We’ve all heard of the video rental giant – Blockbuster. Its Founder David Cook opened nearly 10,000 global stores and generated billions in annual revenue. Yet in the early 2010s, the name disappeared from high streets, with its last corporate-owned store shutting in 2014. How did a company that dominated its industry fail so spectacularly, and more importantly, how can companies today learn from its toppling?

Their ‘Blockbuster’ Success

The company was built on a simple model centred around the principle of convenience. In the age before online streaming of films, Blockbuster capitalised on consumer demand for affordable home entertainment by introducing more accessible stores, a large inventory, and policies removing late fees (however they were reintroduced later on). The model became revolutionary at the time and the company’s expansive brick-and-mortar presence along with its partnerships with studios created their competitive edge. By the early 1990s, Blockbuster was opening one store every 24 hours, becoming the undisputed leader in the video rental industry. They were one of the first organisations to use data analytics to determine popular rental trends, showcasing forward-thinking ideas. Yet even as they rapidly expanded, the seeds of the company’s failure were being planted.

What Went Wrong?

The company’s most infamous blunder was their refusal to adapt to changing technology. In 2000, Netflix – which at the time was only a small, growing DVD rental-by-mail company – offered to sell their business to Blockbuster for $50 million. Ironically, John Antioco, the CEO of Blockbuster at the time, dismissed Netflix’s business model as niche, saying that “the dot-com hysteria is completely overblown” (according to a book in 2019 written by Marc Randolph, co-founder of Netflix). As Netflix pivoted to streaming, Antico clung to his traditional rental model, completely underestimating the speed at which consumer preferences were shifting. Streaming technology, assisted by broadband internet expansion, ended up revolutionising home entertainment. By the time Blockbuster attempted its own streaming service in 2007, Netflix had already managed to rise to the top of the industry, running miles ahead of the old video rental giant.

Reliance on their incredibly successful brick-and-mortar stores worked well in the pre-digital era. However, as convenience turned from the average person’s local store to an online service in the comfort of their homes, consumers gravitated towards the newer model, and so did businesses. Maintaining their thousands of stores was a liability which became extremely expensive and inflexible as digitalisation came about, leaving Blockbuster unable to pivot quickly enough.

Another dependency was late fees, which the company reintroduced in March 2010, and accounted for a huge portion of their revenue. The addition of the fees created frustration as it shifted the company’s reputation from being motivated by consumer satisfaction to one motivated by profits. Netflix’s subscription model overpowered this, eliminating late fees entirely. This resonated with consumers and characterized the company as putting consumers first, which in turn, ended up generating more profit. This example demonstrated how being adaptable to consumer preferences was the key to survival in a competitive, evolving industry.

Finally, changes in leadership significantly compounded the company’s problems. Since 1994, Blockbuster was under the ownership of Viacom and later private equity firms, who imprinted substantial debt and prioritized short-term profits over long-term innovation and reinvestment. Earnings and investments were redirected straight into expanding retail locations instead of looking for digitalisation, automation, and more competitive pricing models – areas where consumers were discovering interests and towards which the markets were leaning.

Lessons for Modern Businesses

1. Adapt quickly to changing consumer preferences. The most crucial takeaway from Blockbuster’s fall is the significance of staying watchful of consumer behaviour. As technology continues to evolve, businesses have to be dynamic in recognising and embracing the trend. Netflix and Amazon are prime examples of success in this area; they never fail to innovate and come up with new ideas that both anticipate and shape consumer demand, particularly in terms of convenience and accessibility.
2. Innovate or crumble. CEO John Antioco’s timidity to innovate made the company vulnerable to change, becoming arguably his biggest failure. Businesses need to engrain the culture of innovation in their core values, encouraging experimentation, and accepting occasional fails. More recently, emerging technologies like AI, blockchain, quantum computing, and more have potential to transform the market once again. Companies have soared by simply leveraging these models, and companies have collapsed behind as a result.
3. Don’t fear cannibalising your own business. One of Netflix’s ingenious decisions was shifting from DVDs to streaming. Although this one shift could have destroyed its entire business, Reed Hastings, former CEO of Netflix, was responsible for championing the shift that fortunately turned the company into the streaming leader that it is today. Blockbuster’s lack of risk-taking, attempting to protect the large rental business that it has built from the ground, delayed their entry into  streaming. Companies must be confident to disrupt themselves before competitors do.

Blockbuster declared bankruptcy on the 23rd of September 2010. In such a swiftly changing world,  companies must be agile, prioritise innovation, and keep an ear out for customer needs. Blockbuster’s logo is now filled with nostalgia for those who lived through the company’s prime, serving as a powerful lesson for modern businesses: don’t get left behind.