1 00:00:04,120 --> 00:00:07,160 Speaker 1: Get in touch with technology with tech Stuff from how 2 00:00:07,200 --> 00:00:13,880 Speaker 1: stuff works dot com. Hey there, and welcome to tech Stuff. 3 00:00:13,880 --> 00:00:17,120 Speaker 1: I'm your host, Jonathan Strickland. I'm an executive producer with 4 00:00:17,239 --> 00:00:20,440 Speaker 1: how Stuff Works in a love all things tech, and 5 00:00:20,560 --> 00:00:25,040 Speaker 1: it's time to start a new short series series by 6 00:00:25,200 --> 00:00:27,560 Speaker 1: two episodes. That's not really a series, I guess. Tech 7 00:00:27,560 --> 00:00:29,880 Speaker 1: Stuff listener Paul asked that I would do if I 8 00:00:29,920 --> 00:00:33,480 Speaker 1: would do an episode about Blockbuster, the mega chain video 9 00:00:33,560 --> 00:00:37,160 Speaker 1: rental store that at one point had more than nine 10 00:00:37,240 --> 00:00:41,760 Speaker 1: thousand locations worldwide. I'm instead gonna do two episodes on 11 00:00:41,880 --> 00:00:45,159 Speaker 1: the company. This episode is called the Birth of Blockbuster, 12 00:00:45,280 --> 00:00:48,720 Speaker 1: and spoiler alert, the title of the next episode is 13 00:00:48,880 --> 00:00:53,239 Speaker 1: the Death of Blockbuster. So this is gonna be all 14 00:00:53,240 --> 00:00:55,640 Speaker 1: about the founding of Blockbuster and its rise to dominate 15 00:00:55,640 --> 00:00:58,160 Speaker 1: the video rental industry. And the next one is what 16 00:00:58,280 --> 00:01:01,080 Speaker 1: the heck happened? Right? How did it? How did things 17 00:01:01,120 --> 00:01:07,000 Speaker 1: go so wrong for Blockbuster that today only one Blockbuster 18 00:01:07,200 --> 00:01:10,720 Speaker 1: video store exists in the United States, though I should 19 00:01:10,720 --> 00:01:12,520 Speaker 1: say there are a few others that are actually an 20 00:01:12,520 --> 00:01:17,440 Speaker 1: overseas locations, but only one US Blockbuster remains. So we're 21 00:01:17,440 --> 00:01:19,840 Speaker 1: going to find out together. Let's dive right in and 22 00:01:19,880 --> 00:01:24,679 Speaker 1: stop delaying. Wow, what a difference. Well, to understand the 23 00:01:24,760 --> 00:01:27,640 Speaker 1: rise of Blockbuster, we need to look back at the 24 00:01:27,680 --> 00:01:32,000 Speaker 1: development of the rise of the VCR. Sony's Beta Max 25 00:01:32,080 --> 00:01:36,119 Speaker 1: and j VCS VHS standards debuted in the nineteen seventies, 26 00:01:36,280 --> 00:01:39,880 Speaker 1: and both formats used magnetic tape to store video content, 27 00:01:40,160 --> 00:01:42,880 Speaker 1: and they were incompatible with one another, so you could 28 00:01:42,920 --> 00:01:45,960 Speaker 1: not put a Beta Max tape in a VHS VCR. 29 00:01:46,640 --> 00:01:49,920 Speaker 1: They also were enormous disruptors. You know, we talked about 30 00:01:49,920 --> 00:01:56,880 Speaker 1: disruptive technology. Videotapes were huge and disruptive. Media companies hated 31 00:01:57,240 --> 00:02:01,120 Speaker 1: the idea of video tapes. They tried to stop the technology. 32 00:02:01,160 --> 00:02:04,320 Speaker 1: They were worried that people would have the ability to 33 00:02:04,400 --> 00:02:07,280 Speaker 1: tape content right off their televisions and then that would 34 00:02:07,320 --> 00:02:10,520 Speaker 1: somehow eat up into their revenue, maybe there'd be piracy issues. 35 00:02:11,320 --> 00:02:13,720 Speaker 1: It was just a big scare. And in fact, we 36 00:02:13,760 --> 00:02:15,760 Speaker 1: see this all the time. Whenever there was a new 37 00:02:15,800 --> 00:02:20,720 Speaker 1: media format that would allow people to put media onto 38 00:02:20,840 --> 00:02:24,960 Speaker 1: some sort of storage device, we've seen companies react negatively, 39 00:02:25,360 --> 00:02:29,480 Speaker 1: whether it's CDs, DVDs, whatever, And the same was true 40 00:02:29,680 --> 00:02:33,360 Speaker 1: way back in the seventies with VHS and Beta Max. 41 00:02:33,840 --> 00:02:37,000 Speaker 1: The first film to be released on VHS, meaning you 42 00:02:37,040 --> 00:02:40,320 Speaker 1: could go and purchase a copy of the movie on 43 00:02:40,480 --> 00:02:44,200 Speaker 1: VHS in the store would be a South Korean movie 44 00:02:44,320 --> 00:02:47,480 Speaker 1: called The Young Teacher that became available way back in 45 00:02:47,560 --> 00:02:52,000 Speaker 1: nineteen seventy six, but America wouldn't start having access to 46 00:02:52,520 --> 00:02:58,440 Speaker 1: VHS tapes until nine. A company called Magnetic Video had 47 00:02:58,480 --> 00:03:02,160 Speaker 1: a great idea. Well, the owner of Magnetic Video, Andre Blair, 48 00:03:02,280 --> 00:03:05,160 Speaker 1: he had a great idea. He said, I'm gonna license movies. 49 00:03:05,560 --> 00:03:07,800 Speaker 1: I'm gonna go to a movie studio. I'm going to 50 00:03:07,880 --> 00:03:12,200 Speaker 1: pay a licensing fee and UH in return, I will 51 00:03:12,320 --> 00:03:17,880 Speaker 1: end up producing videotapes of that studio's library of content. 52 00:03:19,120 --> 00:03:22,600 Speaker 1: And ZI lands a deal with twentieth Century Fox, and 53 00:03:22,680 --> 00:03:27,040 Speaker 1: the agreement was that Blay would pay a licensing fee 54 00:03:27,040 --> 00:03:30,400 Speaker 1: of seven dollars and fifty cents per video that he 55 00:03:30,480 --> 00:03:34,079 Speaker 1: sold and also give a three dred thousand dollar upfront 56 00:03:34,120 --> 00:03:38,880 Speaker 1: advance to twentie century Fox. Magnetic Video had an organization 57 00:03:39,000 --> 00:03:42,400 Speaker 1: called the Video Club of America that had a membership 58 00:03:42,440 --> 00:03:45,600 Speaker 1: fee of ten dollars, and through that club you could 59 00:03:45,640 --> 00:03:50,640 Speaker 1: purchase movies like Patent Mash, Hello Dolly, The Sound of Music, 60 00:03:50,720 --> 00:03:53,520 Speaker 1: and The French Connection, among others. But the cost of 61 00:03:53,640 --> 00:04:01,120 Speaker 1: every video was forty cents. Parently, some seven dollars and 62 00:04:01,120 --> 00:04:04,200 Speaker 1: fifty cents would go to twenty century Fox and the 63 00:04:04,280 --> 00:04:07,280 Speaker 1: rest would be divvied up between you know, Andrea Blay 64 00:04:07,320 --> 00:04:11,200 Speaker 1: and whatever the expenses were. By the December of nineteen, 65 00:04:12,840 --> 00:04:16,599 Speaker 1: an entrepreneur named George Atkinson got a crazy idea. He 66 00:04:16,640 --> 00:04:19,640 Speaker 1: had already run a home theater system business, but now 67 00:04:19,640 --> 00:04:23,039 Speaker 1: he thought, what if I bought copies of these movies 68 00:04:23,160 --> 00:04:25,800 Speaker 1: and then offered them as rentals to people who own 69 00:04:25,920 --> 00:04:30,960 Speaker 1: VCRs and Beta Max machines. I could get a lot 70 00:04:30,960 --> 00:04:32,760 Speaker 1: of money. This way, I can generate a lot of revenue. 