Blockbuster: Losing the plot
daindunston.com
daindunston.com
I spent many years in at Hollywood Video corporate in the late 2000s and saw much of it first hand. Blockbuster didn't understand what was going on and Hollywood was too busy trying to copy Blockbuster. Neither of them saw Netflix as a threat until it was too late.
Just as the article mentions, the VCR revolutionized the viewing experience for Boomers who were used to waiting for something to come on TV. The video chains experienced insane success, and thought they could ride that formula out for decades.
Netflix revolutionized movie entertainment for Gen-X and millennials who were used to and unimpressed by VHS/DVD rental models. The execs at the top (boomers) ignored the new fangled streaming stuff because they didn't use it, didn't understand it, and most of all didn't see the value.
The younger of us working at Hollywood saw the writing on the wall in the early 2000s as Netflix was making it's climb. The even younger folks working at the stores knew it even better. But none of us could convince anyone at the top that it was important, until the late 2000s when they made a half assed attempt to be an "also does" to the then dominant Netflix.
When you're in a fast moving business, you don't bet everything on what's happening now, you've got to think about what's coming soon...
Customers hated them, and it would appear that Blockbuster hated them back. Maybe it didn't have to be Netflix, but someone was going to come along eventually and pull off an alternative that has no late fees, always has what you want, and you don't have to drive there. Could have been Redbox. You still have to drive there, sometimes the kiosk is out (in which case the web or app can tell you not to bother to get in the car), but at least if you're late it's only another dollar.
Blockbuster tried to fake it, but it still came off as the same weaselly company with the same weaselly fine print ("no late fees" comes to mind). Hollywood kind of tried, and they seemed a little more sincere, but it was still the doomed physical model.
Redbox is giving streaming a whirl, but frankly when I saw Verizon's name attached to it I didn't even bother.
Time will tell how long this strategy will work for Redbox. In their favor: their 36,000 kiosks are placed directly in the footpath of hundreds of millions of shoppers every week. (Walmart alone sees over 100M shoppers per week in the US, and 3,700 Walmart stores have Redbox kiosks). Working against them: broadband penetration, Netflix, Amazon, and the steady transition away from physical media.
[1] About a quarter of US households do not have high-speed broadband. That number will shrink over time, obviously, but perhaps not as quickly as we like to think it will.
And you're right about adoption: there are a lot of people in the US who just don't care about the Internet. They will be increasingly less relevant as time goes on (this is already causing social angst at some levels) but they will persist. Usually you don't see 100% adoption of things like this until all the old people die and are replaced in the consumer pool by younger generations (aka generational cyclicality).
It won't be a spectacular implosion like Blockbuster because they have the benefit of low capital overhead: those kiosks aren't that expensive and the DVDs themselves are basically free (AFAIK Redbox prints copies of them as-needed in exchange for a share of rental revenue to the copyright owners). So they can keep running them as long as the rental revenue covers the maintenance and re-stocking of the kiosks. The kiosks aren't even using valuable real-estate: if you got rid of a Redbox kiosk, I don't know there's anything else you could really put there that would generate a lot of money.
Retailers think of technology as a pure cost center: The products on their shelves are what the customers want; having the physical location and the right products in your inventory are enough. Technology is for operational things like cash registers and warehouse systems, and you don't upgrade any of them before your business plan says so.
Entertainment companies have to think differently about technology. Their product is intellectual property, and as technology evolves, so do the way customers interact with their product. This is nothing new - entertainment companies have had to adapt to FM radio, broadcast TV, color TV, cable TV, HD video, VHS, DVD, etc. But distribution has always been tightly controlled, and technology is a key component of this. So entertainment companies in general are pretty forward-looking in a technology sense - at least moreso than retailers.
In retail, the general customer interaction hasn't changed in a long time (or rather, in 1998 it hadn't changed fundamentally since the advent of credit cards). So the thought that technology could revolutionize the customer experience hadn't even crossed their minds. They had DVDs and VHS tapes - physical goods that they sold. But the product in entertainment is NOT physical, it's the intellectual property: and the retail guys never understood that. Once the consumers realized that, it was game over, man.
