn from the market, while in others such as Mexico and Argentina it had to be readapted.

As a last resort, in 2010 the group reinstated the late penalties it had eliminated five years earlier. However, o n September 23, 2010, Blockbuster declared bankruptcy. At that time, more than 3,000 stores were still open in the United States.

Despite several attempts to restructure its debt, in March 2011 the United States Department of Justice ruled that the company should be liquidated.

Blockbuster was taken over in April 2011 by Dish Network, the largest pay-TV provider in the United States, for $320 million. Its initial goal was to accomplish the gradual closure of the remaining 1,700 stores and retain the brand to launch a video-on-demand service to compete with Netflix.

However, the plans did not prosper and two years later the complete closure of all video stores was announced as of January 2014.

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The face of defeat.

Other very large companies, despite the bad decisions they made, were able to recover and re-enter the market, such as Nokia and Blackberry , but others weren't so lucky and ended up in bankruptcy, such as Pan American, Daewoo, and Blockbuster, among others.

With the Blockbuster case , we have learned how resistance to change can render a profitable business obsolete and bankrupt. Blockbuster had everything to stay: sufficient financial capital, a recognized brand that customers chose, but it did not see the end of an era, the era of movies on DVDs and Blu Ray and the advent of the digital age.

And it was at that moment when Netflix, its main competitor, the same one that could be an ally to conquer the movie market of digital platforms, took an unattainable advantage that meant its ruin, at least for now. If it comes back in the future to reinvent the brand with something newer than Netflix, only time will tell.

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Home » Management Case Studies » Case Study: How Netflix Took Down Blockbuster

Case Study: How Netflix Took Down Blockbuster

Blockbuster and Netflix are two big business within the domestic videocassette rent payment market place that skilled very much distinctive products. Netflix extremely multiplied its firm estimate even as Blockbuster dropped its leading market position and fallen into bankruptcy. Back to the late 20th century, whilst Netflix was just a small newly established business, Blockbuster ruled the video cassette rental business with over 9,000 shops all around the world. With the emergence of DVDs as the brand new video medium, Blockbuster be able to get special deals with massive Hollywood studios to rent new DVD releases after cinema showings ended. At that point in time, nearly every family had a videocassette recorder (VCR) for the reason of video watching, and Blockbuster rental shops were people’s familiar starting point for film selections. Technology and innovation performed a significant task inside the improvement of the apprehensive business. Today’s dynamic domain is completely centered on progression of technology and every area requires to carry out new intervention of technology to obtain success . The on-line video package providers companies are those who design a new to look at preferred programs. The business idea of Blockbuster change into related to serving the DVDs on a rental basis. Netflix become also using the equal idea however after a period of time, it changed to the online streaming video. This advertising approach of Netflix offers with the phases that Netflix used to promote its commercial enterprise businesses.

History of Blockbuster

Blockbuster turned into one in every of the biggest video companies all over in the globe. Blockbuster became the primary organization, which commenced to offer DVDs on condominium basis. David Cook set up the company in the year 1985. David in Dallas based the primary store of Blockbuster. The primary video market of Blockbuster turned into an extensive success on global horizontal. The retailer became opened with 8000 tapes which consist of 6500 titles. Afterward they had been opened three more but, the company face challenges 3.2 million dollars in 1986. Therefore Cook sold 1/3rd share beginning of 1987. The business was managing 133 stores in 1987. Within 1919, the full number of shops reached as much as 1000. During 2000, the Blockbuster is the pinnacle DVD carrier company. But, within the year 2006, Blockbuster disconnected from Viacom.

History of Netflix

In 1997 Netflix turned into established in California, founded by Reed Hasting. At the preliminary level of this blockbuster advertising method the videos were offered on a hire charge base by the organization. But, in 1999, the business changed into commencing the delivery of obtained videos via postal facility of the United State. After a few year of its setting up order, in 2009, the business had a large and improved database system. In 2009, business was began delivering DVD such as distinctive titles. It can be referred that the business nearly contained a focus of 4.5 million customers. Within the same year, company had completed an affiliation with a digital company named as consumer electronics. This partnership made easy to get entry to the internet on specific appliances. In 2010, Blockbuster business turned into bankrupt. As in line with the facts collected, after this affiliation, people can easily get entry to internet over iPad, computer, mobile phone, laptop, and exclusive net devices. But, currently the company has 23 million contributors from different international location those make use of Netflix subscription.

