Irene Kim: At its peak in the late '90s,
Blockbuster owned over 9,000 video-rental stores
in the United States,
employed 84,000 people worldwide,
and had 65 million registered customers.
Once valued as a $3 billion company,
in just one year, Blockbuster earned
$800 million in late fees alone.
♪ Blockbuster Video, wow! ♪
But fast-forward a decade,
and Blockbuster ceased to exist,
having filed for bankruptcy
with over $900 million in debt.
So, what happened?
Blockbuster was founded by David Cook,
a software supplier in the oil and gas industry.
After studying the potential of a video-store business
for a friend, he realized that a well-franchised chain
could grow to 1,500 units.
And so the first Blockbuster store
opened in Dallas on October 19, 1985.
Andy Ash: According to David Cook, the opening night
of that first Blockbuster store was a huge success.
The story goes that they actually had to lock the doors
because of overcrowding.
The thing that really set Blockbuster apart at that time
was their huge range of titles.
Other independent video stores
could only keep track of 100 or so movies.
Blockbuster had an innovative new barcode system,
which meant that they could track up to 10,000 VHSs
per store to each registered customer,
which also meant that they could keep an eye
on those lucrative late fees.
Kim: Off the back of this success,
Cook built a $6 million distribution center,
not only so that new stores could pop up quickly,
but also to house a huge range of titles,
so that each store's inventory
could be tailored to local demographics.
Commercial: Wow! Wow!
Wow!
Kim: In 1987, Blockbuster received
$18.5 million from a trio of investors,
including Waste Management founder Wayne Huizenga,
in return for voting control,
but after two months of intense disagreements,
Cook left Blockbuster and Huizenga assumed control.
Under Huizenga, Blockbuster embarked
on an aggressive expansion plan,
buying out existing video-rental chains
while opening new stores at a rate of one per day.
By 1988, just three years after the first store opened,
Blockbuster was America's No. 1 video chain,
with over 400 stores nationwide.
But as Blockbuster became a multibillion-dollar company
in the early '90s,
adding music and video-game rental to its stores,
Huizenga was worried about how emerging technology
like cable television
could hurt Blockbuster's video-store model.
After briefly considering buying a cable company
and even receiving approval from the Florida Legislature
to build a Blockbuster amusement park in Miami,
Huizenga offloaded Blockbuster to media giant Viacom
for $8 billion in 1994.
In only two years under Viacom,
Blockbuster lost half of its value.
Commercial: You can go one of two ways.
Kim: While Blockbuster and its new boss, John Antioco,
focused on brick-and-mortar video stores,
technological innovations
meant that competition was on the rise.
In 1997, Reed Hastings founded Netflix,
a DVD-by-mail rental service at the time,
in part after being frustrated
with a $40 late fee from Blockbuster.
Two years later, having passed on an opportunity
to buy Netflix for $50 million,
Blockbuster teamed up with Enron
to create a video-on-demand service.
In a deal that saw Enron do most of the work,
a robust video-on-demand platform was successfully built
and tested with customers.
But it soon became clear to Enron
that Blockbuster was so focused
on its lucrative video stores
that it had little time or commitment
for the video-on-demand business.
As a result, in 2001,
Blockbuster walked away from the first
major development of wide-scale movie streaming.
Within a few years, Netflix and other competitors
began to eat into Blockbuster's profits,
not by undercutting it,
but by reimagining video rental in the digital age.
Commercial: There's a better way to rent movies.
Go to Netflix.com,
make a list of the movies you wanna see,
and in about one business day you'll get three DVDs.
Keep them as long as you want, without late fees.
Then, when you're done, look: prepaid envelopes.
Return one and they'll send you
another movie from your list.
Netflix. All the movies you want,
20 bucks a month, and no late fees.
Kim: It took Blockbuster almost five years
to introduce its own DVD-by-mail service
and even longer to scrap late fees.
Commercial: No more late fees!
No more late fees!
No more late fees?
Kim: By that time, Netflix had amassed
almost 3 million customers,
had no store overheads,
and was preparing to launch
its revolutionary streaming service.
Blockbuster's troubles continued through the mid-2000s.
After parting from Viacom
and experimenting with in-store concepts
such as DVD and game trading,
Blockbuster was in the midst of an identity crisis.
In 2009, Netflix posted earnings
of $116 million.
Meanwhile, Blockbuster,
with its continuing business problems
and legal battles, lost $518 million.
On July 1, 2010, Blockbuster was delisted
from the New York Stock Exchange.
Its foray into video-on-demand streaming
came too late, and over the next three years,
Blockbuster died a slow and painful death.
DVD-by-mail services stopped,
its various partnerships folded,
and stores worldwide
were rapidly plunged into administration.
Commercial: We're closing early.
Kim: Its 9,000-strong chain
had been reduced to one single franchise
in Bend, Oregon.
As a result of Blockbuster's complete shutdown,
one can only speculate about what could have been
for the once home-movie giant.
Ash: They were too busy making money
in their video stores
to imagine a time when people
would no longer want or need them.
And in a bid to rescue their business,
their answer at the time was to fight fire with fire.
At one point they even opened up rental kiosks,
a little bit like a vending machine,
but all of these attempts were based
on either outdated technology
or outdated business models,
whereas Netflix at the time,
they did the opposite; they streamlined,
they were able to see the future of video rentals
and then innovate for that future.
Blockbuster, they didn't seem to understand
how the next generation, particularly millennials,
who grew up in a world without hard-copy media
like DVDs and CDs, how they would react
to video-on-demand as technology improved.
And that's why Netflix,
Amazon Prime, YouTube, and Hulu,
they're still all in business,
whilst Blockbuster got left behind.
Kim: According to Netflix's former
Chief Financial Officer Barry McCarthy,
as part of the failed 2000 Blockbuster-Netflix buyout,
Reed Hastings proposed that Netflix
would run the Blockbuster brand online.
If that deal had been successful
and Hastings had replicated
Netflix's innovation for Blockbuster,
the face of home video
would likely still be blue and yellow.
The last-ever Blockbuster movie
was rented on November 9, 2013.
Fittingly, the film in question was "This Is the End."