Realistically, there was probably very little Blockbuster could have done to challenge Netflix. Netflix was lean and able to move fast - Blockbuster was tied to an aging and slow-moving brick and mortar retail business. Even if Blockbuster had tried to close all their stores and move to a Netflix model, it's ridiculously hard for a large company to disrupt itself. Politically, you'll have a lot of resistance from within and meddling by the "old guard" to make sure the new "disruptive" product isn't going to be good enough to make them obsolete. There is also just a lot of capital overhead involved in running a retail business - obstacles that Netflix didn't have.
Now it looks like Netflix was inevitable, but it took a few huge blunders by other companies for them to succeed. Remember when Starz basically gave away the rights to thousands of shows and movies (for $30 million/year)? We could just as likely be talking about Viacom Streaming and all those silly things that Netflix did.
http://daindunston.com/blockbuster-the-customer-owns-your-pu...
I disagree completely. There's nothing that would have prevented BlockBuster from doing a few really great things:
1. Get customers email address and email them the day before the day of and every day thereafter a DVD is due with options to renew the rental at some kind of reduced rate right in the email, as well as perhaps some kind of option to buy.
2. Implement a "lottery" system. Blockbuster doesn't hold on to inventory forever, so eventually they sell off old rentals. Occasionally give them away. Give them away at a rate which is high enough to keep people renting, but low enough to not decimate profits. Maybe 1:50 or so? And only movies that are getting sold off anyhow. Some people might "game" this system, but they're renting to do so!
3. Make suggestions. BB had my entire friggin rental history for a couple of years and not once did they recommend anything to me that I might like. Could they have thrown in the occasional suggested rental for free with some other rental I was making? Sure. Even better if it was the first disc of the first season of a TV show; I'd be back for all the rest of the discs of all the rest of the seasons.
These all would have required hiring a CXO (customer experience officer) and giving them a lot of budget and authority to do things which seem like they'd hurt the bottom line for the sake of keeping the company afloat. Would it have worked for sure? Maybe, maybe not. But they would have had a better chance of keeping everything afloat.
Trying to sell me overpriced popcorn and whatever was a total joke; I can get that stuff much, much cheaper at the grocery store. Blockbuster isn't a movie theater than can charge outrageous premiums because customers are trapped once they're on the premises.
But Blockbuster didn't do anything to try and turn their ubiquity and huge collection of data into competitive advantage. So they failed.
If you watch only a few movies a month, Redbox is more economic than Netflix. If you only watch two movies per month, paying $3-$4 at Blockbuster is on par with Netflix.
Sure Netflix economics are great if you already have broadband, have stopped paying for cable TV, and you hate driving to the places where Redbox has kiosks. But if any of those conditions aren't met, Netflix doesn't look quite as genius.
Redbox "proves" that there is still demand for physical media rentals. Blockbuster had a kiosk at my local grocery store for a while and that meant I could return a movie or rent a new one every trip if I so desired at something like $1.50 a pop. That was pretty compelling.
Even more compelling would have been a store with a couple of people who really knew movies and could recommend things and with a deep, deep back catalog. Cutting the customer-facing square footage in half would allow each and every store to pack damn near every movie ever made in. Yeah it might take a guy a minute or three to head to the back and pull the movie you're looking for, but it could be done.
The ownership of the movies is a model that Netflix SORELY wishes they had at the moment. Netflix is publicly traded. And because they're publicly traded it means they have to file financials. And filing financials means a profit & loss kind of statement. And because Netflix doesn't actually OWN much IP, it means they have to rent or lease it. And that means the studios which own the IP that Netflix desperately needs to stay in business are perfectly informed of Netflix's financials. So they know just how much they can squeeze Netflix for every time a contract negotiation comes up.
Blockbuster would not be in the same position because they would own the catalog. Purchases are expensive, but over any 20 year period they might be cheaper than renting.
Hollywood Video may have been following BB in many ways, but had the opposite attitude toward customer service. In fact that was the differentiator they counted on. Treat people good and they'll always want to come in. Hollywood never stopped treating people good, but people stopped coming in.
> When you're in a fast moving business, you don't bet everything on what's happening now, you've got to think about what's coming soon...
