Marketplace Scratch Pad

RIP Blockbuster

Scott Jagow Mar 17, 2010

In the real world, where companies are allowed to fail, a big one is about to go down. Not surprisingly, Blockbuster is pretty much toast. It’s the story of a company that wasn’t nimble or forward-thinking enough to take advantage of its size and reach.

In a regulatory filing, Blockbuster says it will likely have to file for bankruptcy if it can’t deal with its debt:

Because of its losses and “the increasingly competitive industry conditions,” the company sees “substantial doubt about our ability to continue as a going concern.”

The “increasingly competitive industry conditions” have existed for years. Netflix started in the late 90’s, and Blockbuster waited far too long to take the start-up seriously. In fact, in 2008, Blockbuster CEO Jim Keyes said: “I’ve frankly been confused by this fascination that everybody has with Netflix.”

The fascination is pretty simple. People don’t want to drive to the DVD store when they can get a DVD in the mail twice a week or download just about all the entertainment they can watch for $10 a month.

Keyes pinned his company’s entire strategy on the assumption that customers would still flock to Blockbuster for new releases. Bad market research.

And then, lo and behold, someone came up with the idea of putting DVD kiosks in grocery stores, and Redbox drove the final nail into Blockbuster’s coffin. Blockbuster does have a download deal with Tivo, but it’s probably too little too late. From Daily Finance:

We’d bet that a big part of Blockbuster’s problem is Keyes. The former 7-Eleven CEO joined the retailer in 2005, at a critical transition period for the company. Instead of embracing the digital revolution, Blockbuster has strongly resisted change. In 2008, at a time when in-store kiosks with $1 rentals started popping up everywhere, Blockbuster touted its brick-and-mortar business and dismissed the significance of new distribution models.

And while Netflix serves all-you-can-eat entertainment for a low, fixed rate, Blockbuster recently reinstated late fees and shortened the rental period for premium titles — those aren’t exactly the kinds of changes that will win new customers.

In fact, I’m pretty sure there are a few old Blockbuster customers who got screwed by overzealous late fee charges that will relish dancing on the company’s grave.

Redbox is 20th century technology too. It will also eventually perish, unless it adapts to the creative destruction which has destroyed Blockbuster.

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