How Netflix beat Blockbuster

A year after establish in 1998 Netflix gain control the marketplace of video industry through advertising and marketing strategy as well as their special offers attract more consumer than any other video industry. As a result it impact other entertainment business without doubt. In case that there is to some extent obstruct during the delivery sort out of DVD throughout mail or via post than the company do not charge for late fee and it became well turned-out change. On the other hand, before the setting up of this establishment, Blockbuster existed the growing enterprise in this business. Blockbuster company apply same “No late Fee” strategy as Netflix but unfortunately it did not work for this company and blockbuster challenged a massive forfeiture as well as the marketplace cost of its shares decline. Now Blockbuster Company is currently identified for instance bankrupt industry in the video business. Afterwards Netflix give emphasis to more on marketing strategy to go to next level and extended DVD business. There are several brands of competitors from another province who contested with Netflix. Aside from, Netflix has its distinctive line of attack to attain achievement and advance in the industry. The simple technique used by the organization for the fulfilment of organization objectives. The maximum critical part is associated with the market place expansion idea of DVD products. Aside from that customer relationship is the major strength and strategy for this organization to achieve their mission and vision. Every organization has two aspects of success, one is present commercial enterprise and another is organization consumer. The essential aspects is that company always selects current business. Aside from that, in the time of Antioco’s stage, Blockbuster made double revenue by implementing of low cost strategy “reducing late charges”. But this footstep draws attention lots of consumers to finance further in the Blockbuster Business. After the Examination, it turn into clear-cut that the forfeiture from reducing changed into 200 million dollars while; on-line campaign motion total yet again 200 million dollars. After this action, 5 years later Blockbuster Business was announced bankrupt. Netflix uses following strategy where Blockbuster never think of changes. These are;

Technological Advances

Ever since 2000, the initiating of latest technology and computer electronics commodities has unexpectedly elevated customer possibilities to view cinemas. Now days it is fairly well-known to watch movies on airplanes, in cars, hotel rooms, in homes or almost every places through a laptop PC or smartphone appliance like an apple iPhone, iPad, or iPad touch. Most important in year 2012 it was clear-cut that the 134 million US families with excessive speed internet facility and internet related Blu-ray , video games, TVs, computers, tablets, or smartphones had been swiftly transferring from manual hiring DVDs to watching cinemas and TV programs streamed over the net. Customer can watch these films and Television programs via an extensive type of distribution networks and sources. The trend of the upcoming marketplace for hiring movies and TV contents is undisputable in streaming movie industry and Television programs to internet- associated televisions, PCs and smart phone devices. Streaming has the gain of accepting household adherents to reserve and instantaneously watch the movies and Television shows they desired to watch, hiring a streamed show possibly will be performed both by way using the service of Netflix, Blockbuster online, Amazon instant video, Apple’s iTunes and different streaming video vendors or through the usage if a television distant to assign arrangements with a cable satellite TV for pc, or fiber optics issuer to instantaneously look at a movie from a listing of numerous hundred choices. The numeral of families which have a DVD player or video recorder has become more intense, so they may simply make a recording TV shows and movies after which pay off them at their suitability. Netflix changed into expected that the DVD systems, at the side of excessive- clarity replacement designs one of these Blu-ray, will be the car for watching content material in the home-based for the expected future. Modern innovations in video-streaming technology have been swiftly enhancing the possibilities that video application would become the leading movie rental network in the next few years.

Low cost strategic is one of the most powerful strategic position for the movie rental industry. Blockbuster organization was making money by implement overdue price to its clients. The value of operational cost of this business movement is a smaller amount of cost that the price of market stores. Aside that the value of adjustments is likewise not as much of than the market things. For the fulfilment of achievement and advance Netflix advertising and marketing method, organization uses specific modern strategies and technologies. The business has start-off the idea of delivery the DVDs at the consumer’s location and subscription fee is comparatively subsequent the low-cost idea which was not carefully thought by Blockbuster. In USA everyday uses, on regular, almost 5 hours each day seeing video contents. And that may become pricey, rent out a movie can prevent a big expanse of cash while competed to actually go to a movie which can charge as extremely as $16 a ticket. When think about Netflix’s business standard, rate supports mail transport over in-store rental. Some plan via the mail cost $7.99/month limitless vs. the in-store $4/rental. Kiosk Rental acquisition market proportion with $1 nightly rental price. Video on call for is anticipated to maintain to lower in price as competition rises. When Netflix released its subscription version, it flashed significant attention between clients trying to find reasonably-priced movie rentals. A delivered bonus is that disc are brought directly to their doors ways, eliminating trips to a store and late fees. Netflix is the biggest on-line streaming video provider with over 23 million subscribers. Consumer pay a flat monthly fees of $7.99 for unrestricted log on to movies and Television indicate, presently ad- unrestricted. The provider is accessible on Nintendo Wii, Microsoft’s Xbox 360, Sony PS3 consoles, Blu-ray disc players, Internet-connected TVs, and many other Internet-supported video players.