I work at a telco where the upper management still genuinely believe fax machines are great and we should be increasing the number of copper land lines to homes.
Those two statements rang very, very true for me.
And then there's text messaging. How long did they really think they were going to be able to charge $0.20 for something their customers can do for free?
It is worse than that. When people tell others their preferred way of being contacted they will take convenience and pricing into account. The SMS charges mean they'll prefer other means (eg Facebook messages) which makes their phone number and service less and less relevant. It was a great way of forcing customers to go elsewhere.
I can't imagine Hollywood trying to emulate Blockbuster. Hollywood was actually a decent store. I could find something at Hollywood; I counted and the last 12 times I went to Blockbuster, after 30 minutes of scouring the store ... nothing.
Blockbuster had $1B in debt against estimated $500M in revenue in 2010. I can't help but think that like ClearChannel, Fender Musical Instrument Corp/Guitar Center all that debt is a big problem.
SFAIK, there are still a lot of Redbox out there, and the ones I see are always busy.
"Jim Keyes and all involved will be held accountable for their actions that led to this today," former shareholder, Niko Celentano, wrote at the time of the bankruptcy filing. "Jim Keyes and his BOD's have failed all shareholders in their fiduciary responsibilities due to them. Jim Keyes is the main reason Blockbuster is in this position today due to his denial of being in a business model that did not work anymore. If Jim Keyes would have seen the changes that were evolving in this industry in the past few years, Blockbuster would not have been in the courts today filing Chapter 11 bk protection.... Jim Keyes has failed in his job as CEO of Blockbuster and should resign immediately."
From http://www.thestreet.com/story/10886236/1/should-blockbuster....
That article, and some other things I skimmed over, allege some more serious malfeasance, but this quote doesn't say "Jim Keyes has lied to us" or "filed fraudulent documents with the SEC" or something like that. I don't know much about fiduciary duty, but this statement doesn't seem to identify specific ways Jeff Keyes failed to execute the duty. He may have made some bad choices over "the past few years", but apparently this investor chose not to bail out. Why shouldn't he share the blame?
Seriously though, there seem to be some psychological irregularities in Keyes's behavior. He spends 21 years at 7-11, working his way up to President and CEO, and then he can't enjoy retiring with his millions? Well that's OK, lots of dudes in that position find it interesting to serve on boards or as high-priced consultants. Instead, he bribes a meddlesome private equity guy like Icahn into leadership of a company that was largely built by a former rival exec at 7-11? Jealous much? Usually private equity has to pay a premium to execs, because they're such a pain to work for. (Alternatively, because they disrupt much of the back-scratching pretense at corporate governance seen at publicly traded firms.) This guy must have had the mother of all mid-life crises.
The thing I miss most is book shopping. Particularly for technical books. You can't buy them on any basis but recommendation now because it's not worth it for any book store to carry them.
I am hardly ever surprised by what I order online - on the contrary, I know they have it, and I am almost always guaranteed to have good quality. How many brick and mortars have even an agregrate rating of their products listed right next to them? And no brick and mortar can compare with the selection you get online.
The tactile and "sense of place" seem very subjective, especially when you consider that 95% of your time with a product will be spent with it away from where you purchased it.
I'm all for buying locally to keep taxes going to local funding and employing people in my community, but if I go to a brick and mortar and can't find something once, in 5 minutes, I'll never buy it in a brick and mortar again.
> How many brick and mortars have even an agregrate rating of their products listed right next to them?
On this specific point, I have a phone. I don't need (or really want) the store to have this, I can have it any time I want to. When I'm surprised by something in a store, unless it's immediately obvious that it's something that I want and it doesn't suck, there's my phone to tell me if it's a sham.
That said, I went out of my way to point out that I don't think it's better, just different. So yes, it is subjective.
"Honey, what do you want to watch?"
Before Netflix: "let's go to the store, see what we could find. Let's stop on the way, get some ice cream." Invariably you also run into someone you know on the way.
After Netflix: "I dunno, just pick something."
I'm not saying I miss Blockbuster or I under-appreciate the convenience of Netflix. I just miss that tiny sense of adventure.
