The Real Reason Blockbuster Lost To Netflix

Jillian MacNulty Picture

by Jillian MacNulty | Last Updated: Sep 19, 2017

Has there ever been a lesson you learned in life not from experience, but from observation? Whether it was from watching older siblings get grilled at the breakfast table after sneaking in past curfew or witnessing an unfortunate fallout between friends in the thick of high school drama, it’s human nature to take in others’ mistakes and try to learn rather than repeat. Growing up with a large extended family, I most definitely learned a thing or two from some older cousins’ missteps. (Shout out to my cousin Ryan for sparing me the experience of setting the Thanksgiving table on fire thanks to a poorly-aimed napkin wad!) Sometimes we get lucky enough to avoid the messiness of making mistakes ourselves by seeing the mistakes others have made, taking note of how the situation could have been avoided, and putting that mindset into practice. From the Thanksgiving table to our own business practices, it’s a lesson that rings true. We’ve all heard about the companies of the last decade or so that have failed–whether it was failure to keep up with technology trends, listen to their customers, or keep up financially–and landed themselves in the “failed-to-innovate” graveyard. We actually covered a few major examples in our infographic, The Survivors of Tech, but I wanted to take some time to dive a little deeper into a few of their stories. Blockbuster & Netflix I find that this story is one that most people turn to when citing companies that lost big in times of change. Maybe that’s because it’s a change that happened right before our eyes–and fast. We all remember trading in our Blockbuster cards for Netflix accounts. We witnessed hundreds of Blockbuster stores close their doors in 2012 (and, if you’re like me, you ended up with a few armfuls of $1 DVDs). The assumption was that Blockbuster was blindsided by the sudden shift in technology to streaming models like Netflix, but in reality...Blockbuster had more than a decade to see it coming. In 1999, there were rumblings of digital bringing significant change to the movie rental industry. Blockbuster called investor concerns “overstated”, waving off a $50 million buyout offer from Netflix co-founder Reed Hastings. Then-Blockbuster CEO John Antioco was convinced that the digital space for streaming was niche, recalls Netflix CFO Barry McCarthy.
Reed had the chutzpah to propose to them that we run their brand online and that they run [our] brand in the stores and they just about laughed us out of their office.” Barry McCarthy
It’s a part of the story that is often overlooked – Blockbuster had the chance to pair up with Netflix and win big, but instead it stuck to what was working at that moment in time, and failed to see consumer behaviors shifting. Ok, so now you know the real story behind why Netflix won over Blockbuster in the end, and as businesses in this time of rapid change, we’re all just one misstep away from joining Blockbuster in that failed-to-innovate graveyard. So, other than learning from other’s mistakes, what can we do?

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