Blockbuster going out of business was not directly related to Netflix nor Redbox at all. Anyone talking about that is guessing with no information available about the world back then.
Amazon didn’t kill Walmart, and neither killed Best Buy. Neither Blockbuster nor Netflix killed AMC Theaters.
There’s a documentary about it on Netflix right now called The Last Blockbuster interviewing a lot of the people involved in the last store and the old corporation.
Great watch, and I highly suggest it for the irony alone.
The company’s CFO delves into the final days of Blockbuster after explaining how it grew into a behemoth in the first place.
According to him, the collapse had more to do with Lehman Brothers than Netflix, which still hadn’t created original programming until 2012. It was in debt and couldn’t get financing because of the financial collapse at the time.
Personally, I blame bad management that knew how to expand but not evolve.
When the financial system collapsed in 2007, Blockbuster was still alive. So was Hollywood Video, its competitor you forgot about. Only 3 years earlier in 2004, the company reached its peak size of over 9,000 stores, which also left it with a lot of debt.
In 2007, Netflix was still dependent on its DVD by mail service. Believe it or not, 2 million people still get DVDs by mail from Netflix in 2021.Why Are 2 Million People Still Getting Netflix DVDs by Mail?The company still gets a healthy slice of revenue from disc rentals—but the service has suffered as a result of the pandemic.https://www.wired.com/story/why-are-2-million-people-still-getting-netflix-dvds-by-mail/
Blockbuster had everything Netflix did and more. It had a streaming service, a mail service, and a massive retail footprint. It had video games and physical movie posters and such.
The problem was it also had a lot of debt – the company had over $1 billion in debt at a time when the financial system that typically would’ve helped with funding was collapsed.
Lehman Bros was the first of many finance companies that went bankrupt, leaving Blockbuster with no money to continue operations while still focusing on its competing rivals like Redbox and Netflix.
By this point in 2007, Redbox surpassed Blockbuster in physical locations at 10,000. Blockbuster had already turned down buying both Redbox and Netflix.
Redbox at the time was run by COO Mitch Lowe, who previously ran a company called Video Droid in the 1980s though 1997. That company rented VHS tape through kiosks, which was deemed impractical at the time. By 2009, he was the CEO of Redbox.
Of course, both Redbox and Netflix were receiving pushback from Hollywood studios over loss of revenue. At the time, Blockbuster had revenue sharing agreements with the studios.
That’s how it grew in the first place – mom & pop video stores had to spend $100 for a movie back in the day just to rent them out. Blockbuster paid $2 a movie and shared revenue with the studios in exchange. So when a new movie was released, your local Blockbuster had 100 copies, while everyone else in town had 2 that were always gone when you got there.
But Redbox and Netflix had no such agreements, and the studios refused to sell movies to Redbox until 30 days after release, causing Redbox to sue the Hollywood studios for antitrust in 2009.
During this timeframe, Redbox simply purchased the movie from retail stores, which cost $20 instead of $100. It saved them a lot of money.
Meanwhile, Reed Hastings and Marc Randolph were hard at work on Netflix. I sat in on several Clubhouse rooms this year where Hastings explains these years.
It was initially a dog food service called Kibble, but they transitioned into video rentals. The original name was Rewind, but a $40,000 web domain meant they needed to rename it something cheaper.
Netflix was reminiscent of skin flicks back in the day (what we called porn back then). So the site was cheaper, and we got Netflix out of it.
Everyone told them a video rental by mail service would never work. At the time, video rental stores had deep penetration and were a part of the culture. And it didn’t work initially – the founding team spent nearly two years testing new things every day to grow their subscriber base.
They would commission custom photography, hired a copy editor, and stress tested the entire site. It was a weeks-long process that didn’t work out, so they shortened the iterative sprints to hit releases every day.
While quantity is great, it lowered the output quality. This filled the initial site with typos and other rookie mistakes, but it did give Randolph insights into how Netflix should grow. It’s not about having good ideas – that’s a waste of time.
By the time Blockbuster started stocking DVDs, Netflix was already established. It found the early mover advantage in a new media, and it created a win for the company. It wasn’t long before the company got a call from Amazon CEO Jeff Bezos.
Just the call alone was enough to inject fresh energy into the company. They knew he was looking to buy the company, and his seeing something in the company was all they needed to feel confident in what they’re building.
Besides Netflix, Randolph also got to see Amazonin its earlier days. He was invited to the company’s headquarters and described it much like a frat house with boxes everywhere and people scambling to keep up with the wave of customers.
Amazon offered $15 million in the 1990s, and Netflix turned it down. By 2000, Hastings offered to sell Netflix to Blockbuster for $50 million, which Blockbuster rejected.
Here’s an image map of the conversation with Randolph earlier this year describing the early success of Netflix.
By 2007, Hastings tried buying Blockbuster, which activist investor Carl Icahn refused. The company chose Blu Ray over HDDVD and seemed like it would turn around.
It wasn’t focused on Netflix and Redbox as competitors – Blockbuster was competing against Walmart and Apple. For a minute, it even considered buying Circuit City before it went out of business.
Every move the company made after that was worthless. It continued declining and couldn’t pay off its massive debts.
Had Blockbuster been able to secure financing, had it bought Netflix or Redbox when it had the chance, had it seen the writing on the wall, it could’ve survived.
It wasn’t Netflix and Redbox that killed Blockbuster. If that were true, they would’ve also killed Hulu, Disney+, HBOMax, Amazon Prime, Paramount+, Apple TV+, Peacock, and every other movie service.
Hell, Netflix was already converted into a production studio by the time Blockbuster died in 2014. The Netflix that existed at Blockbuster’s peak in 2007 had already shifted from DVD by mail to streaming to production in that 7-year period. It only survived by vertically integrating while Blockbuster only horizontally integrated and chased the profits.
Netflix didn’t kill Blockbuster – it barely survived the same culling by the skin of its teeth.