Blockbuster, the largest movie rental retail chain was founded in 1985 in Texas, US. Blockbuster movie rental retail stores offered a wide selection of movies. It built strong brand recognition in the late 1990s or early 2000s. With up to 9,000 stores that let customers walk through aisles of movies advertised with their DVD cases to make a selection. Its revenues rose to around $6 billion in 2004.
Blockbuster owned physical copies of movies that could be rented multiple times to capture the value. It cost $2-$5 to rent a film, new ones having higher prices than the old films. After renting a DVD, the customers’ had to return on the decided deadline, or else late fees, comprising an estimated 70% of profits, were added to a customer’s account.
Blockbuster was challenged by the entry of Netflix, as well as powerful technology companies like Apple and Amazon. With the cable companies streaming and video-on-demand services, it struggled to compete with the new business models. Blockbuster had to shift from its brick and mortar approach with retail stores to an entirely new way of functioning that was unknown. So, Blockbuster continues to focus on its profit.
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While Netflix began its DVD-by-mail service and streaming/online service, Blockbuster was still earning billions of dollars in revenue using its old model. The margins and markets of these new models did not look attractive as its established old model. Why pay attention to these new ideas if the markets are small and the margins slim? Blockbuster responded to all of its competitive threats with similar models, but it was too late. It tried a DVD-by-mail service, rental kiosks similar to Redbox, and put up on the website for online streaming. Blockbuster’s CEO, Jim Keyes (2007-2011), 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 service world and stated: “Blockbuster could leverage its strong brand to win.”
But due to the rapid changes in the industry, Blockbuster was left in the dust. Blockbuster suffered bankruptcy in 2010. Blockbuster, a wildly successful national movie-rental chain, filed for bankruptcy 6 years after achieving $6 billion in revenue.
Learnings from Blockbuster?
- Current unattractive opportunities can become very attractive opportunities in our changing world.
- Success is distracting and can blur the vision to check new opportunities or threats.
- Brand past successes are not enough to compete against new digital transformations.
- Blockbuster had a chance to purchase Netflix for $50 million but didn’t identify the streaming/online trend earlier.