Some of my fondest childhood memories involved going to Blockbuster with my dad after school. At our local branch, there was a large board filled with movie titles that were either in theaters, coming soon, or available now (if they hadn’t already been checked out). While my dad rushed to make sure that there were still copies of Jerry Maguire and Trainspotting on the wall of new releases, I wandered around and stared at VHS box covers as I shuffled down the aisles.
There were times when I literally had no idea what was available to rent aside from the titles that were featured during VHS previews, and I couldn’t whip out a cellphone to check IMDB and see if a movie on the shelf was worth my time. This led to moments when I just picked up whatever looked, well…not boring. It was pretty similar to my current experiences with Netflix, where I scroll through an endless lineup of C-list movies that occasionally have a diamond-in-the-rough mixed in.
Then came rise of on-demand content that didn’t require a television. It was a huge step forward in providing instantly accessible entertainment, the biggest draws being that you never had to worry about a movie’s physical availability and late fees were a thing of the past. However, the current state of media consumption owes its existence in large part to DVD-by-mail services that served as the heralds of the coming age of streaming.
Despite their dominance in the 1980s and 1990s, Blockbuster royally screwed up when an opportunity to acquire one of these small DVD-by-mail movie rental company landed on their doorstep. In 1997, Reed Hastings and Marc Randolph had created a small online movie rental service that soon included DVD rentals and sales. In an interview with the New York Times, Hastings explained that the idea for the company came to him after incurring a late fee for Apollo 13. “It was six weeks late and I owed the video store $40,” he explained. “I had misplaced the cassette. It was all my fault. I didn’t want to tell my wife about it. And I said to myself, ‘I’m going to compromise the integrity of my marriage over a late fee?’” After studying the way that gyms offer their services (a monthly fee for access to the facilities), Netflix’s subscription service was formed.
Meanwhile, Blockbuster was making bad decision after bad decision. John Antioco served as the Chairman and CEO of the company from 1997 to 2007, and in that time he led Blockbuster though a critical stage in their existence as they struggled to adapt to the changing media landscape. For example, Reed Hastings offered to sell Netflix to Blockbuster in 2000 for $50 million, a plan that was turned down by Antioco because he claimed that Netflix was a “very small niche business.” Nice going, John.
Just a side note, the market value for Netflix, Inc. is currently $44.94 billion. That’s billion with a “B.”
Blockbuster didn’t provide online DVD subscription services until 2004, almost five years after Netflix’s own monthly plan. Late fees were scrapped in 2005 (Netflix never had late fees), and an Internet service was established that same year (Netflix had an online since 1997). According to The Washington Post, while Netflix was starting the online streaming service that now dominates the market, Blockbuster was attempting to sway customers towards their “Total Access” DVD-by-mail program.
If you fast-forward to 2008, you can see that Blockbuster still didn’t see Netflix as a threat. In an interview with The Motley Fool, Blockbuster CEO Jim Keyes was asked about the levels of competition from Netflix and RedBox, and he dismissed them both. “Neither RedBox nor Netflix are even on the radar screen in terms of competition,” he said. “It’s more Wal-Mart and Apple.”
On September 23, 2010, Blockbuster filed for bankruptcy protection [site no longer live] in an effort to create “a plan to recapitalize its balance sheet and put the company in a stronger financial position as it continues to pursue its strategic plan and transform its business model…The recapitalization plan would substantially reduce the Company’s indebtedness — from nearly $1 billion currently to an estimated $100 million or less when implemented.” In other words, they were screwed. Domestic and international franchises were not included in the Chapter 11 proceedings (they were legally separate entities), and at the time of the filing, there were 3,000 company-owned stores that would remain open for the time being. The CEO said, “After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model to meet the evolving preferences of our customers.”
It’s almost like Blockbuster’s ship had a broken wheel that took them in one direction: south.
By April 2011, Dish Network had acquired all of the assets associated with Blockbuster. Despite owning approximately 9,000 brick and mortar stores in 2004, only 900 U.S. stores remained in August 2012. Dish made an attempt to use the remaining Blockbuster stores to sell Dish products, including a mobile device that could stream movies and TV shows, but plans never materialized. They also tried to revamp monthly plans that would allow users to rent DVDs by mail, stream content to their devices, and watch movies on their televisions via Dish, but that plan never hit its profit goals. Charlie Ergen, the owner of Dish Network Corp., didn’t seem too enthusiastic about the potential for Blockbuster to become great again. “Worst case, we’ll take our money after having wasted some time, not much money, and life goes on,” Ergen said.
