Blockbuster Bites the Dust

by Victor Cheng

Yesterday one of my predictions from earlier this year came true – Blockbuster Videos declared bankruptcy.

I guess a billion dollars in debt and giving customers what they USED to want, but no longer want today, will do that to you.

I doubt bankruptcy restructuring will matter much. Blockbuster’s problem is they are becoming obsolete – fast.

Many predictions were made about this 20 years ago about how cable’s movie on demand would make Blockbuster obsolete. The general sentiment was right, but the cause and timing were off.

It’s not cable that’s hurting Blockbuster, it’s NetFlix’s rent movies by mail and RedBox’s rent movies by vending machine (can you say no labor costs and low overhead?).

Blockbuster thinks its in the “DVD rental store” business. The only problem with this definition are the words “DVD”, “rental” and “store”.

Seriously, if you fall in love with your past, its dangerous for your future.

Also if you define your business by the physical good or service you provide that is dangerous as well.

You need to think about it from the customer’s point of view.

Customers want to enjoy movies conveniently.. Blockbuster should be in the enjoy movies conveniently business.

The DVD, the rental model, and the store are simply a means for customers to get to an end. I guess Blockbuster forgot that.

Remember, what got you here, will not necessarily get you there.

That’s worth remembering ESPECIALLY in today’s economy which has undergone major structural changes.

For Blockbuster with that much overhead, it doesn’t take much to break the economic model. NetFlix takes 10% of Blockbuster’s best customers. Then RedBox takes another 10%.

Suddenly, the last 20% of customers that used to walk into Blockbuster stores and contributed 100% of net profits are now gone (the first 80% of customers generated only enough revenue to cover overhead)

Layer in the fact that in the 1990’s late fees represented approximately 50% of net income for Blockbuster, which Blockbuster was ultimately forced to surrender and you can see why they’re having serious problems.

What Blockbuster really needs to do (but I doubt they will) is 1) forget the past, and 2) re-invent themselves for the future.

The problem is they should have done this many years ago. Even today if they were able to catch up to NetFlix in movie rentals by mail, it’s too late.

NetFlix has basically announced through their actions that the dvd by mail business will soon be obsolete, and movie delivery by internet is there new focus.

Something like 60%+ of NetFlix customers watched at least one movie delivered via the Internet in the past 30 days.

NetFlix recently signed a deal to license movies for internet delivery for a total deal size of $1 billion.

At first glance that seems like a lot of money for a 5 year deal.

But from their CEO’s perspective, he’s like “Do you have any idea how much we spend on postage? This deal pays for itself.”

Here’s my thought of the day.

The world has changed a LOT in the last 3 years. Has your company changed more or less than the environment you operate in?

If the economy is 30% different today than 3 years ago, but your company has only changed by 10%, it doesn’t take a genius to realize that someone is in the process of being left behind.

Conversely, if the economy you operate in has changed by 30%, but your company has changed by 40%, well that’s an entirely different story.

Adapt or Die.

A simple idea for the times — too bad Blockbuster never got the message. Don’t be the next Blockbuster.

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