71 00:04:33,040 --> 00:04:36,279 Speaker 1: It's gonna take a big upfront cost because you have 72 00:04:36,320 --> 00:04:38,359 Speaker 1: to build out the inventory. You have to pay for 73 00:04:38,400 --> 00:04:44,279 Speaker 1: all those videotapes. But then over uh sequence of rentals, 74 00:04:44,839 --> 00:04:47,920 Speaker 1: for a low amount per rental, you can start making 75 00:04:47,920 --> 00:04:50,520 Speaker 1: that money back. You you make back your investment and 76 00:04:50,560 --> 00:04:54,120 Speaker 1: you start making a profit. Atkinson opened up a six 77 00:04:54,360 --> 00:04:58,840 Speaker 1: d square foot storefront he called Video Cassette Rentals and 78 00:04:58,960 --> 00:05:01,599 Speaker 1: he would later rename the Video Station. It was on 79 00:05:01,640 --> 00:05:05,640 Speaker 1: Wilshire Boulevard in Los Angeles, California, and that's when the 80 00:05:05,720 --> 00:05:11,080 Speaker 1: video rental business was born. Atkinson was a pioneer in 81 00:05:11,120 --> 00:05:15,440 Speaker 1: this space, and he would even franchise his idea. He 82 00:05:15,440 --> 00:05:20,280 Speaker 1: would license that out to other small business owners. Now, 83 00:05:20,279 --> 00:05:24,800 Speaker 1: the media companies again hated this idea, but the license 84 00:05:24,839 --> 00:05:28,919 Speaker 1: agreements they had made for videotapes they were intended for 85 00:05:29,040 --> 00:05:32,320 Speaker 1: home sale, right, they were meant for the home theater 86 00:05:32,480 --> 00:05:36,800 Speaker 1: enthusiast to go out and purchase a fifty dollar videotape 87 00:05:36,839 --> 00:05:40,640 Speaker 1: of a movie. But copyright law was pretty clear there 88 00:05:40,720 --> 00:05:44,440 Speaker 1: was nothing illegal about what Atkinson was doing. He was 89 00:05:44,560 --> 00:05:48,240 Speaker 1: his rental business did not violate any laws. So while 90 00:05:48,240 --> 00:05:51,520 Speaker 1: the movie studios didn't like the idea, they couldn't legally 91 00:05:51,560 --> 00:05:55,719 Speaker 1: stop it. Later on, those same studios would totally come 92 00:05:55,720 --> 00:06:00,560 Speaker 1: around to this rental industry. It would become an lucrative 93 00:06:00,720 --> 00:06:04,360 Speaker 1: revenue source. But of course, at first it was brand new, 94 00:06:04,839 --> 00:06:08,560 Speaker 1: and as we all know, big companies hate new things. 95 00:06:09,120 --> 00:06:13,000 Speaker 1: They're scary. And across the United States, other entrepreneurs would 96 00:06:13,040 --> 00:06:16,440 Speaker 1: follow Atkinson's lead. Some of them were independent mom and 97 00:06:16,480 --> 00:06:22,279 Speaker 1: pop stores, so little, local neighborhood video rental facilities. And 98 00:06:22,320 --> 00:06:24,480 Speaker 1: then one guy would start up a business that would 99 00:06:24,480 --> 00:06:29,040 Speaker 1: become the giant of this burgeoning industry. Now that one 100 00:06:29,080 --> 00:06:33,320 Speaker 1: guy's name might surprise you, because when you talk about Blockbuster, 101 00:06:33,800 --> 00:06:36,599 Speaker 1: one name tends to pop up more frequently than others. 102 00:06:36,600 --> 00:06:40,960 Speaker 1: There was a billionaire named Wayne Huizenga, and he made 103 00:06:41,000 --> 00:06:45,159 Speaker 1: his fortune growing Blockbuster and then ultimately sold it to 104 00:06:45,279 --> 00:06:47,320 Speaker 1: Viacom in the nineties, which I will cover in our 105 00:06:47,320 --> 00:06:49,800 Speaker 1: next episode, and we will get to him. He is 106 00:06:49,839 --> 00:06:54,160 Speaker 1: a crucial part of Blockbusters history, but he was not 107 00:06:54,279 --> 00:06:57,960 Speaker 1: the person who started the chain. That honor goes to 108 00:06:58,000 --> 00:07:02,640 Speaker 1: a guy named David Cook of Dallas, Texas. David Cook 109 00:07:02,720 --> 00:07:05,440 Speaker 1: was a programmer and an entrepreneur, and in nineteen eighty 110 00:07:05,480 --> 00:07:09,280 Speaker 1: two he founded a company called Cook Data Services, and 111 00:07:09,760 --> 00:07:13,720 Speaker 1: this company built databases and software and some hardware tools 112 00:07:14,120 --> 00:07:19,080 Speaker 1: for the petroleum industry. His company, UH was doing pretty well, 113 00:07:19,120 --> 00:07:21,600 Speaker 1: but then the oil business as a whole, the whole 114 00:07:21,680 --> 00:07:25,239 Speaker 1: industry took a huge hit in the early nineteen eighties, 115 00:07:25,760 --> 00:07:29,200 Speaker 1: and so Cook started to look around for other opportunities. 116 00:07:29,280 --> 00:07:31,680 Speaker 1: It was clear that the oil industry was not going 117 00:07:31,760 --> 00:07:35,680 Speaker 1: to be a reliable source of revenue. His wife, Sandy, 118 00:07:35,960 --> 00:07:39,120 Speaker 1: loved film, and she said, maybe you should look into 119 00:07:39,560 --> 00:07:43,840 Speaker 1: video rental operations because we're starting to see these businesses 120 00:07:43,880 --> 00:07:45,800 Speaker 1: pop up, and I think you could probably do a 121 00:07:45,840 --> 00:07:48,440 Speaker 1: really good job with it. So Cook began to do research. 122 00:07:48,480 --> 00:07:51,160 Speaker 1: He began to look into the business of video rentals, 123 00:07:51,600 --> 00:07:54,520 Speaker 1: and he saw that most video stores were actually pretty 124 00:07:54,520 --> 00:07:58,520 Speaker 1: small operations. They were limited to an inventory that represented 125 00:07:58,560 --> 00:08:02,040 Speaker 1: some of the biggest move be titles because the cost 126 00:08:02,120 --> 00:08:05,880 Speaker 1: per video was pretty high, so it was prohibitively expensive 127 00:08:05,920 --> 00:08:09,400 Speaker 1: to aim for a really large inventory spanning niche genres 128 00:08:09,400 --> 00:08:11,640 Speaker 1: and interests. Right, Like, if you sit there and say 129 00:08:11,680 --> 00:08:15,360 Speaker 1: to yourself, well, E T is going to be huge, 130 00:08:15,480 --> 00:08:17,920 Speaker 1: so I want to make sure that we have plenty 131 00:08:17,920 --> 00:08:19,960 Speaker 1: of copies of ET. That's a bad example because of 132 00:08:19,960 --> 00:08:21,320 Speaker 1: how long it took a t to get to the 133 00:08:21,320 --> 00:08:23,880 Speaker 1: home video Marcord. But just assume that we're talking about 134 00:08:23,960 --> 00:08:28,000 Speaker 1: something that was available in so you say, I want 135 00:08:28,000 --> 00:08:29,280 Speaker 1: to have a whole bunch of copies of that because 136 00:08:29,320 --> 00:08:32,800 Speaker 1: it's a big, big name. But there's this other smaller film. 137 00:08:32,880 --> 00:08:35,400 Speaker 1: Maybe let's say it's a racer head. You know, it's 138 00:08:35,400 --> 00:08:37,800 Speaker 1: a David Lynch movie and people have heard about it, 139 00:08:37,800 --> 00:08:39,680 Speaker 1: but most people think of it, Oh, that's that weird 140 00:08:40,440 --> 00:08:42,760 Speaker 1: art house kind of film, and I don't understand it. 141 00:08:42,760 --> 00:08:46,880 Speaker 1: It's very independent and strange and surreal and absurd, and 142 00:08:46,920 --> 00:08:50,240 Speaker 1: I don't. That's not for me. And so a lot 143 00:08:50,280 --> 00:08:54,200 Speaker 1: of these video rental stores would ignore those other titles 144 00:08:54,360 --> 00:08:57,760 Speaker 1: and just focus on the really big, most recent ones. 145 00:08:58,360 --> 00:09:02,400 Speaker 1: But Cook thought there might be a way of appealing 146 00:09:02,400 --> 00:09:06,800 Speaker 1: to a broader audience by including those titles. He also 147 00:09:06,880 --> 00:09:08,920 Speaker 1: knowed that a lot of video stores had a pretty 148 00:09:08,920 --> 00:09:13,840 Speaker 1: clunky way of actually renting titles. Movies typically would not 149 00:09:13,920 --> 00:09:17,200 Speaker 1: be kept on shelves because there was a very legitimate 150 00:09:17,240 --> 00:09:20,520 Speaker 1: fear