Blockbuster, the movie rental company, recently filed for bankruptcy protection. This is something which seemed utterly impossible for a company once valued at over $8 billion dollars. For those of you who were napping here is a quick summary of Blockbuster's decline:
1985: First Blockbuster store opens in Dallas.
1994: Viacom acquires Blockbuster for $8.4 billion.
1997: Reed Hastings returns Apollo 13 to Blockbuster six weeks overdue, and is dismayed by the $40 late fee.
1998: Reed Hastings founds Netflix.
1999: Viacom holds Blockbuster IPO, valued at up to $4.8 billion.
2000: Blockbuster declines several offers to purchase Netflix for a mere $50 million. Instead, the company signs a 20-year deal to deliver on-demand movies with Enron Broadband Services, a subsidiary of Enron.
2001: Enron files for bankruptcy amid accounting scandal.
2003: Netflix posts first profit, earning $6.5 million on revenues of $272 million. Redbox launches a kiosk rental service.
2004: Blockbuster enters online DVD rental market. Netflix CEO Reed Hastings tells analysts in an earnings call, "In the last six months, Blockbuster has thrown everything but the kitchen sink at us." The following day, Hastings receives a package from Blockbuster. Inside: a kitchen sink.
2005: Blockbuster launches a marketing campaign touting its new "No Late Fees" policy. Subsequently, 48 states launch investigations into the program, charging Blockbuster with misrepresenting its late fee policy to customers. Blockbuster settles for $650,000.
2006: Blockbuster, now valued at $500 million, surpasses its goal of two million subscribers for its online platform. Netflix reaches 6.3 million subscribers by December.
2007: Blockbuster hires new CEO Jim Keyes, formerly of 7-Eleven. Keyes decides to roll back the company's Total Access plans. "Clearly our spending on that one channel was exceeding our returns," he said during a company earnings call. After losing a half-million subscribers in the third quarter, Blockbuster announces it will no longer report its subscriber count.
2008: Blockbuster CEO complains about Netflix in an interview: "I've been frankly confused by this fascination that everybody has with Netflix...Netflix doesn't really have or do anything that we can't or don't already do ourselves."
2009: Blockbuster rolls out Blockbuster Express, its kiosk system designed to compete with Redbox.Looking at the summary one thing jumps out at me: distribution channels - let me explain. Blockbuster, Netflix and Redbox are all about distributing the same content via different channels. Each company sells essentially the same product (movies) via different means to the same end user. Blockbuster's wildly high valuation in the 1990's was a reflection of how dominant they were at brick and mortar distribution at that precise moment in time.
Blockbuster was the brick and mortar channel leader, followed by Netflix which dominates the on-line channel (or electronic distribution) and Redbox which is smaller (less costly) footprint version of Blockbuster.