GP comment does resonate with me though; it's kind of sad that we've lost that. It's likely caused by having a single browsing device/screen.
Hey did you plan on watching Galactica? Sike!
This is the same point Steve Jobs makes in this clip,
The article cites problems with Blockbuster's management that go all the way back to 1996, before Netflix even existed. And if anything, it sounds like the various cadres of corporate leadership weren't "wishy-washy" so much as they were laser-focused on a single idea -- the one-stop retail "7-11 for the mind" concept. It's just that the idea they were focused on was terrible.
For Carl Icahn, who had used the CEO’s compensation as a cause célèbre in his proxy battle, this was a chance to take a stand. He instructed the board not to pay the bonus and informed Antioco that he could take $2 million or nothing. When the dust cleared from the ensuing fur fight, Icahn was holding Antioco’s resignation and a contract requiring him to pay $24 million in severance.
A massive nationwide retail chain can't just pivot like a startup can. Blockbuster's retail footprint was massive. It had 9,000 stores. Worse, it had franchise stores which it owed a duty to.
Even if Blockbuster could have had a profitable online rental business, it would have been brought down by the retail failure. It would have gone bankrupt anyway.
But Total Access isn't the 800 lbs Gorilla that the author believes it to be. I actually subscribed to total access. It is certainly a cool feature, but I'm not sure it was very profitable. For essentially the same price as netflix, I could also get 2-3 instore rentals a month. All for what blockbuster used to charge for 3-4 rentals total.
But blockbuster could have survived Netflix. What it couldn't survive was netflix, redbox, and instant streams. Netflix took away the heavy movie fans. Redbox took aware the family movie night segment. Blockbuster couldn't survive on 1-1.50 a night, but Redbox could.
The dinosaurs more often than not try to protect their declining fortunes rather than cannibalise their sales, but often they could be doing both and doing it more effectively.
In this case there was a bit more going on, obviously.
They were competitive enough to wipe-out the mom and pop movie rental places that were common before them, but that was about it. They created a monopoly of sorts and then they milked it. The market was hungry for replacement.
It was a long time ago so some of the details are out of focus in my mind, but the one constant I can remember throughout the 6-9 year time span where by my family and I patronized Blockbuster video (wow, like 20 years ago) was that it was quite a bit more pricey than the independent stores we went to before BB crushed them. I know for fact that the local grocer has a video section and charged $1 a video, I want to say Blockbuster charged $4-$5, like in 1992 to 1995, very nearly as much as a movie ticket of the day cost. I'm sure people can tell tons of stories about how terrible they were but it wasn't a great experience and they charged a lot for it.
If you were a real cinemaphile type too, they had what looked like a large collection, but it wasn't as large as it looked, they sometimes had censored versions of movies.
1. Be competent at what you do. 2. Have your main competitor be grossly incompetent.
What this article and its successor indicate is that Netflix satisfied both of these criteria: when, in 2007, Blockbuster had a fairly sensible Netflix-style plan in place, Carl Icahn instated a new CEO who chose to completely demolish it. Had Blockbuster not done this, it's entirely possible Netflix would have not have had room to grow (as Lyft experienced after Uber launched UberX to muscle out Lyft's not-just-black-car model).
I feel that Hacker Newsies get a little wrapped up in the party line of libertarian economics being the ultimate meritocracy, ignoring that capitalism is essentially just an oligopoly with the meritocratic potential to fail only in the case of gross incompetence (which, incidentally and curiously in practice, happens on a fairly regular basis).
Also, I feel things will work better as we try to structure things in a way that disabuses ourselves of the notion that things are working the way they should. Companies still ask questions in the hiring process under the pretext that their employees should want to perpetuate their current operating procedure. Admitting that things are broken, even slightly, leads to smart, sensible people being cast aside, in favor of those who will blindly go down with the ship. This teaches the workforce to be more lemming-like, in order to be hireable.
Netflix understood this, and that's why their revenue from streaming is >10x that of the rental side. http://ir.netflix.com/results.cfm
*Interesting side-note: This is the third article I've read today that mentioned Carl Icahn. That guy has his fingers in everything!