that customers might come in, see a video tape 151 00:09:20,520 --> 00:09:24,640 Speaker 1: on the shelf, get some sticky fingers, slip that video 152 00:09:24,800 --> 00:09:27,000 Speaker 1: cassette into a bag, and just walk right on out. 153 00:09:27,080 --> 00:09:28,920 Speaker 1: And then next thing you know, they have the latest 154 00:09:28,960 --> 00:09:34,400 Speaker 1: copy of the most recent releases. And so that was 155 00:09:34,440 --> 00:09:39,360 Speaker 1: something that you typically wouldn't see in your normal video 156 00:09:39,400 --> 00:09:41,480 Speaker 1: rental stores. You would you might see cases, but there'd 157 00:09:41,480 --> 00:09:43,600 Speaker 1: be no videotapes inside. You would have to take it 158 00:09:43,640 --> 00:09:46,600 Speaker 1: out to the desk and then they would have to 159 00:09:46,600 --> 00:09:50,280 Speaker 1: go find a copy of that movie and they would 160 00:09:50,320 --> 00:09:52,839 Speaker 1: have to do the whole checkout process, which typically was 161 00:09:52,880 --> 00:09:55,600 Speaker 1: not automated. It was laborious. It was slow. It was 162 00:09:55,640 --> 00:10:00,760 Speaker 1: not good customer experience. So David Cook asides, He's going 163 00:10:00,800 --> 00:10:02,719 Speaker 1: to take a stab at this, and he opens up 164 00:10:02,880 --> 00:10:06,679 Speaker 1: what would become the first Blockbuster video rental store. This 165 00:10:06,760 --> 00:10:10,120 Speaker 1: was still under the umbrella of his company, Cook Data Systems. 166 00:10:10,679 --> 00:10:13,760 Speaker 1: He bought an inventory of movies and opened a store space, 167 00:10:13,880 --> 00:10:19,120 Speaker 1: and that inventory included eight thousand tapes, which represented six thousand, 168 00:10:19,240 --> 00:10:23,560 Speaker 1: five hundred different titles. And remember each of those is 169 00:10:23,640 --> 00:10:26,560 Speaker 1: costing quite a bit of money per go. We're talking 170 00:10:26,600 --> 00:10:30,280 Speaker 1: like around fifty bucks per tape, sometimes sixty depends on 171 00:10:30,280 --> 00:10:34,120 Speaker 1: the title in the movie studio. But you multiply that 172 00:10:34,120 --> 00:10:36,079 Speaker 1: by eight thousand, that's a lot of money. But he 173 00:10:36,120 --> 00:10:38,560 Speaker 1: gave his store a much larger selection than most other 174 00:10:38,600 --> 00:10:42,560 Speaker 1: stores and was significantly bigger to the competitor that was 175 00:10:42,960 --> 00:10:46,720 Speaker 1: geographically closest to him, So he had an incredible advantage 176 00:10:46,760 --> 00:10:50,680 Speaker 1: just from an inventory perspective. Cook also would outfit every 177 00:10:50,679 --> 00:10:54,240 Speaker 1: single tape with a special magnetic strip, and he mounted 178 00:10:54,320 --> 00:10:57,400 Speaker 1: sensors near the door of his shop to discourage theft. 179 00:10:57,440 --> 00:11:01,040 Speaker 1: So if you took the tape through the sensors, an 180 00:11:01,040 --> 00:11:04,040 Speaker 1: alarm would go off and Cook would know, or his 181 00:11:04,080 --> 00:11:07,000 Speaker 1: employees would know that someone was trying to lift one 182 00:11:07,000 --> 00:11:11,000 Speaker 1: of those videotapes. And I remember this set up vividly 183 00:11:11,080 --> 00:11:13,760 Speaker 1: because I remember you would go to rent the tapes 184 00:11:14,160 --> 00:11:17,520 Speaker 1: and the process would have the clerk actually put the 185 00:11:17,600 --> 00:11:22,000 Speaker 1: video tape on the other side of the sensors, on 186 00:11:22,200 --> 00:11:24,200 Speaker 1: their side of the counter, so you'd have to, you know, 187 00:11:24,280 --> 00:11:27,840 Speaker 1: you'd have to complete your transaction, walk through the sensors, 188 00:11:28,320 --> 00:11:30,600 Speaker 1: pick up your movie, and then you could leave. So 189 00:11:31,240 --> 00:11:34,840 Speaker 1: good times that still it was still in in uh 190 00:11:34,880 --> 00:11:37,160 Speaker 1: in place when I was renting movies or when my 191 00:11:37,200 --> 00:11:41,520 Speaker 1: family was renting movies in the late eighties. He also 192 00:11:41,559 --> 00:11:44,719 Speaker 1: incorporated a database that could actually keep track of all 193 00:11:44,720 --> 00:11:47,720 Speaker 1: the rental titles, so pulling a title up on the 194 00:11:47,760 --> 00:11:50,560 Speaker 1: system would tell you immediately where it was, whether it 195 00:11:50,640 --> 00:11:53,200 Speaker 1: was out for rent, or if it should be in 196 00:11:53,240 --> 00:11:56,200 Speaker 1: the store, so he could keep track of where everything 197 00:11:56,320 --> 00:11:57,880 Speaker 1: was at any given time. It also meant that he 198 00:11:57,920 --> 00:12:02,000 Speaker 1: could see which titles were getting rented more frequently, and 199 00:12:02,080 --> 00:12:05,520 Speaker 1: if necessary, he could order another copy of a title 200 00:12:05,800 --> 00:12:10,360 Speaker 1: if it was proving to be incredibly popular and consistently 201 00:12:10,480 --> 00:12:13,800 Speaker 1: checked out. Checking out titles was actually computerized and automated 202 00:12:13,800 --> 00:12:16,040 Speaker 1: as well. That was a huge advantage over other video 203 00:12:16,080 --> 00:12:19,640 Speaker 1: rental stores. So a customer would first have to become 204 00:12:19,679 --> 00:12:23,600 Speaker 1: a member of the store. You couldn't just rent anything. 205 00:12:23,679 --> 00:12:27,079 Speaker 1: You had to first apply for a membership card, and 206 00:12:27,440 --> 00:12:29,960 Speaker 1: you would get a membership card for you'd pay a 207 00:12:30,000 --> 00:12:32,360 Speaker 1: fee get a membership card has a unique barcode on 208 00:12:32,400 --> 00:12:35,720 Speaker 1: it that's tied to your account, so you have a 209 00:12:35,760 --> 00:12:40,280 Speaker 1: customer profile, and whenever you scan your membership card, it 210 00:12:40,720 --> 00:12:44,560 Speaker 1: links whatever transaction you are doing to your customer profile 211 00:12:44,800 --> 00:12:48,400 Speaker 1: in Cook's computer system. And every videotape would also have 212 00:12:48,559 --> 00:12:50,920 Speaker 1: its own barcode. So if you wanted to check out 213 00:12:50,920 --> 00:12:52,920 Speaker 1: a video, you bring it up to the front, the 214 00:12:53,000 --> 00:12:55,800 Speaker 1: clerk would scan your card, they would scan the video. 