Customer Relationship

Netflix advertising and marketing approach is associated to the subscription of the channel. This strategy of the organization is performed a crucial part within the improvement of the company. Concurrently, this strategy also consist of the delivery procedure of distribution DVDs via mail and streaming of videos. The subsequent crucial stage is connected to the method of consumer closeness . The phrase consumer intimacy allocates with the participation of consumers for business growth drive. This advertising idea primarily appreciated by the Netflix organization because it turned into aimed to get honest source consumer and right, way to applied most excellent sources for the success of organization objective and achieve the need of its clients. Aside, from this, the significance of these method is associated with offer the top facilities to the clients. The purpose in arrears the recognition of the Netflix organization is the advertising and marketing method of this business enterprise, the strategies put together the Netflix business finest on-line video issuer within the world. Further than, the importance is absolute to its clients. The principle goal of the Netflix business is to supply the high-quality customer service and respects in comparison to Blockbuster. The intention behind the leading quality of the Netflix business enterprise is an effective execution of these business strategies . But, these techniques might capable the Netflix business to stand marketplace opposition.

Netflix Innovation

The phrase innovation co-operated an essential function in the productive implementation of industry action. It is able be distinguished that innovation may be considered as a heart for the organization . The character of innovation utilized by the Netflix organization is disruptive . The Netflix business enterprise is operating this characteristics from its first environment. On the other hand, this organization brought the idea of undertaking the demand of DVD turning in thru the mail without a late fee. Other than this the handy of watching movies and TV programs at home-based at a low rate. The Netflix organization usually attempts to offer cost friendly deals to its clients. It be possibly will be identified to all that the Netflix Corporation is an entertaining network site. But, the dream of the Netflix organization is aimed to be the top supplier of entertaining movies all over the world. Aside that, the vision of the corporation is associated with the verdict of the global target market with the assist to the content inventors all over the globe. However, the Netflix business aimed to deliver the quality and high-priced DVDs to its clients by treating free of charge and rapid distribution method. There are distinctive models associated with the innovation of Netflix. The current monthly subscription of Netflix is 12.99 dollar per month. As peer the sources it have turn into clear-cut that Netflix is famous in their live programs simply accessible to the subscribers or clients of the Netflix organization. One of the exceptional and maximum famous programs of Netflix is Black Mirror show. Form this examines of these sources; it turn into clear-cut that the Netflix company is one of the top organization that manage its business movement after thinking the needs of its clients.

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Winning the Customer Journey Battle: Netflix vs Blockbuster Case Study

By   Stratability Academy

Published: April 25, 2019

Last Update: May 4, 2020

TOPICS:   Gameplans & Roadmaps , Operating Model , Service Design , Transformation

We know a brand has established a strong position in customers’ mind when its name becomes a verb, like Google, Uber, Skype. And one such brand that cannot be ignored in this digital age is Netflix. Netflix has come a long way, starting from an online DVD rental service to the world leader in the streaming industry. The company completely changed how people watched movies and, consequently, destroyed the throne of Blockbuster, once the giant brick and mortar video rental store in the U.S. Interestingly, in 2000, Blockbuster turned down the $50M offer to purchase Netflix, just to find itself decease under the reign of Netflix 10 years later. How did Netflix flip the table and nail the customer journey as of today? How did it master the art and science of digital transformation on its strategy journey?

Let’s explore what happened based on the pains and gains in the customer journey.

Blockbuster’s Customer J ourney

Before Netflix, the age of Blockbuster…

Back to the late 20th century, when Netflix was just a small start-up, Blockbuster dominated the video rental industry with over 9,000 stores around the globe. With the emergence of DVDs as the new video medium, Blockbuster managed to get exclusive deals with big Hollywood studios to rent new DVD releases after cinema showings ended. At that time, almost every household had a videocassette recorder (VCR) for the purpose of video watching, and Blockbuster rental stores were people’s frequent destination for movie selections.

