Really good read and another testament to innovation overtaking the incumbents.
Epic Fail: How Blockbuster Could Have Owned Netflix
But Blockbuster chiefs lacked the vision to see how the industry was shifting under the video rental chain’s feet
November 12, 2013
Written By: Marc Graser, Variety
It will go down as one of the biggest missed opportunities in the boardroom: Blockbuster deciding not to buy Netflix.
But that’s what could have happened multiple times throughout the early 2000s when Netflix CEO and co-founder Reed Hastings courted a deal with Blockbuster-chief John Antioco to purchase the then DVD-by-mail rental company for $50 million (the company now has a market cap of $19.7 billion).
In 2005, Variety first reported that while Antioco was respected as a tough negotiator and strong manager, he lacked the vision to see where the homevideo industry was going and the changing shifts in the business under his feet.
“But management and vision are two separate things,” said a former high-ranking Blockbuster exec at the time, recalling, “We had the option to buy Netflix for $50 million and we didn’t do it. They were losing money. They came around a few times.”
Barry McCarthy, Netflix’s former chief financial officer, said in an interview with the Unofficial Stanford blog in 2008, “I remembered getting on a plane, I think sometime in 2000, with Reed [Hastings] and [Netflix co-founder] Marc Randolph and flying down to Dallas, Texas and meeting with John Antioco. 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. At least initially, they thought we were a very small niche business. Gradually over time, as we grew our market, his thinking evolved but initially they ignored us and that was much to our advantage.”
Blockbuster would pursue other ventures. In 2000, it inked a 20-year-exclusive video-on-demand pact with Enron Broadband Services as the energy conglom launched into telecom. Blockbuster canned the pact after nine months after Enron was mired in scandal.
The company was also late to launch its own DVD-by-mail business and rental kiosks, but found it tough to compete against Netflix and Redbox.
In 2008, Blockbuster CEO Jim Keyes made a $1 billion-bid to buy Circuit City, but the electronics retailer closed its doors in 2009 after going bankrupt.
At the time, Wedbush Morgan Securities wrote in a research note that Blockbuster’s offer bordered “on being reckless,” and that Circuit City “appears to be in the middle of a death spiral.”
Blockbuster wound up filing for bankruptcy a year later, in 2010, when it lost $1.1 billion. The company at the time was valued at around $24 million, while Netflix’s worth rose to around $13 billion.
While Dish Network, the third-biggest U.S. pay TV operator, bought Blockbuster in 2011 for $320 million and has tried to keep its stores open, and brand relevant, the remaining 300 company operated outlets will now shutter by mid-January.
“Blockbuster was a poor strategy on our part,” Dish’s Charlie Ergen said during a call with Wall Street analysts Tuesday to discuss the company’s third quarter earnings results, noting that Blockbuster didn’t obtain streaming-video options the way competitors like Netflix or Redbox did.
It’s only fitting that whether it was a PR stunt or not, the final film rented from Blockbuster on Nov. 9 was “This Is the End.”