Blockbuster’s corporate stores closed on January 12, 2014, though they only had approximately 300 remaining corporate stores at this time (down from 3,000 stores in 2010 and 9,000 stores at its peak in 2004). According to Blockbuster’s current website, there are still 51 franchise locations that exist in the US; however, the list appears to be outdated. I found a site called “Blockbuster Video Isn’t Dead!” that keeps track of all of the remaining franchises and updates the site and map when they shut down [Editor’s Note: The site is no longer available]. As of September 23, 2016, there are 11 verified Blockbuster Video franchise stores that still exist following the closure of this franchise in Midtown Anchorage, Alaska. “It’s just a transition that’s been going on for … seven or eight years now, from physical media to digital media,” said Alan Payne, who owns almost all of the remaining Blockbuster franchises in Alaska. “That includes all forms of on-demand: Netflix, YouTube, music streaming.”
After reading that sad tale, you may think that the meteoric rise of Netflix was unstoppable. That isn’t the case, though, since the name “Quikster” leaves a bitter taste in the mouths of longtime Netflix users. In September 2011, Reed Hastings had announced that they would be splitting up the company’s streaming and DVD-by-mail services. Customers who once took advantage of both streaming and DVD offerings from Netflix now had to pay almost 60% more for both Netflix (streaming) and Quikster (DVD-by-mail), since they needed to subscribe to two different services instead of one. Netflix had lost approximately 4% of its users in July of that year after they’d originally split the DVD and streaming businesses (that’s 1 million customers), and the public backlash against Netflix’s plan was enormous. “”Netflix has a major leg up on its competition, because it offers library titles via streaming and any title with a two-day delay through the mail,” said Brett Harriss, an analyst at Gabelli & Co. “By separating them, Netflix would have allowed Apple and Blockbuster to compete with each portion of its business separately.”
Hastings acknowledged his company’s blunder and acknowledged the valid criticisms they received from their customers, adding that “there is a difference between moving quickly — which Netflix has done very well for years — and moving too fast, which is what we did in this case.” As you can probably tell, Netflix successfully bounced back from this issue and managed to become stronger than ever, thanks in part to the company’s transparency and ability to adapt to changes in the media consumption landscape. It also helps that they were able to right the ship before it went too far off-course, an ability that Blockbuster severely lacked. It’s almost like Blockbuster’s ship had a broken wheel that took them in one direction: south.
As Netflix has gained subscribers over the years, the amount of money that they must pay the content license owners has increased proportionally. This affects the duration that hit movie titles can be available for streaming, since Netflix can simply produce their own content for a specified amount of money and have that content be available to customers indefinitely (which also serves as leverage to gain new subscribers who seek unique content from their streaming services).
While many consider House of Cards and Orange Is the New Black to be Netflix’s first attempts at breaking into original content production, The Washington Post revealed that Netflix had actually been involved in buying movies as early as 2004. House of Cards was created following an analysis of the data on customer preferences that Netflix possessed. “I didn’t use data to make the show,” explained Content Chief Ted Sarandos, “but I used data to determine the potential audience to a level of accuracy very few people can do.” Netflix was able to tap into its own resources to produce exactly what customers had always wanted, regardless of whether or not these customers knew they wanted it.
In a recent study conducted by streaming news site Exstreamist, Netflix’s catalog of available titles has shrunken by approximately 50% since 2012. Their current library sits at around 5,302 titles, while there were close to 11,000 movies and TV shows four years ago. There’s more to this reduction than a simple drop in available content, though. In recent years, Netflix has made a hard push to focus interest away from the types of movies and TV shows that pop up on all streaming sites at once, instead opting for exclusive content. “Netflix Originals” tend to cost a lot of money to produce, and this money is pulled from the pool that originally went towards paying for the rights to stream popular movies and TV series for periods of time.
At the end of the day, Netflix is making an effort to ensure that when quantity goes down, quality goes up. Gone are the days when you’d spend hours sifting through the same crappy movies that you never cared about when they were originally released. Now you have episodic shows like Stranger Things and Narcos, movies like Beasts of No Nation and The Ridiculous Six, and an extensive list of comedy specials and documentaries. Other streaming services have made a bigger effort in creating original content as of late, but for some reason “Amazon Prime and chill” doesn’t sound quite right.
When asked where he sees Netflix five years from now, Reed Hastings honestly had no idea. “We don’t really know,” Hastings said. “It’s not Netflix that’s making the changes. It’s the Internet. We’re figuring out every year how to use the Internet to make a great consumer experience. Every year is an experiment.” The fact that Hastings acknowledges the Internet as the true force of change—a force that is completely out of his control—reveals that Netflix is in a much better position to succeed than Blockbuster ever was. Approximately 47 million Americans currently subscribe to Netflix, and Hastings claims that the company is expected to grow to include about 60-90 million users in the U.S. And this doesn’t include the individuals who share accounts with paying customers. As long as they continue to adapt to market changes and add to their ever-increasing library of original shows and movies (à la HBO), the company is in an excellent position to remain successful.
Now if you’ll excuse me, I’m going to close Microsoft Word and watch Zootopia on Netflix with my girlfriend. She likes the sloth.
