Blockbuster: How an $8 Billion Giant Went Bust?

Blockbuster: How an $8 billion giant went bust.

On September 23rd, 2010, a few days shy from its 25th birthday, Blockbuster, the once behemoth of the movie rental industry, filed for bankruptcy under Chapter 11 starting its orderly physical demise from the U.S. market –today it still operates “Blockbuster On Demand,” a video-on-demand online streaming service and “Blockbuster@Home” now under the ownership of Dish. After its brick-and-mortar stores shut down, the company, once with 25,500 employees, 4,000 retail outlets, and a market value of USD $8 billion basically disappeared from the market at huge financial losses for its shareholders.

This corporate failure arises fundamental management questions such as, “What caused it demise?” “Did management do everything it could to turn the situation around?” “If not, why didn’t the board of directors act on time to stop the losses?” “Were appropriate internal communication processes in place?” “Did the company have a strategy for innovation and relevancy amidst a fierce online competition?”

In the following pages, all of these questions will be answered along with hypothetical proposals had this team been part of management.

Lagging behind in Technology

Blockbuster, a retail hit founded in 1985, was a hit in the first place thanks to technological innovation. Its founder, David Cook, a computer programmer, devised software that allowed it to optimize its video selection that, along with bright-lit stores and a no-porn policy, led the brand to success.

Cook eventually sold the business to H. Wayne Huizenga, who quickly increased the number of outlets from 19 in 1987 to more than 500 per year by 1994, the year he sold it to Viacom, a communications conglomerate that tried to turn the stores into outlets for its Paramount and MTV merchandise. Customers didn’t find that appealing, sales fell, and within two years the brand lost more than half of its stock value.

In 1997, a new CEO was named, Jim Antioco, a turnaround specialist that a few years before had saved then-struggling Taco Bell. One year later, Blockbuster’s beginning-of-the-end started; Netflix, a subscription-based video on demand service was launched and quickly started eating Blockbuster’s sales up as customers could rent up to 3 movies per month out of a catalog of more than 100,000 titles with no late fees for a fixed monthly amount of $16.99. Blockbuster had an agility problem, as it didn’t adjust its plans and changed course when faced with new market and technological challenges. It wasn’t until seven years later, in 2004, that Blockbuster finally launched its own by-mail service but by then Netflix had already reaped 3 million customers. Luring those now-loyal customers back proved daunting and Blockbuster would never recover.