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Blockbuster Video: A Relic of Modern Business

August 20, 2010 1 comment

Where did Blockbuster go wrong?

Were their advertising campaigns no longer sufficient? Were promotions like “Life After Late Fees” not enough to pique consumer interest? Did people just stop watching movies altogether?

Blockbuster Video, as we knew it twenty years ago, was an innovative and groundbreaking franchise. Its profit model was simple and successful: buy videos and other media in bulk and rent to customers for a flat rate. If customers failed to make a return on time, they were charged a late fee. If a video was given back damaged, the customer paid full price to replace it. It allowed consumers the flexibility of watching both new and old movies without having to compromise and pay full price for ownership. In essence, Blockbuster’s unique business design operated as a for-profit library. Inventory was cyclical; movies went out, and soon came right back in. Margins were low, business was booming.

And then, several decades later, the competition came.

Consumers became able to order movies directly through their cable box, saving the hassle of having to leave the house. Netflix, the media by mail provider, was founded on the premise of unlimited rentals for $9.99/month. Libraries of free movies were offered through online services like Hulu. RedBox, the $1 movie vending machine, flooded supermarkets and convenience stores. Apple made the concept of transportable media via iPod and iPad a reality.

And Blockbuster…well, they still rented single items at $5/night. People began to notice the asterisk next to the “no more late fees” claim. And worst of all, people actually had to leave the house to rent a movie.

Blockbuster sat back and watched in horror as their market share plummeted. They failed to react. And once they finally did something about it by founding Blockbuster Total Access, it was too late. Blockbuster had become an afterthought, a dinosaur of modern business. Stores closed, stocks free-fell, and revenues dropped by a staggering $4 billion a year. The franchise became the prototype of poor response time, a firsthand example of what happens when a company fails to evolve.

It’s funny, but I find myself on nights with nothing to do wishing the Blockbuster in town hadn’t closed its doors. Sometimes the selection at RedBox is minimal and the only choices on Comcast are “Hot Tub Time Machine” and “Cop Out.” I miss Blockbuster’s enormous selection and walls upon walls of new releases. I loved the fact that it was usually a safe bet they’d have some obscure movie like “Killer Clowns from Outer Space” in stock at any given time.

Visiting an active Blockbuster store is like a time warp to 2001, when PlayStation 2 was cutting edge and Russell Crowe was still relevant. Now, however, employees are like zombies, aisles are devoid of customers and spider webs grow inside each and every DVD case. The way it looks today leads me to wonder whether the Blockbuster franchise will be remembered for its innovations at the dawn of the rental age or more for its epic meltdown at the end of it. It’s truly a depressing sight.

Next in line: Barnes & Noble.

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Categories: Strategies Tags: , , ,