215 00:12:55,920 --> 00:13:00,960 Speaker 1: This links the video to your profile. It tells the system, hey, 216 00:13:01,040 --> 00:13:04,800 Speaker 1: Jonathan has rented Big Trouble in Little China for the 217 00:13:04,800 --> 00:13:08,080 Speaker 1: eightieth time. So Jonathan's got Big Trouble in Little China 218 00:13:08,760 --> 00:13:11,080 Speaker 1: on rent, and we know what's going to be due 219 00:13:11,200 --> 00:13:13,319 Speaker 1: in X number of days. So that way they could 220 00:13:13,320 --> 00:13:16,080 Speaker 1: actually keep track of all that information to and it 221 00:13:16,120 --> 00:13:19,360 Speaker 1: meant that if you kept the movie longer than what 222 00:13:19,679 --> 00:13:23,360 Speaker 1: the membership agreement allowed you to, you'd end up having 223 00:13:23,400 --> 00:13:26,360 Speaker 1: to pay late fees which would become a very important 224 00:13:26,400 --> 00:13:29,160 Speaker 1: part of Blockbusters revenue model. As it turns out, the 225 00:13:29,200 --> 00:13:33,680 Speaker 1: business was a smash success. According to Cook, the night 226 00:13:33,720 --> 00:13:36,560 Speaker 1: they opened, they had to close off and lock the 227 00:13:36,640 --> 00:13:39,520 Speaker 1: doors to limit the number of people who are coming 228 00:13:39,520 --> 00:13:42,360 Speaker 1: in and overcrowding the store. Cook found that people were 229 00:13:42,360 --> 00:13:44,760 Speaker 1: really eager to rent all sorts of movies, not just 230 00:13:44,840 --> 00:13:47,600 Speaker 1: the big titles, but other ones as well. So he 231 00:13:47,720 --> 00:13:51,400 Speaker 1: discovered that that prevailing wisdom that you should really focus 232 00:13:51,440 --> 00:13:54,240 Speaker 1: on the latest releases didn't really hold true. That a 233 00:13:54,240 --> 00:13:57,600 Speaker 1: lot of people were interested in watching older films, things 234 00:13:57,600 --> 00:13:59,840 Speaker 1: that they had heard about but never seen, or maybe 235 00:13:59,840 --> 00:14:02,120 Speaker 1: they had seen it years ago but it hadn't seen 236 00:14:02,160 --> 00:14:06,480 Speaker 1: it since, he found that those smaller titles had real value, 237 00:14:06,679 --> 00:14:09,920 Speaker 1: so it turned out that his approach was more effective. 238 00:14:10,360 --> 00:14:14,600 Speaker 1: The following summer, in x Cook would open three more stores. 239 00:14:15,040 --> 00:14:17,960 Speaker 1: Not even a year had gone by since he had 240 00:14:18,000 --> 00:14:20,320 Speaker 1: opened the first one, and already he was ready to expand. 241 00:14:20,720 --> 00:14:24,520 Speaker 1: He also changed the company over to become Blockbuster Entertainment Corporation. 242 00:14:24,640 --> 00:14:29,040 Speaker 1: In June. Things were looking up and Cook was seeking 243 00:14:29,080 --> 00:14:31,080 Speaker 1: investment in the form of an I p O to 244 00:14:31,360 --> 00:14:35,120 Speaker 1: fund this expansion because it was expensive but Just a 245 00:14:35,160 --> 00:14:38,120 Speaker 1: few days before the offering was to take place, a 246 00:14:38,120 --> 00:14:41,720 Speaker 1: financial reporter did a piece on Cook. That piece was 247 00:14:41,800 --> 00:14:45,080 Speaker 1: kind of a hatchet job. It highlighted how the oil 248 00:14:45,240 --> 00:14:49,800 Speaker 1: industry failure nearly tanked his company just a few years earlier, 249 00:14:50,440 --> 00:14:53,880 Speaker 1: and it questioned whether Cook had the expertise in the 250 00:14:53,960 --> 00:14:57,560 Speaker 1: video field to make his business a real success. And 251 00:14:57,600 --> 00:15:01,120 Speaker 1: it was such a damaging piece that it tanked that 252 00:15:01,200 --> 00:15:05,320 Speaker 1: equity offering that was planned, and due to that expansion 253 00:15:05,440 --> 00:15:09,480 Speaker 1: and the high upfront costs, the company ended six with 254 00:15:09,520 --> 00:15:14,320 Speaker 1: a three point two million dollar shortfall. But the story 255 00:15:14,360 --> 00:15:17,320 Speaker 1: obviously doesn't end there. It could have this could have 256 00:15:17,320 --> 00:15:19,440 Speaker 1: been the end of Blockbuster, and we never would have 257 00:15:19,480 --> 00:15:24,120 Speaker 1: talked about it. The name never would have risen beyond Dallas, Texas, 258 00:15:24,200 --> 00:15:26,400 Speaker 1: and we would just be ignorant of it. But of 259 00:15:26,440 --> 00:15:28,680 Speaker 1: course things did not go that way. I'll talk more 260 00:15:28,680 --> 00:15:31,560 Speaker 1: about what happened in just a second, but first let's 261 00:15:31,600 --> 00:15:42,160 Speaker 1: take a quick break to thank our sponsor. So here's 262 00:15:42,200 --> 00:15:45,920 Speaker 1: Cook with a business he knows can be successful, but 263 00:15:45,960 --> 00:15:49,040 Speaker 1: he's got a huge cash flow crisis on his hands. 264 00:15:49,480 --> 00:15:54,040 Speaker 1: In February, Cook sells off one third of the company 265 00:15:54,120 --> 00:15:57,600 Speaker 1: to a group of three investors, and all three were 266 00:15:57,640 --> 00:16:01,080 Speaker 1: from another big company that Cook had some experience with 267 00:16:01,120 --> 00:16:04,960 Speaker 1: in the past. It was a garbage disposal business of 268 00:16:05,000 --> 00:16:08,840 Speaker 1: all things, and it was called Waste Management. Side note, 269 00:16:08,880 --> 00:16:11,640 Speaker 1: I once tried to launch a fitness company called waste 270 00:16:11,720 --> 00:16:16,040 Speaker 1: Management spelled slightly differently, but it never did very well. 271 00:16:16,160 --> 00:16:18,680 Speaker 1: But the other Waste Management was a different story, had 272 00:16:18,680 --> 00:16:22,720 Speaker 1: done really well, and one of their co founders was 273 00:16:22,720 --> 00:16:27,240 Speaker 1: was the guy named Wayne Wizinga, and Waizinga had retired 274 00:16:27,440 --> 00:16:31,560 Speaker 1: from Waste Management in four He and John Milk, who 275 00:16:31,640 --> 00:16:36,280 Speaker 1: was the president of Waste Management's international division, and Donald Flynn, 276 00:16:36,400 --> 00:16:39,680 Speaker 1: who was the CFO of Waste Management, all went in 277 00:16:39,720 --> 00:16:43,320 Speaker 1: to invest in Blockbuster, pouring more than eighteen million dollars 278 00:16:43,400 --> 00:16:46,960 Speaker 1: into the company. Cook ended up handing over control to 279 00:16:47,000 --> 00:16:51,000 Speaker 1: the company to Whaizinga later on that year that it 280 00:16:51,200 --> 00:16:54,240 Speaker 1: just was clear that he was not going to be 281 00:16:54,240 --> 00:16:58,200 Speaker 1: able to hold onto the company and Cook's business strategy 282 00:16:58,920 --> 00:17:02,400 Speaker 1: was not the way that Oizinga and his his partners 283 00:17:02,400 --> 00:17:05,679 Speaker 1: wanted to go. Cook wanted to create a franchise system. 284 00:17:05,840 --> 00:17:08,440 Speaker 1: He wanted to license his computer system he had created 285 00:17:08,480 --> 00:17:13,600 Speaker 1: the database system and Blockbuster's name to independent entrepreneurs and 286 00:17:13,640 --> 00:17:16,400 Speaker 1: that way, he wouldn't have to oversee all the operations. 287 00:17:16,480 --> 00:17:20,399 Speaker 1: He could benefit from the licensing fees, and these small 288 00:17:20,840 --> 00:17:25,600 Speaker 1: independent video store owners could benefit from the work he 289 00:17:25,640 --> 00:17:28,320 Speaker 1: had done building out the database. But wa Zinga had 290 00:17:28,320 --> 00:17:31,119 Speaker 1: a different idea. He wanted the company to maintain ownership 291 00:17:31,320 --> 00:17:35,520 Speaker 1: of as many stores as possible with direct control. Cook 292 00:17:35,600 --> 00:17:38,960 Speaker 1: reportedly had issues with the new leaders of Blockbuster, and 293 00:17:39,040 --> 00:17:41,560 Speaker 1: by one report I saw, he had a hearty disagreement 294 00:17:41,600 --> 00:17:46,520 Speaker 1: with one of Zinga's direct reports. I believe the piece 295 00:17:46,560 --> 00:17:51,480 Speaker 1: I read called it one of Whizinga's lieutenants. So Cook 296 00:17:51,560 --> 00:17:53,439 Speaker 1: decides he's going to get out of the game, the 297 00:17:53,440 --> 00:17:57,520 Speaker 1: guy who founded the company. So in April, Cook sells 298 00:17:57,560 --> 00:18:00,800 Speaker 1: off his shares of the company he founded and he 299 00:18:00,880 --> 00:18:04,679 Speaker 1: goes to