Blockbuster goes bust (again)

Although not yet technically bankrupt a second time, Blockbuster is shutting all it's remaining stores

The biggest surprise for me when I heard Blockbuster was shutting the last of its stores was that there are still Blockbuster stores open, and even more amazingly, that some knuckleheads (Dish Network) actually paid $234,000,000 for Blockbuster as recently as April 2011, when it emerged from its first bankruptcy and still had 1700 stores. It’s down to about 300 stores now and cratering to zero by early 2014. Although Dish Network is putting the best face possible on what is obviously a financial debacle, no one, particularly industry analysts, is buying their statement that "Despite our closing of the physical distribution elements of the business, we continue to see value in the Blockbuster brand, and we expect to leverage that brand as we continue to expand our digital offerings.” The analysts’ consensus is that the brand has little if any value, and if they’d been able to expand their digital offerings, they’d have already done so. Vudu, Netflix and Hulu have much larger selections of movies, while Blockbuster on Demand, offered on the Dish Network, often doesn’t even have HD versions of the few movies that are available.

Blockbuster’s demise is another example of the accelerating pace of technological change, and the inability of very successful and profitable companies to adapt. Think Kodak, Polaroid, Digital, Xerox and Microsoft: Each has (or had) a cash cow that they just couldn’t stop milking, despite the fact the herd was aging and the wolves were circling. Kodak had its incredibly lucrative film business, Xerox had its copy machines, Digital its mini computers, Polaroid its instant film developing, and Microsoft has its operating system and MS Office. Kodak specializing in printers (their latest incarnation) doesn’t strike me as very forward looking since businesses don’t print much anymore, Polaroid and Digital are history, and Xerox is running some sort of ads touting whatever it is they are doing now. Microsoft still has a fighting chance, but its lack of innovation is a great argument for splitting up the company. Their traditional business remains incredibly profitable, but it’s getting long in the tooth, and rather than leading the charge, they are constantly late to the party with products like Bing, Azure, the Surface tablet, Office 360, and Windows 8 (with this one there might not even be a party going on—click here to read “what’s going on with Microsoft”). Blockbuster rode that same horse (AKA cash cow) into history, sticking with brick and mortar while the world went digital.

The first Blockbuster store was opened in Dallas, Texas by David Cook, almost exactly 28 years ago, on October 18, 1985.  This was the era of the Beta vs. VHS format wars, when video rentals were mostly from “Mom and Pop” stores. Cook’s store was different. He had previously owned a software service provider to the oil industry, and his new Blockbuster store differentiated itself by featuring a lot of titles (8000) and very importantly, being computerized, for quick checkout and better service.

In 1987 David Cook sold a portion of this new venture to a group of investors which included Entrepreneur Wayne Huizenga, who also happens to be the founder of the nation’s largest garbage disposal company, Waste Management. A short time later, Cook left Blockbuster, and Huizenga moved the headquarters to Fort Lauderdale, where the expansion began in earnest.

Mr. Huizenga and his group of investors sold Blockbuster to Viacom for approximately $8 billion in 1994. Viacom subsequently spun it off 10 years later, in 2004, at which time there were about 5600 Blockbuster stores dotting the landscape. Dish made their ill timed purchase in 2011, as Blockbuster emerged from bankruptcy with 1700 stores still hanging on, and now, at the end of 2013, there are 300 stores left, soon to be zero. It’s a classic rise and fall, and a graph of the number of Blockbuster stores looks a lot like an arrowhead—up fast, coming to a point at around 9000 stores, and then a precipitous drop right back down to zero just as quickly.

This also marks the end of an era, and that’s how many columnists have written about it……no one is particularly nostalgic for Blockbuster itself, which squashed the Mom and Pop stores, charged absurd late fees, had 24 hour rentals for hot movies, required continually forgotten or lost Blockbuster cards, was often sold out of ‘hot’ movies, etc., but it also once again is the end of having to interact with an actual person, in person, for yet one more thing……now we ‘officially’ don’t even have to leave our house to rent a movie. To that ever growing list of things we can do by just sitting in front of a TV or computer, we can append ‘rent movies’. This joins a list which includes playing sports and interacting with friends playing video games, corresponding with online friends we don’t even know well on Facebook, meeting partners and dating based on photos and online profiles, and emailing the equivalent of a letter without a trip to the post office. We can do all this and a lot more without physically meeting even one person, without leaving the house, and often without even leaving our room or standing up. It’s a digital world now, connecting but isolating. It’s why when you visit the old neighborhood you don’t see the kids out playing like you used to.

Blockbuster’s fall started with DVDs. Sure the stores carried them, but the company failed to see that the smaller and consistent size enabled competitors like Netflix and Redbox to undercut their prices, particularly their late fees, plus the company failed to grasp the significance of digital media. They were very late to the digital streaming party, because of that brick and mortar cash cow that had sustained them all these years.…..it’s tough to compete against yourself, but that’s what has to happen.

For the sake of accuracy, there will still be about 50 independently owned Blockbuster stores remaining open. Dish Network is closing all that it owns. I wouldn't advise buying one of the last 50 franchises.

This is an easy story to write about, and many people have, from CNN to The Onion. There are links to these at the bottom. My favorite parody /explanation of what happened to Blockbuster is the South Park episode titled “A nightmare on Face Time” which aired the end of 2012……it’s the Halloween episode, which unfortunately makes it slightly gory, but it’s also very funny. Randy Marsh (the father) buys the local Blockbuster franchise in 2012 because he gets a great deal on it, but it has no customers and plenty of ghosts—the deserted Blockbuster store is haunted by the ghosts of customers, clerks, and DVDs. In a story based loosely on The Shining the father slowly loses his mind as no customers appear except as ghosts from the past.  As usual with South Park, it’s both witty and R rated, and the complete episode, as well as all back episodes can be seen by clicking here, which incidentally, is yet another illustration of why Blockbuster bit the dust—you can just watch this stuff for free on the Internet. (Make sure to read the story about how to block video ads first, as there are a lot of ads). By way of illustrating how important our online presence is, there is even confusion over “who” is actually the kid going trick or treating….the actual child (Stan) is back at Blockbuster, but his face and voice are off trick or treating as he interacts with his friends from an iPad set atop a costume and pulled on a skateboard, thanks to Face Time.
The passing of Blockbuster is another milestone as we head into the digital future and whatever it brings.

Nostalgic and otherwise reflections on Blockbuster:

It's lights out at Blockbuster

The Motley Fool: Blockbuster Closes Stores, But It's Not Quite Dead Yet
CNN: Your late fees are waived: Blockbuster closes
The Wall Street Journal (the whole article is here): Dish Network to Close Its Remaining U.S. Blockbuster Stores
The Onion: The Blockbuster Video Living Museum offers tourists a glimpse of how Americans rented movies in the days before Netflix and iTunes.