Blockbuster Lessons For Business Owners

Know the difference between a shrunk market and one that moved away.


Most every movie rental today is a DVD instead of a VHS.  The reasons are obvious:  better image, better sound, more flexibility in searching through the movie, extras like director’s cuts, previews, games and of course the DVD is lighter in weight.  Lighter in weight?  Does the consumer really care about the weight of the DVD?  OK, probably not.  And neither did Blockbuster who filed Chapter 11 bankruptcy last week.

In 1985, Blockbuster was a Florida based upstart.  In 1987, an aggressive expansion of their retail store chain began which led to the nation’s largest video rental chain.  As DVD’s came available, they naturally showed up on Blockbuster’s store shelves.

In 1997, Netflix was founded with a business model that took advantage of the DVD’s light weight and the ability to economically mail them to customers.  After several years of a pay per movie price structure, Netflix changed to a subscription model where the consumer paid a monthly fee and could rent as many movies as they liked with no late fees.  Business took off or should I say the market began to move away from store-based rentals.

In 2004, Redbox entered the scene with $1 rentals and movie vending machines located at grocery stores, fast-food restaurants and other retail outlets.  This business model required the thin, light weight and durable DVD.  The market continued to move.

Also in 2004, Blockbuster set up its own mail delivery service. This was 7 years after Netflix entered the market.  Blockbuster basically launched a copy of the Netflix service with no real innovation.  At the same time, Blockbuster maintained a commitment to keeping their retail outlets.  This is where Blockbuster failed to ask the question “Did the market shrink or move someplace else?”  Their decision indicates that they were trying to cover both options which ended up costing them dearly.

Think About It 

Blockbuster’s commitment to brick and mortar stores requires customers to come to them twice (pick up and return). Not very convenient and a lot of expensive overhead.

Compare that to Netflix which requires the customer to do a little bit of planning ahead.  Multiple rentals per month at no extra charge and no late fees is very enticing.

Throw in Redbox’s $1 rentals whose 24,000 conveniently located kiosks outnumber Blockbuster locations 8 to 1, and you can see how the competitive forces shape the market.

The light weight of the DVD created opportunities for new business models that has caused the market to move, not shrink.  A costly blind spot for Blockbuster who entered the mail delivery market too late.

Apply To Your Business

Are there changes that have occurred in your product or industry that can change your business model?  Remember, the customer really didn’t care about the light weight of the DVD, but it created the opportunity for a new business model for Netflix and Redbox.

When new trends start to happen, ask yourself “Is my market simply shrinking or is it moving elsewhere?”  “Does this new product create an opportunity to change the business model?”

One More Time

I’ve said this before… in today’s fast moving economy, don’t be afraid of change.  Instead, be afraid of standing still and being left behind.

Don’t count Blockbuster out yet.  They may bounce back with new products like on-demand mobile movies.  Time will tell!

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