work on other businesses. Has pailed amounted to 300 00:18:05,040 --> 00:18:08,080 Speaker 1: something in the area of around twenty million dollars, somewhere 301 00:18:08,119 --> 00:18:11,560 Speaker 1: between eighteen and twenty million, which isn't bad. Obviously, that's 302 00:18:11,560 --> 00:18:13,800 Speaker 1: a lot of money. I mean, it makes you a millionaire, 303 00:18:13,960 --> 00:18:18,040 Speaker 1: a multimillionaire, But that was a fraction of what he 304 00:18:18,160 --> 00:18:21,280 Speaker 1: could have made had he stuck around. However, based on 305 00:18:21,320 --> 00:18:23,359 Speaker 1: a little bit of information I can find about Cook, 306 00:18:23,640 --> 00:18:27,200 Speaker 1: who is a pretty private person overall. He did not 307 00:18:27,320 --> 00:18:30,280 Speaker 1: regret his decision to leave when he did. For one thing, 308 00:18:30,560 --> 00:18:34,320 Speaker 1: it didn't sound like money was of a super high 309 00:18:34,640 --> 00:18:37,520 Speaker 1: priority in his life. Like sure, money is nice, it's 310 00:18:37,520 --> 00:18:40,600 Speaker 1: good to have it, but he's not consumed with the 311 00:18:40,640 --> 00:18:43,960 Speaker 1: idea of constantly making more money. He's appears to have 312 00:18:44,000 --> 00:18:48,119 Speaker 1: more of an engineering bent, where he likes to recognize 313 00:18:48,160 --> 00:18:52,040 Speaker 1: problems and find ways to solve them. So he leaves 314 00:18:52,040 --> 00:18:56,879 Speaker 1: the company behind, and the founder has gone. By April seven, 315 00:18:56,920 --> 00:19:00,200 Speaker 1: not quite two years after the company started in the 316 00:19:00,240 --> 00:19:03,560 Speaker 1: first place, the new leadership decides to pick up stakes 317 00:19:03,600 --> 00:19:07,200 Speaker 1: from Dallas and relocate to a new headquarters. The new 318 00:19:07,200 --> 00:19:12,000 Speaker 1: home base of operations for Blockbuster would then be Fort Lauderdale, Florida, 319 00:19:12,320 --> 00:19:15,479 Speaker 1: so they move out from Dallas to Fort Lauderdale. By 320 00:19:15,520 --> 00:19:18,280 Speaker 1: the summer of nine seven, Blockbuster had grown into a 321 00:19:18,320 --> 00:19:23,160 Speaker 1: company with fifteen of its own stores and twenty franchised stores. 322 00:19:23,560 --> 00:19:26,760 Speaker 1: Some things would remain the same as when Cook ran things. 323 00:19:26,800 --> 00:19:29,879 Speaker 1: The standard rental period was three days, which is what 324 00:19:30,080 --> 00:19:33,040 Speaker 1: Cook had established. Stores would open at ten am, they 325 00:19:33,040 --> 00:19:35,520 Speaker 1: would close at midnight. There was another thing that Cook 326 00:19:35,560 --> 00:19:38,399 Speaker 1: had established, and people could rent more than one film 327 00:19:38,440 --> 00:19:41,119 Speaker 1: at a time. Other interesting things that Cook had learned 328 00:19:41,640 --> 00:19:43,920 Speaker 1: and that the new owners were able to leverage to 329 00:19:44,000 --> 00:19:48,280 Speaker 1: greater effect held some surprising data. For one thing, seventy 330 00:19:48,359 --> 00:19:53,280 Speaker 1: percent of rentals were of non hit films. There were 331 00:19:53,280 --> 00:19:56,439 Speaker 1: movies that didn't receive a wide release, or some that 332 00:19:56,560 --> 00:19:59,679 Speaker 1: received no theatrical release at all, and that encouraged the 333 00:19:59,680 --> 00:20:02,400 Speaker 1: company to follow Cook's example and make sure that new 334 00:20:02,520 --> 00:20:05,359 Speaker 1: video stores, whenever they would open one up, would have 335 00:20:05,400 --> 00:20:09,600 Speaker 1: a broad spectrum of titles across all genres. To capitalize 336 00:20:09,640 --> 00:20:12,360 Speaker 1: on that trend, the company also made it a practice 337 00:20:12,400 --> 00:20:16,080 Speaker 1: to choose its locations very carefully. They would scout out 338 00:20:16,080 --> 00:20:19,560 Speaker 1: potential neighborhoods, not just to find a good storefront space, 339 00:20:19,600 --> 00:20:21,280 Speaker 1: you know, not just to say, oh, well, this this 340 00:20:21,400 --> 00:20:24,720 Speaker 1: land real estate here is ideal for us. But also 341 00:20:25,160 --> 00:20:26,960 Speaker 1: they wanted to get a really good understanding of the 342 00:20:26,960 --> 00:20:30,760 Speaker 1: demographics of the neighborhood because that would influence the choices 343 00:20:30,840 --> 00:20:33,679 Speaker 1: the company would make for the inventory held by that store. 344 00:20:34,000 --> 00:20:35,679 Speaker 1: So if you go to a location and has a 345 00:20:35,760 --> 00:20:41,159 Speaker 1: really large immigrant population, then you might include more foreign 346 00:20:41,200 --> 00:20:45,720 Speaker 1: films that represent the demographics of that area better, so 347 00:20:45,800 --> 00:20:49,480 Speaker 1: that if there's let's say there's a large Russian population 348 00:20:49,720 --> 00:20:51,800 Speaker 1: in a town, you might want to try and get 349 00:20:51,840 --> 00:20:54,439 Speaker 1: as much Russian cinema as possible because you're going to 350 00:20:54,520 --> 00:20:58,000 Speaker 1: appeal to the folks who live in that area. And 351 00:20:58,119 --> 00:21:00,720 Speaker 1: one of their big decision the company directors made was 352 00:21:00,800 --> 00:21:04,800 Speaker 1: that the video store would not carry X rated films. Uh. 353 00:21:04,840 --> 00:21:08,560 Speaker 1: They decided they definitely wanted a family friendly company, a 354 00:21:08,600 --> 00:21:12,639 Speaker 1: family oriented business, so that was right out. And in 355 00:21:12,680 --> 00:21:16,399 Speaker 1: the video rental days, there frequently were video rental stores 356 00:21:16,440 --> 00:21:19,919 Speaker 1: that would have a a surreptitious curtain hung up in 357 00:21:19,960 --> 00:21:22,720 Speaker 1: the store and behind that was where all the the 358 00:21:22,880 --> 00:21:26,480 Speaker 1: X rated material was. Blockbuster said, we're not doing that 359 00:21:26,520 --> 00:21:29,760 Speaker 1: at all. That's totally against what we're gonna stand for, 360 00:21:30,160 --> 00:21:34,560 Speaker 1: so we won't even entertain that thought. And then Wazinga 361 00:21:34,720 --> 00:21:38,399 Speaker 1: directed his new company to expand in that old, tried 362 00:21:38,600 --> 00:21:43,560 Speaker 1: and true way by buying up competition. Why open new 363 00:21:43,640 --> 00:21:46,760 Speaker 1: stores if you can buy existing ones. Although to be fair, 364 00:21:46,800 --> 00:21:50,480 Speaker 1: Blockbuster did both. They didn't just go out and acquire 365 00:21:50,520 --> 00:21:53,320 Speaker 1: other companies. They also opened up new stores of their own, 366 00:21:53,400 --> 00:21:57,920 Speaker 1: but they did do quite a bit of acquisitions. So 367 00:21:58,119 --> 00:22:01,040 Speaker 1: one thing that they started to do under Wazinga was 368 00:22:01,080 --> 00:22:04,400 Speaker 1: to try and buy back franchised stores. So the goal 369 00:22:04,480 --> 00:22:07,680 Speaker 1: was to reduce the number of franchises to of all 370 00:22:07,760 --> 00:22:11,600 Speaker 1: Blockbuster stores, so the company would operate the other six directly. 