Then, at one point, people realized they went to Blockbuster stores not because they enjoyed the experience but just because it was the only choice for them to watch new movie releases. With that being said, Blockbuster store visits were far from convenience. Imagine one Sunday afternoon, your kids were home and you wanted to watch a movie with them. Then you would probably spend the next few hours driving them to a nearby Blockbuster store, going through hundreds, if not thousands, of DVDs on the shelves without a catalog or any recommendations from store attendants, except for the new releases which were charged out at a premium, getting eyestrain from reading the titles, and arguing with your kids what to watch. By the time you got home, you realized you had not cleaned up the VCR machine’s video head after the last watch, so you do that first, before sitting down on the couch to play the DVD you brought home earlier. How much enjoyment was left then? But it was not the whole story. After some days of watching the movie, you were too caught up in your work and forgot to return the DVD on time, thus you had to pay the store an exceptionally high late fee. In fact, late fees comprised of a large pie of Blockbuster profits. It was an unpleasant experience that actually drove people away from the business.

Netflix’s Digital Transformation Customer Journey

Then Came Netflix – a Market Disruptor

As a former Blockbuster customer, Netflix CEO Reed Hastings thoroughly understood the issues with that customer journey, and he initially started Netflix as a mail-order DVD subscription service to eliminate the lengthy in-store visits and annoying late fees. To make up for the lack of physical customer interaction, Netflix offered lower prices (monthly subscription fees for unlimited rentals) and implemented efficient order-processing computer systems. After just a few years, from a small business, Netflix steadily grew its revenues and got Blockbuster on guard.

Nevertheless, it was when Netflix launched its video streaming service that saw the end of Blockbuster. Netflix, again, took a deep dive into the consumer journey and foresaw the future demands for instant-access entertainment at the convenience of Internet devices. With the new streaming service, Netflix customers could browse a detailed digital movie catalog and press play in a second with no need for a physical DVD. The streaming service of Netflix is so successful that it accounts for one-third of downstream Internet traffic during peak hours in the U.S.

In 2013, upon discovering the potential hype of binge-watching, Netflix started to produce in-house content, known at Netflix Originals, and released all the episodes at one time. Its first original series House of Cards still remains one of the best dramas on Netflix. Besides, Netflix took on customers’ desire for personalization and came up with the smart content recommendation system which was backed by machine learning. Each customer now has a customized experience on Netflix based on their personal habits and preferences. This is where Netflix built up its sticky service to get customers addicted and keep them coming back for more.

Netflix’s popularity can be exposed by impressive numbers: circa. 150M users, almost double the runner-up Amazon Prime; two-thirds of Netflix users share their accounts with others, increasing the actual viewers by 2.5 times; 10 hours spent on Netflix weekly by average U.S. users; 23 languages used and 57% of international users; etc… Considering the recent increase in the share of users outside the U.S., Netflix is drastically growing its international content in the library.

And it gets that the customer journey doesn’t stop changing either. Netflix has been extending the customer journey via cross-platform partnerships. It has teamed with telecommunications and media companies like Vodafone, BT, and Sky in the UK, who all offer Netflix as part of their mobile or cell phone packages, or TV packages, and you can now control your Netflix accounts with voice-activated home automation IoT apps like Amazon Alexa, and Google Home. All of these customer journey extensions are there to save customers time and to provide convenience, and continue to provide better customer experiences.

Hasting could not have applied all of these digital transformation changes to the Netflix business model so successfully without closely following and predicting the customer journey and even testing with customers via co-creation. For a service company like Netflix, customer experience is king, thus the importance of the customer journey mapping process when it comes to lifting a business or an organization to another level, and changing the ‘game’.

Digital Transformation success through the customer journey

Netflix’s success results from the continuous effort of understanding the customer journey and delivering value driven; customer co-created; and network connected services; three digital transformation approaches introduced in THE STRATEGY JOURNEY Framework . The customer journey mapping process and digital transformation approaches, go hand in hand with each other, which explains the failure of Blockbuster to digitally transform due to its customer experience blind spot.

So when it comes to innovation and defining any new service, don’t forget to ‘map the customer journey ‘ as Reed Hastings and Netflix did.

Stratability Academy

About the author

Stratability Academy is a provider of strategic management, innovation and digital transformation learning materials based on the THE STRATEGY JOURNEY Framework , and is the publisher of THE STRATEGY JOURNEY book (2019) by Julie Choo and Graham Christison.

