by Brandon Reiter
In 2004, Blockbuster Video had over 9,000 stores and employed more than 80,000 people across the world. In 2010, the company famously filed for bankruptcy, and as of 2019, only one single store remains. It’s in Bend, Oregon, if you feel like making a road trip.
Blockbuster’s decline is one of the fastest and most iconic failures of corporate American leadership in modern history. Due to a combination of lack of foresight, greed, and poor customer relations, Blockbuster missed out on continuing to be one of the biggest household names in the world. Their leadership’s attempts to fend off the competition lacked clarity, cohesiveness, and resulted in myriad ways of siphoning off money. And now, today, when I told my mom I was writing an article on Blockbuster, she said, “the video store?”
At its peak, from 1997-2005, the company was led by John Antioco. During his tenure, Antioco led Blockbuster as the main player in the video rental industry. The company was so large that it was even denied a hostile takeover attempt of rival, Hollywood Video, due to restraints from the FTC in 2004. As profit’s began to decline, Carl Icahn, known for being a “corporate raider”, inserted himself into Blockbuster’s board of director after a successful proxy fight. Icahn was instantly at odds with Antioco. He was angry with the CEO’s obscenely large compensation package consisting of $51.6 million per year despite a newfound slump in sales. Icahn was also dismayed by the company’s new campaign which falsely promoted a “no more late fees” policy. In reality, the policy actually charged users the full price of the movie or game if it was not returned in 8 days, but could be cancelled if they returned the product for a smaller fee. Otherwise known as a late fee. Over 40 states filed suit against the company for false advertising to which they settled, agreeing to pay refunds and explain their incoherent policy a bit more coherently.
Continuing off their first failed attempt at combating their decline, Blockbuster launched a campaign called “Total Access”. Through their online platform, customers could rent a movie and receive a new one for free when they returned it to a store. The publicity of the campaign was actually an initial success. Netflix was even threatened enough to the point that CEO, Reed Hastings, offered Antioco a purchase of Blockbuster’s online platform. However, the campaign was a huge financial loss for Blockbuster, as they were losing two dollars on every free movie they gave out. Antioco hoped it would be, what is known as, a loss leader that would attract new subscribers and keep them out of their competition’s hands. Nonetheless, Icahn put an end to the negotiating, refusing to see more profits seep out from Total Access. Antioco was soon forced to resign, but not before receiving more controversial compensation; a severance package consisting of a reported $24.7 million.
Keyes aligned with Icahn in his opposition to Total Access, getting rid of the free movie deal and raising the prices of online DVD rentals. The result was a sharp halt in the massive growth of Blockbuster Online. With their online DVD rental service essentially dead, Keyes did foresee the shift to streaming somewhat, as he acquired Movielink, an online service where customers could download movies from a library of over 6,000 titles, for $6.6 million. However, despite their move to streaming, management was less worried about competition from Netflix, and focused more on Apple and Walmart as their main competitors. They even considered buying CIRCUIT CITY for more than $1 BILLION in 2008. Lol.
The off the mark focus did not combat declining sales, instead it pushed more money out the door, eventually leading the company to file for bankruptcy in 2010, after their inability to pay off their debt from bondholders.
Blockbuster was driving a beautiful vehicle in the early 2000’s but, after hitting a rocky road with a bunch of potholes, failed to see where the damage truly lied. They spent a lot of money trying to keep gasoline away from their competitors, unsure of who they even were, but they failed to realize the smoke coming from their engine. Hindsight is 20/20 of course, but their inability to see the route of their problems and tend to them efficiently is what led to their speedy collapse.
As a business owner, over the course of your journey, like Blockbuster, you will be faced with many bumpy roads and tough weather conditions along the way. That is why it is important to constantly asses your vehicle’s performance, and make sure that it is healthy and driving smoothly. Consistently ask yourself who your main competitors are, what they are doing, what the trends in your industry are, and of course, don’t make a campaign called “no more late fees” and then charge your customers late fees. They won’t like that and will probably sue you.
Also don’t try to buy a company like Circuit City.