371 00:22:12,200 --> 00:22:16,399 Speaker 1: Wasazinga started acquiring regional chains of video rental stores, so 372 00:22:16,440 --> 00:22:18,840 Speaker 1: he would look for chains that held a strong position 373 00:22:19,040 --> 00:22:21,440 Speaker 1: in their local markets and then he would go out 374 00:22:21,480 --> 00:22:23,720 Speaker 1: and buy those So that way, instead of having to 375 00:22:23,880 --> 00:22:28,880 Speaker 1: go into a market and compete against an established uh rival, 376 00:22:29,400 --> 00:22:32,280 Speaker 1: they buy out the potential rival from the beginning and 377 00:22:32,320 --> 00:22:36,600 Speaker 1: then just take their place. So in March seven, Blockbuster 378 00:22:36,640 --> 00:22:40,000 Speaker 1: bought out a chain called Southern Video Partnership. In May 379 00:22:40,000 --> 00:22:44,000 Speaker 1: of that same year, they acquired Movies to Go Incorporated. 380 00:22:44,040 --> 00:22:47,240 Speaker 1: And that was just the beginning. By the end of 381 00:22:47,359 --> 00:22:51,240 Speaker 1: nineteen eight seven, Blockbuster had risen to become the fifth 382 00:22:51,480 --> 00:22:55,240 Speaker 1: largest video chain by revenue and they operated one hundred 383 00:22:55,440 --> 00:22:59,920 Speaker 1: thirty three stores. Wasazinga also planned for the future. Blow 384 00:23:00,119 --> 00:23:04,600 Speaker 1: Buster built an enormous distribution center in Dallas. This huge 385 00:23:04,680 --> 00:23:08,240 Speaker 1: warehouse building, and it was essentially a videotape warehouse. It 386 00:23:08,320 --> 00:23:10,760 Speaker 1: held industry so that a store would be able to 387 00:23:10,880 --> 00:23:15,600 Speaker 1: ramp up almost instantaneously. Essentially, Blockbuster would be able to 388 00:23:15,640 --> 00:23:19,359 Speaker 1: choose a location for a new store, secure that location 389 00:23:19,760 --> 00:23:21,840 Speaker 1: to a build out for the store, and as soon 390 00:23:21,880 --> 00:23:24,280 Speaker 1: as it was ready they could stock it. They could 391 00:23:24,359 --> 00:23:27,399 Speaker 1: fill the shelves because they had this big distribution center 392 00:23:27,880 --> 00:23:31,879 Speaker 1: that held massive numbers of tapes that were representative of 393 00:23:31,960 --> 00:23:36,720 Speaker 1: multiple stores worth of inventory. In March was Zinga led 394 00:23:36,760 --> 00:23:40,159 Speaker 1: the charge to acquire another video rental company called Video 395 00:23:40,359 --> 00:23:44,640 Speaker 1: Library Incorporated, which was based out of San Diego, California, 396 00:23:44,760 --> 00:23:48,440 Speaker 1: and had forty three locations at the time of the acquisition. 397 00:23:48,600 --> 00:23:52,600 Speaker 1: Blockbuster paid six point for million dollars in cash plus 398 00:23:52,640 --> 00:23:57,159 Speaker 1: some stock, and then in April night Blockbuster partnered with 399 00:23:57,200 --> 00:24:01,159 Speaker 1: a company called the United Cable Television Corporation or U 400 00:24:01,320 --> 00:24:04,800 Speaker 1: See t C, and you See TC would help Blockbuster 401 00:24:04,920 --> 00:24:08,320 Speaker 1: open one hundred franchised stores over the course of nearly 402 00:24:08,359 --> 00:24:11,720 Speaker 1: three years. You See t C also purchased twenty percent 403 00:24:11,880 --> 00:24:16,120 Speaker 1: of ownership and Blockbuster, although they would not retain all 404 00:24:16,160 --> 00:24:19,439 Speaker 1: of that percentage that stake over the years. By the 405 00:24:19,560 --> 00:24:23,359 Speaker 1: end of Night, Blockbuster Video had more than four hundred 406 00:24:23,400 --> 00:24:26,920 Speaker 1: stores and was already the largest video chain rental company 407 00:24:26,960 --> 00:24:30,359 Speaker 1: in the United States. So it hit number one status 408 00:24:31,080 --> 00:24:35,280 Speaker 1: just three years after it launched, and just really just 409 00:24:35,440 --> 00:24:39,280 Speaker 1: one year after Whazinga took over, and it was still 410 00:24:39,320 --> 00:24:42,680 Speaker 1: getting bigger. To celebrate the new year, in nine nine, 411 00:24:42,720 --> 00:24:45,440 Speaker 1: Blockbuster made another big move. They made a bid for 412 00:24:45,480 --> 00:24:48,159 Speaker 1: a company called Major Video, which was based out of 413 00:24:48,240 --> 00:24:51,520 Speaker 1: Las Vegas, Nevada. Major Video was the fourth largest video 414 00:24:51,560 --> 00:24:53,960 Speaker 1: rental company in the United States, and the deal was 415 00:24:54,000 --> 00:24:57,160 Speaker 1: made official for ninety two and a half million dollars. 416 00:24:57,640 --> 00:25:00,359 Speaker 1: Blockbuster kept buying up competitors and company is that we're 417 00:25:00,520 --> 00:25:05,080 Speaker 1: running Blockbuster franchises and brought those stores back under the 418 00:25:05,080 --> 00:25:08,840 Speaker 1: direct control of Blockbuster Corporate. By the end of nine 419 00:25:10,040 --> 00:25:13,719 Speaker 1: just two years after Wazinga and his crew took over operations, 420 00:25:14,080 --> 00:25:18,520 Speaker 1: Blockbuster had grown to more than seven stores, sales had tripled, 421 00:25:18,720 --> 00:25:22,280 Speaker 1: and profits were almost four times larger than they had 422 00:25:22,320 --> 00:25:25,959 Speaker 1: been before Wazinga came on board. The company's market value 423 00:25:26,119 --> 00:25:30,080 Speaker 1: was seven times more than it had been before he 424 00:25:30,119 --> 00:25:34,200 Speaker 1: came on board. And then the company hit a little roadblock. 425 00:25:35,080 --> 00:25:38,199 Speaker 1: This is what we call a cliffhanger. I'll tell you 426 00:25:38,240 --> 00:25:40,439 Speaker 1: what that roadblock was in just a second, but first 427 00:25:40,640 --> 00:25:52,439 Speaker 1: let's take another quick break to thank our sponsors. So 428 00:25:52,520 --> 00:25:56,080 Speaker 1: that roadblock came in the form of a financial analysis 429 00:25:56,119 --> 00:26:00,679 Speaker 1: report which accused Blockbuster management of engaging in some misleading 430 00:26:00,960 --> 00:26:05,879 Speaker 1: or maybe even shady accounting. According to the report, Blockbuster 431 00:26:06,040 --> 00:26:09,679 Speaker 1: was hiding its expenses by spreading them out over long 432 00:26:09,800 --> 00:26:12,720 Speaker 1: time frames. The company would end up spreading out the 433 00:26:12,760 --> 00:26:17,560 Speaker 1: cost of acquiring and building stores over a forty year period. 434 00:26:17,880 --> 00:26:20,480 Speaker 1: The implication there was that the company was planning on 435 00:26:20,600 --> 00:26:24,680 Speaker 1: operating those businesses for at least forty years to generate 436 00:26:24,720 --> 00:26:28,040 Speaker 1: revenue to cover those costs. And Blockbuster was also spreading 437 00:26:28,040 --> 00:26:31,240 Speaker 1: out the cost of actual video tapes. They said, well, 438 00:26:31,600 --> 00:26:35,080 Speaker 1: we're paying for video tapes over a three year period, 439 00:26:35,160 --> 00:26:38,360 Speaker 1: so when we make a big purchase, we are giving 440 00:26:38,400 --> 00:26:42,200 Speaker 1: ourselves three years to recover that. Now, according to the 441 00:26:42,320 --> 00:26:45,840 Speaker 1: analyst who wrote this report, that was not realistic because 442 00:26:45,880 --> 00:26:48,160 Speaker 1: a three year old tape would not hold the same 443 00:26:48,280 --> 00:26:51,399 Speaker 1: value as a new tape and not generate as much revenue, 444 00:26:51,480 --> 00:26:57,240 Speaker 1: So you would see a decreased or diminished returns on rentals. Right, 445 00:26:57,720 --> 00:27:01,080 Speaker 1: you make a video of allable, and if it's a 446 00:27:01,119 --> 00:27:04,879 Speaker 1: new film, it might be very much sought after over 447 00:27:05,520 --> 00:27:07,600 Speaker 1: the course of the first couple of months of it 448 00:27:07,640 --> 00:27:10,560 Speaker 1: being out, but that would start to taper off. And 449 00:27:10,600 --> 00:27:14,080 Speaker 1: it was true that a large percentage of rentals were 450 00:27:14,119 --> 00:27:17,640 Speaker 1: coming from smaller films, but it didn't mean that the 451 00:27:17,680 --> 00:27:21,920 Speaker 1: same smaller film was constantly being rented, right. A single 452 00:27:21,960 --> 00:27:25,040 Speaker 1: title might only get rented once or twice a month. 