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Disruptive Innovation: A Case Study on How Netflix is Transforming the Living Room

Student thesis : Master thesis

Innovation has always been a crucial factor in business strategy across various market segments. In light of the digitalization revolution, the entertainment industry has been affected greatly, both in positive and negative ways. Long standing market incumbents such as Blockbuster have felt the disruptive shift of a new market player, Netflix. Its disruptively innovative strategy was simple enough to cater to small consumer segments, while rapidly gaining market traction. Eventually Netflix disrupted not only the market giant Blockbuster, but also consumers’ living rooms. Clayton M. Christiansen’s theory on disruptive innovation provides context and guidelines in better understanding the differences between sustaining innovation and disruptive innovation. Furthermore, it reflects over “The Innovators Dilemma” where, innovators must decide how to best invest their resources so as not to loose market share. This Thesis aims to better understand the effects of disruptive innovation within the entertainment content industry. The research utilizes a case study approach, using Netflix as the case company. Due to technological advancements the TV and entertainment content industry has drastically changed with new methods of consuming content, and new business models to disrupt the market. Having disrupted the market, Netflix remains a leading force among consumers. Moreover, in recent years, the competition within the market has radically increased. The project goes on to explore Netflix’s possible outcomes for future markets.

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From Industry Giant To Bankruptcy: The Blockbuster Failure Story

• April 19, 2023
• Blog , Company's failure stories

Table Of Contents:

We’ve all heard of Blockbuster, the video rental chain that once dominated the market with its thousands of physical locations worldwide. However, do you know how it fell from grace? When did the Blockbuster failure story begin?

Blockbuster was an American-based provider of home movie and video game rental services. The company was founded in 1985 and headquartered in Dallas, Texas.

Throughout the 90s and the early 2000s, Blockbuster was the renowned video-rental company in the US. Let’s trace its chronology.

• In 1988, Blockbuster became the most popular video store chain in the US, with 800 stores.
• In 1992, it expanded overseas and bought video-rental chain Ritz in the UK with 2,800 Blockbuster stores.
• During early 2000, Blockbuster had over 9,000 stores worldwide and over 45 million registered users. It had an extensive movie collection and an unrivaled snack space, making it the most convenient store for all in-house entertainment and snacking.

So what happened suddenly? Where did it all go wrong?

Reasons behind Blockbuster’s failure

Undermining customer satisfaction.

Blockbuster’s income was mainly based on late fees, a model that penalized customers for keeping their VHS cassettes for too long.

For any movie rental that was not returned by the due date, Blockbuster charged a steep late fee ($1 per day). It also charged consumers a monthly subscription fee of $19.99 for three movie rentals per month.

Since Blockbuster’s primary source of income was from penalizing its customers, the strategy did not last long.

With the changing market conditions, the demand for online streaming increased among consumers in the late 20s. 

However, Blockbuster ignored customers’ preferences by not shifting to online streaming. Instead, it continued with its traditional rental model and charged its customers per rental.

This was becoming less appealing to customers as they looked for convenience and ease in watching videos.

On the other hand, companies such as Netflix recognized the demand for online streaming and offered it as a core component of its business. So, by offering a monthly subscription model with unlimited rentals, Netflix was able to provide greater value and convenience to customers, making it more appealing than Blockbuster’s rental model.

Blockbuster had poor customer service and high rental fees, which made it difficult for customers. Blockbuster’s failure to understand client preferences resulted in its downfall.

Unyielding to new opportunities

Another factor in the company’s demise is the crucial mistake Blockbuster made by rejecting an agreement with Netflix.

In 2000, Netflix sought to sell its business to Blockbuster for $50 million. This Blockbuster Netflix deal was sure a shot in the dark. With its company only having started in 1997, Netflix was still a young upstart in those days. If the transaction had been approved, Netflix would have been in charge of Blockbuster’s online operations.

Blockbuster raised $465 million in an IPO a year prior, so, at the time, it could afford the acquisition price.

However, Blockbuster declined the offer, stating that the price was too expensive.

Barry McCarthy, the former CFO of Netflix, claims that Blockbuster “laughed us out of their office.”

After Netflix’s bid was rejected by Blockbuster By 2006, Netflix had six million users. Within a few years, Netflix was establishing a dedicated and expanding client base. And consequently, the failure of Blockbuster started. 

