Hey you guys remember Block Buster right? Remember how crazy it was to see them leave. I remember growing up as a kid almost every weekend my mother and I would go to the local blockbuster in town to rent a flick for the night. I always enjoyed browsing the gazillion movies they offered, trying to find the best movie for the night. Not to mention buying a snack or two on the way out. Soon that all came to an end once Netflix came in the picture. No more did you have to drive down to the store to buy a big clunky VHS or DVD. You could just order a DVD from online and it would come to you. I know right, how could Block Buster not have thought of that brilliant idea.
Apparently in 2000, the founder of Netflix, Reed Hastings, flew to Dallas to offer a partnership or a company merge to John Antioco, former Block Buster CEO. The deal was Netflix would advertise Block Busters brand online and vise versa, Block Buster would promote Netflix in stores. Hastings was laughed at and shown the door.
Well the rest is history, ten Years later Block Buster filed bankruptcy and Netflix grew to be a $28 billion dollar company, ten times as much as Block Busters value. Antioco went down as fool and Hastings a genius. Now don’t get me wrong Antioco was a brilliant man. Known for being a very great executive with a long history of success. But when it came down to it he failed to see that networks of unseen connections would bring his downfall.
If you think about it, Block Buster was dominating the video rental industry. At one point they had thousands of locations and millions of customers they were at the top of the market. So it’s not that surprising that Hastings was denied back in 2000.
It wasn’t obvious at the time, but Block Buster had a weakness no one realized. Majority of the company’s profit came from charging its customers for late returns, which was a vital part of Block Busters model. The worst thing about this business model is that they most of their money from punishing their customers, which is not good.
The advantage of Netflix’s business model is that it didn’t have retail locations, thus reducing cost and the ability to offer more variety to the customer. They also had a monthly subscription fee instead of charging the customer eve time they rent a movie and return it late. The customer could rent as many DVDs as they wanted and for as long as they wanted, no late return fees included. This distribution model worked so well that it forced Block Buster to make changes to their business model in order to compete; this took a negative affect on their profits.
Although Netflix eventually prevailed, doesn’t mean they didn’t struggle with disadvantages. Without retail locations, it was harder for potential customers to find Netflix. In addition, sense they delivered movies by mail it took a lot longer for their customers to receive their movie. It was much faster for someone to drive down to their local Block Buster for a movie.
Their service was still loved and customers passed the word on to their friends. At first many people were hesitant to try it at first, I would agree with others that being able to browse through movies at the store and renting at a moments notice is nice, but eventually others fell in love with Netflix. Eventually word spread, more and more Block Buster customers were moving on to Netflix.
By the way if you have never used Netflix I suggest you do. It is really good.
If you read my other post on Borders Books Store and common mistakes businesses make, you will notice the common mistakes between the two. Block Buster failed to progress with the times and develop something new. They stuck with their original business model for so many years. Eventually their lack of creativity and preparation caught up to them causing them to fail.