453 00:27:25,480 --> 00:27:29,400 Speaker 1: It's just collectively across all of those small films, there 454 00:27:29,520 --> 00:27:32,600 Speaker 1: was a lot of rentals going on. So the analyst 455 00:27:32,720 --> 00:27:35,679 Speaker 1: was saying, you can't just spread the cost of a 456 00:27:35,800 --> 00:27:39,800 Speaker 1: video over the course of three years, because it's making 457 00:27:39,800 --> 00:27:43,840 Speaker 1: too many assumptions. And you would say, you know, this 458 00:27:44,400 --> 00:27:46,280 Speaker 1: three year old tape is not going to have the 459 00:27:46,320 --> 00:27:49,359 Speaker 1: same value as a brand new tape, unless, of course, 460 00:27:49,400 --> 00:27:53,000 Speaker 1: the old tape was some sort of classic like I 461 00:27:53,080 --> 00:27:55,960 Speaker 1: don't know, Barry Gordy's The Last Dragon, and the brand 462 00:27:56,000 --> 00:27:59,679 Speaker 1: new tape was something not so classic, like Ernest goes 463 00:27:59,720 --> 00:28:03,119 Speaker 1: to Amp because that's an easy call. Right. But on 464 00:28:03,160 --> 00:28:07,560 Speaker 1: top of those charges that the analyst made against Blockbuster, 465 00:28:07,600 --> 00:28:11,040 Speaker 1: the report also stated that Blockbuster was relying heavily upon 466 00:28:11,080 --> 00:28:15,280 Speaker 1: the initial franchise fee for way too much of its revenue. 467 00:28:15,840 --> 00:28:19,760 Speaker 1: The report found that twenty eight percent of blockbusters revenues 468 00:28:20,160 --> 00:28:24,680 Speaker 1: came from these one time fees, so nearly a third 469 00:28:25,040 --> 00:28:28,080 Speaker 1: of all revenue that Blockbuster was making came from this 470 00:28:28,160 --> 00:28:31,679 Speaker 1: franchise fee that would be paid one time by each franchise. 471 00:28:32,040 --> 00:28:34,320 Speaker 1: In other words, in order to keep that amount of 472 00:28:34,320 --> 00:28:37,600 Speaker 1: revenue steady, you would have to open at least as 473 00:28:37,600 --> 00:28:42,640 Speaker 1: many franchises the next year. Right if you make of 474 00:28:42,680 --> 00:28:46,400 Speaker 1: your revenue from these one time fees. If you don't make, 475 00:28:46,480 --> 00:28:49,480 Speaker 1: if you don't open as many franchises or more the 476 00:28:49,520 --> 00:28:52,280 Speaker 1: following year, you're going to have a decrease in that 477 00:28:52,320 --> 00:28:54,680 Speaker 1: percentage of revenue and you need to make it up 478 00:28:54,760 --> 00:28:58,280 Speaker 1: somewhere else. So this would create a business plan that 479 00:28:58,320 --> 00:29:02,680 Speaker 1: was incredibly aggressive and probably unsustainable because at some point 480 00:29:02,720 --> 00:29:06,120 Speaker 1: you're gonna hit maximum market penetration. You're not going to 481 00:29:06,160 --> 00:29:10,920 Speaker 1: be able to open up more franchises because the market 482 00:29:10,960 --> 00:29:14,280 Speaker 1: would be saturated. There would already be enough franchises in 483 00:29:14,640 --> 00:29:18,040 Speaker 1: various regions, and there wouldn't be enough demand to open 484 00:29:18,160 --> 00:29:21,640 Speaker 1: up another one. So you can't count on one time 485 00:29:21,720 --> 00:29:25,200 Speaker 1: franchise fees to be a third of your revenue. It 486 00:29:25,320 --> 00:29:29,240 Speaker 1: was a short term strategy, according to this analyst, and 487 00:29:30,160 --> 00:29:33,160 Speaker 1: because it was making up such a significant percentage of revenue, 488 00:29:33,480 --> 00:29:37,520 Speaker 1: it was a big warning flag. Blockbuster had a prompt 489 00:29:37,640 --> 00:29:41,200 Speaker 1: response to this. Well. First of all, their stocks took 490 00:29:41,200 --> 00:29:45,360 Speaker 1: a hit their stock price debt because this report was 491 00:29:45,440 --> 00:29:50,200 Speaker 1: pretty damaging, but their swift response was this, I don't 492 00:29:50,240 --> 00:29:54,920 Speaker 1: care up. Management remained defiant. They refused to change the 493 00:29:54,960 --> 00:29:57,719 Speaker 1: way they operated. They said, this is how we do business, 494 00:29:57,800 --> 00:30:01,480 Speaker 1: and we're seeing a lot of success, So go for 495 00:30:01,560 --> 00:30:05,120 Speaker 1: a long walk off a short pier. Gradually, the stock 496 00:30:05,160 --> 00:30:11,000 Speaker 1: price recovered because sustainable or not, Blockbuster strategy was inflating 497 00:30:11,000 --> 00:30:15,600 Speaker 1: the company's value. So the company's value was increasing, even 498 00:30:15,640 --> 00:30:19,720 Speaker 1: if on the long term this strategy could not sustain itself. 499 00:30:20,120 --> 00:30:22,680 Speaker 1: Maybe someday that would all come crashing down, but in 500 00:30:22,680 --> 00:30:25,480 Speaker 1: the short term, Blockbuster stock look like a surefire ticket 501 00:30:25,480 --> 00:30:28,840 Speaker 1: to profits. The company was dominating the home video space, 502 00:30:29,080 --> 00:30:32,080 Speaker 1: and home video itself was performing like gangbusters. Not only 503 00:30:32,080 --> 00:30:34,800 Speaker 1: were people eager to get their hands on movies that 504 00:30:34,840 --> 00:30:37,560 Speaker 1: they might have missed during initial release, it also opened 505 00:30:37,640 --> 00:30:40,719 Speaker 1: up a new industry where studios could either choose to 506 00:30:40,800 --> 00:30:44,080 Speaker 1: offload titles to home video instead of going the theatrical 507 00:30:44,080 --> 00:30:48,880 Speaker 1: release route, or even purposefully make movies with the intent 508 00:30:49,000 --> 00:30:52,880 Speaker 1: of making them direct to video titles. Blockbuster had another 509 00:30:53,000 --> 00:30:57,960 Speaker 1: hiccup in November. That's so I got a backtrack a 510 00:30:58,000 --> 00:31:00,280 Speaker 1: little bit I mentioned earlier that they or at a 511 00:31:00,280 --> 00:31:06,280 Speaker 1: partnership with United Cable Television Corporation. Well in, United Cable 512 00:31:06,320 --> 00:31:12,000 Speaker 1: Television Corporation merged with United Artists Communications, Incorporated, and they 513 00:31:12,040 --> 00:31:17,040 Speaker 1: formed a new company called United Artists Entertainment, Incorporated, and 514 00:31:17,080 --> 00:31:22,320 Speaker 1: now United Artists was the largest shareholder of Blockbuster. Following 515 00:31:22,400 --> 00:31:26,640 Speaker 1: the merger between those two companies, United Cable Television Corporation 516 00:31:26,720 --> 00:31:32,040 Speaker 1: and United Artists Communications, United Artists wanted to restructure, right 517 00:31:32,080 --> 00:31:34,640 Speaker 1: they had just merged two companies together, and I said, 518 00:31:34,800 --> 00:31:37,240 Speaker 1: we need the streamline. We need to get rid of 519 00:31:37,280 --> 00:31:41,280 Speaker 1: any redundant departments or systems and find out what works 520 00:31:41,320 --> 00:31:45,120 Speaker 1: best for us as an entertainment company and streamline stuff. 