Once upon a time, we watched movies at home on physical media (video tape) that we rented from a physical store.
“The first night we were so mobbed we had to lock the doors to prevent more people from coming in.” ~ Founder, David Cook
Enter an entrepreneur…
David Cook opened that first Blockbuster in Dallas after having started a company (he took it public) that sold computer software services to the oil and gas industry.
No surprise, then, that Blockbuster stores employed a computerized check-out process that relied on bar codes.
Cook applied what he had learned about working with big data in the petroleum business to envision the market for video tape rentals.
Cook’s concept: pour up to $700,000 into superstores that offer long hours, quick service, and a selection of 7,000 to 12,000 tapes. He figured a typical store, located in a densely populated metropolitan area, should generate about $60,000 a month at a profit margin that would make payback of the initial investment achievable in two years. And a half-million-dollar tape inventory would be a formidable barrier for small operators to overcome. “We’re applying technology and large-scale distribution concepts to an emerging market that’s in its infancy,” he says. “There’s nothing magic about it. We’re just the first to do it in this industry.”
After building a $6 million distribution center so that stores “could pop up instantly” stocked “with inventory tailored to neighborhood demographics,” Cook found a partner.
That partner was H. Wayne Huizenga, who had co-founded Waste Management, which had become the nation’s largest in the sector in 1983.
In 1995, [Huizenga] told the Sun Sentinel that when his two investing partners approached him with the idea of taking over Blockbuster, his response was, “I don’t own a VCR.”
Cook soon left the company he founded. Huizenga employed the same strategy he had used to build Waste Management: buy up the little guys.
At its peak in the late ’90s, Blockbuster owned over 9,000 video-rental stores in the United States, employed 84,000 people worldwide, and had 65 million registered customers. Once valued as a $3 billion company, in just one year, Blockbuster earned $800 million in late fees alone.
… with bridge technology
However, just as the VCR was a bridge to the DVD, hard media was a bridge to streaming media.
Netflix (which Blockbuster declined to buy) successfully migrated from a hard media company to a streaming one that now creates its own content.
In 2009, Netflix posted earnings of $116 million. Meanwhile, Blockbuster, with its continuing business problems and legal battles, lost $518 million. On July 1, 2010, Blockbuster was delisted from the New York Stock Exchange. Its foray into video-on-demand streaming came too late, and over the next three years, Blockbuster died a slow and painful death.