10 Reasons Why Blockbuster Failed
What Happened to Blockbuster?
Blockbuster was once the king of video rental, with thousands of stores worldwide. However, within just a couple of decades, it went from boom to bust. So what happened to this former retail giant?
After being acquired by Dish Network in 2011, Blockbuster’s remaining corporate-owned stores were gradually closed down over the next few years as the business was wound down. By 2014, all corporate-owned Blockbuster stores had shut their doors for good.
A handful of franchised Blockbuster stores managed to hang on for a few more years by operating independently. However, by 2018 the last remaining franchised Blockbuster store had closed its doors, marking the end of an era for the iconic brand.
Dish Network continued to operate the Blockbuster On Demand streaming service for a few years after acquiring the company. But it was shut down in 2018 as well, as Dish focused on its core satellite TV business.
Here are 10 key reasons why Blockbuster failed:
1. They Underestimated the Threat of Online Rental Services
When Netflix started offering DVD rentals by mail in the late 1990s, Blockbuster laughed off the competition. The giant’s executives didn’t see how Netflix’s small rental selection could disrupt their massive brick-and-mortar empire. However, what they didn’t anticipate was how quickly streaming technology would advance. By the time Blockbuster tried entering the online space with Blockbuster Online in 2004, it was too little too late. Netflix and upstarts like Redbox were already poised to eat their lunch.
2. They Were Slow to Embrace New Technologies
Related to the above, Blockbuster failed to adopt new technologies quickly enough. The world was shifting from physical to digital media rentals, yet Blockbuster was still focused on its traditional in-store model. Competitors like Netflix and Redbox embraced on-demand streaming and kiosk rentals much more rapidly. Blockbuster found itself several steps behind the tech curve – a place it could never recover from.
3. Their Business Model Had Expensive Overheads
Blockbuster’s traditional retail stores came with massive fixed costs. They had to lease thousands of large spaces, hire many staff to man locations, and maintain a huge inventory across multiple sites. This made the Blockbuster rental experience more expensive and cumbersome than leaner tech-based solutions from disruptors.
4. They Alienated Customers with Late Fees
One of the biggest complaints people had about Blockbuster was their excessive late fees. You could end up paying more in fees than it cost to just rent or buy a movie! This frustrated millions of customers who then eagerly jumped ship to Netflix or Redbox – both of which had no late fees. The fees became so hated that even the term “Blockbuster late fee” entered common lexicon. The brand shot itself in the foot by angering its customer base.
5. They Lost Key Movie Studio Relationships
During its heyday, Blockbuster had exclusive rental deals with major Hollywood studios. This gave customers access to new release titles before competitors. However, by the 2000s, studios were looking to sign digital distribution deals with Netflix and Amazon instead. Blockbuster had less leverage over studios because its customer base was fleeing. The loss of exclusive studio relationships was another nail in Blockbuster’s coffin.
6. They Declined to Acquire Netflix in the Early 2000s
Here’s an interesting “what if” of history. In the early 2000s, when Netflix was still a fledgling DVD-by-mail business, they approached Blockbuster about a potential acquisition or partnership. At the time, Blockbuster still dominated the rental market and could have acquired Netflix for a song. However, Blockbuster thought Netflix wasn’t a threat and declined the offer. Imagine how different the rental market would be today if Blockbuster had acquired Netflix!
7. They Expanded Too Quickly, Then Shrunk Too Slowly
In the 1990s, Blockbuster expanded aggressively, opening thousands of stores per year at its peak growth. However, this left them overstored when the rental market began shifting online. They then closed hundreds of stores per year in the 2000s, but not quickly enough to stay solvent in the digital era. Expanding too fast, then shrinking too slowly – another strategic misstep.
8. They Had Clunky In-Store Software Systems
Blockbuster relied on antiquated, disconnected in-store software systems that made running their retail outlets inefficient. Tasks like tracking inventory and customer reservations were manual and friction-filled. On the other hand, Netflix and other disruptors were using modern cloud-based software to power frictionless digital experiences. Blockbuster’s outdated backend tech made competing in the online rental era even harder.
9. They Diluted Their Brand with Side Businesses
In the 1990s and 2000s, Blockbuster expanded into side businesses like music and video game retail, even launching a failed Blockbuster Rewards credit card. All these efforts diluted their core movie rental brand and took focus away from competing against Netflix and Redbox. Blockbuster would have been better off sticking to their key business and adapting to a digital future.
10. They Filed for Bankruptcy and Were Bought Out
With its business shrinking, Blockbuster finally declared bankruptcy and was bought out by satellite TV provider Dish Network in 2011. Dish gradually shuttered remaining Blockbuster stores over the next few years, and eventually discontinued their Blockbuster On Demand streaming service. And just like that, a former rental titan faded into oblivion. It was a cautionary tale of failing to adapt and innovate in a rapidly evolving industry.
What Blockbuster Could Have Done Differently
In hindsight, there were several key strategic moves Blockbuster could have made to adapt to industry disruption and avoid going out of business:
- Acquire Netflix when they had the chance in the early 2000s. Bringing the upstart streaming company in-house could have given Blockbuster a headstart in transitioning to a digital model.
- Embrace new technologies like DVD-by-mail and video streaming sooner, rather than clinging to the outdated in-store rental model for too long.
- Eliminate late fees earlier to avoid alienating customers and driving them to competitors.
- Focus solely on their core video rental business, instead of diluting the brand with side ventures.
- Aggressively close underperforming retail locations as the market shifted online, downsizing their store footprint more rapidly.
Ultimately, Blockbuster’s downfall was due to a failure to innovate and adapt quickly enough to disruptive new technology and evolving consumer behavior in the video rental market. With some foresight and bold strategic moves, the company could potentially have survived as a leader in the streaming era.
So in summary, a combination of factors – from underestimating competition to clinging to outdated business models – ultimately led to Blockbuster’s demise. It serves as a case study for any business about the perils of not adapting quickly enough to changing markets and new technologies. For this iconic brand, it was a case of adapt or die.