Blockbuster experienced the beginning of its demise in 2004 when Viacom sold its majority stake in the video renting business.

According to a documentary, the chain had 9,000 physical locations globally at its height, with one Blockbuster opening every 17 hours. When Dish Network purchased Blockbuster out of insolvency in 2011, it had 600 locations.

In 2006, Blockbuster introduced the Total Access program, which allowed online customers to exchange rentals at Blockbuster locations with a free DVD rental for a single low flat charge.

The program was incredibly popular, but it came at an expense. Every time a consumer exchanged a DVD, Blockbuster lost $2. Blockbuster had to increase the program’s fee, which resulted in the loss of customers, to stem significant losses from the program.

The leadership disputes

Blockbuster’s board member and activist investor Carl Icahn fought against the company’s entry into the online rental market, urging it to remain to its brick-and-mortar origins. To achieve this, Icahn handled the firing of John Antioco, who served as CEO of Blockbuster for ten years beginning in 1997, and then in 2007, Jim Keyes was appointed to the position.

Similar to Icahn, Keyes was dedicated to Blockbuster’s physical and mortar operations. 

Niko Celentano, a former Blockbuster shareholder, wrote after Blockbuster filed for bankruptcy in 2010: 

“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.”

According to Tom Casey, the Former Chief Financial Officer of Blockbuster Video,

“Most people think Blockbuster went out of business because of Netflix. What really happened was Blockbuster and Netflix were pretty evenly positioned to grow in the mid-2000s and 2007, ‘08, and ‘09. They had capital, we did not.”

Blockbuster Failure in a Nutshell

Blockbuster’s inability to adapt to the changing market conditions , poor customer service, high rental fees, and inability to understand and adapt to client preferences resulted in its downfall. Netflix recognized the market trends and offered a more convenient and customer-friendly model that eventually surpassed Blockbuster. So when did Blockbuster go out of business?

Finally, in 2010, Blockbuster filed for bankruptcy. The company has to pay a debt of $1 billion. 

The once-great video rental chain serves as a business innovation lesson. Being stuck in outdated models and refusing to adapt to market trends can lead to the failure of a company .

In today’s world, companies must be willing to adapt to changes in the market and invest in research and development to stay ahead of the competition.

As CIOs, CTOs, and CEOs, it is your responsibility to ensure that your company’s innovation management processes are effective and aligned with your company’s strategic goals. Start with an idea capture and innovation management tool today!

Also read: Was lack of innovation wasn’t the only reason behind Nokia’s failure?

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Column: Block-by-Blockbuster Innovation

• Rosabeth Moss Kanter

Innovation retains a tinge of risk. In early 2010, product recalls (Toyota Prius) received as much press as product launches (Apple iPad). At the World Economic Forum, a global bank chairman blamed the financial crisis on excessive innovation, arguing that the focus should be on operational improvements. But as companies emerge from recession, some leaders […]

Innovation retains a tinge of risk. In early 2010, product recalls (Toyota Prius) received as much press as product launches (Apple iPad). At the World Economic Forum, a global bank chairman blamed the financial crisis on excessive innovation, arguing that the focus should be on operational improvements.

• Rosabeth Moss Kanter is the Ernest L. Arbuckle Professor of Business Administration at Harvard Business School, the founding chair of the Harvard Advanced Leadership Initiative, and a former chief editor of Harvard Business Review. She is the author of Think Outside the Building: How Advanced Leaders Can Change the World One Smart Innovation at a Time (Public Affairs, 2020). RosabethKanter

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An evolutionary game study of collaborative innovation across the whole industry chain of rural e-commerce under digital empowerment.

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Wang, Y.; Xu, J.; Zhang, G. An Evolutionary Game Study of Collaborative Innovation across the Whole Industry Chain of Rural E-Commerce under Digital Empowerment. Systems 2024 , 12 , 353. https://doi.org/10.3390/systems12090353

Wang Y, Xu J, Zhang G. An Evolutionary Game Study of Collaborative Innovation across the Whole Industry Chain of Rural E-Commerce under Digital Empowerment. Systems . 2024; 12(9):353. https://doi.org/10.3390/systems12090353

Wang, Yanling, Junqian Xu, and Guangsheng Zhang. 2024. "An Evolutionary Game Study of Collaborative Innovation across the Whole Industry Chain of Rural E-Commerce under Digital Empowerment" Systems 12, no. 9: 353. https://doi.org/10.3390/systems12090353

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