521 00:31:45,480 --> 00:31:48,080 Speaker 1: Part of that meant selling off the twenty eight Blockbuster 522 00:31:48,160 --> 00:31:52,120 Speaker 1: franchises that the company owned and operated, and also divesting 523 00:31:52,160 --> 00:31:55,840 Speaker 1: itself of the shares it had of Blockbuster, which by 524 00:31:55,840 --> 00:31:58,760 Speaker 1: that time made up about twelve percent of all shares 525 00:31:58,960 --> 00:32:03,120 Speaker 1: in the company. That again raised questions about Blockbusters business plans. 526 00:32:03,120 --> 00:32:05,120 Speaker 1: Would the company be able to operate the way it 527 00:32:05,200 --> 00:32:09,960 Speaker 1: had been indefinitely or was this the tipping point? Managements 528 00:32:09,960 --> 00:32:14,320 Speaker 1: all one surefire solution to the challenges they were facing 529 00:32:15,360 --> 00:32:18,880 Speaker 1: because expansion in the United States was slowing quite a bit, 530 00:32:19,200 --> 00:32:21,840 Speaker 1: in part due to saturation. Right, there are a lot 531 00:32:21,880 --> 00:32:24,400 Speaker 1: of markets that already had enough video rental stores to 532 00:32:24,440 --> 00:32:27,720 Speaker 1: support that population. So growth in the United States was 533 00:32:27,760 --> 00:32:33,720 Speaker 1: getting increasingly challenging. But overseas markets presented huge opportunities. And 534 00:32:33,760 --> 00:32:36,640 Speaker 1: I've seen this happen with other companies, including companies I've 535 00:32:36,640 --> 00:32:39,920 Speaker 1: worked for, where a company reaches a really big size 536 00:32:39,960 --> 00:32:43,360 Speaker 1: within one country and then growth is just really hard 537 00:32:43,400 --> 00:32:46,160 Speaker 1: to do because you've already grown so much in your 538 00:32:46,160 --> 00:32:48,640 Speaker 1: home country you get you don't really have room to 539 00:32:48,680 --> 00:32:53,640 Speaker 1: get bigger. So investors still want to return on their investment, right, 540 00:32:53,640 --> 00:32:55,800 Speaker 1: they still want to make a profit from investing in 541 00:32:55,800 --> 00:32:58,959 Speaker 1: the company. That means that the company has to not 542 00:32:59,040 --> 00:33:02,160 Speaker 1: just do well in needs to grow year over year 543 00:33:02,320 --> 00:33:04,840 Speaker 1: in order for investors to get a return on that investment. 544 00:33:04,920 --> 00:33:07,880 Speaker 1: This is why we see so much emphasis on growth, 545 00:33:08,000 --> 00:33:11,040 Speaker 1: not just performance, but how much did you grow this 546 00:33:11,120 --> 00:33:15,040 Speaker 1: year compared to last year. So you are left with 547 00:33:15,120 --> 00:33:18,560 Speaker 1: some hard choices. You can try to create more customers 548 00:33:18,640 --> 00:33:21,800 Speaker 1: in your home country, but that gets more challenging the 549 00:33:21,880 --> 00:33:24,600 Speaker 1: longer you go, because the larger you get, the fewer 550 00:33:24,800 --> 00:33:27,760 Speaker 1: the smaller the pool is right, the fewer number of 551 00:33:27,840 --> 00:33:30,560 Speaker 1: non customers you have, and it gets harder and harder 552 00:33:30,600 --> 00:33:33,840 Speaker 1: to convince those to become customers. Sometimes it's impossible. Your 553 00:33:33,840 --> 00:33:37,040 Speaker 1: other choice is to try and expand into other countries, 554 00:33:37,240 --> 00:33:41,080 Speaker 1: and Blockbuster chose the foreign market strategy. John Melk, one 555 00:33:41,080 --> 00:33:44,240 Speaker 1: of the three investors who came over from Waste Management 556 00:33:44,240 --> 00:33:47,520 Speaker 1: back in n seven, traveled to the United Kingdom and 557 00:33:47,560 --> 00:33:52,600 Speaker 1: he opened up a British subsidiary of Blockbuster. The store 558 00:33:52,680 --> 00:33:55,800 Speaker 1: that he opened up in South London was called the Ritz, 559 00:33:56,400 --> 00:33:59,280 Speaker 1: and once again Blockbuster went on a really aggressive path 560 00:33:59,400 --> 00:34:03,680 Speaker 1: to open his many stores as possible. Before nine had ended, 561 00:34:04,200 --> 00:34:08,560 Speaker 1: Blockbuster had more than one thousand stores, and by June 562 00:34:08,560 --> 00:34:10,920 Speaker 1: they would have more than one thousand, two hundred stores 563 00:34:10,920 --> 00:34:14,080 Speaker 1: in the United States alone. So they were still opening 564 00:34:14,160 --> 00:34:18,200 Speaker 1: up locations very very quickly, and even though the United 565 00:34:18,200 --> 00:34:20,960 Speaker 1: States was a tougher market, they were still opening up 566 00:34:21,080 --> 00:34:25,200 Speaker 1: more stores there. The company also created ad campaign partnerships 567 00:34:25,400 --> 00:34:28,120 Speaker 1: with fast food restaurants, you know, make a night of it, 568 00:34:28,440 --> 00:34:30,520 Speaker 1: dinner in a movie, that kind of thing, And they 569 00:34:30,560 --> 00:34:33,719 Speaker 1: continued reaching out to new markets like Japan, while continuing 570 00:34:33,760 --> 00:34:36,399 Speaker 1: the old practice of gobbling up other video store chains, 571 00:34:36,400 --> 00:34:39,520 Speaker 1: particularly big ones that were struggling to compete with Blockbuster. 572 00:34:40,080 --> 00:34:42,759 Speaker 1: But while the company was growing in size, it was 573 00:34:42,800 --> 00:34:46,840 Speaker 1: seeing earnings growth decrease year over year, So it was growing, 574 00:34:47,000 --> 00:34:51,440 Speaker 1: but it was growing at a less accelerated rate. It's 575 00:34:51,480 --> 00:34:54,280 Speaker 1: hard to say, you know, you're you're not getting smaller, 576 00:34:54,480 --> 00:34:57,080 Speaker 1: You're just not getting as big as quickly. So the 577 00:34:57,160 --> 00:35:00,319 Speaker 1: video rental business look like it was losing some team. 578 00:35:00,640 --> 00:35:06,319 Speaker 1: In ninety eight, Blockbusters earnings were up one percent from 579 00:35:06,480 --> 00:35:11,719 Speaker 1: the nineteen eight seven numbers, so seven earnings increased by 580 00:35:11,800 --> 00:35:17,840 Speaker 1: one From eight to eighty nine earnings increased ninety three percent, 581 00:35:18,080 --> 00:35:21,720 Speaker 1: so a drop in the growth rate. They're still growing, 582 00:35:22,280 --> 00:35:26,880 Speaker 1: just not as fast. The numbers were even more dramatic, 583 00:35:27,440 --> 00:35:30,920 Speaker 1: so from eighty nine to ninety it was a forty 584 00:35:31,000 --> 00:35:33,840 Speaker 1: eight percent growth rate, So I went from one fourteen 585 00:35:34,040 --> 00:35:37,440 Speaker 1: to ninety three to forty eight. So each year that 586 00:35:37,520 --> 00:35:40,320 Speaker 1: was going by, the company was getting bigger by the 587 00:35:40,400 --> 00:35:42,440 Speaker 1: number of stores and the amount of money it was making, 588 00:35:42,960 --> 00:35:47,520 Speaker 1: but the earnings growth wasn't really keeping pace with the 589 00:35:47,560 --> 00:35:50,680 Speaker 1: expansion of the company, like they were opening up more 590 00:35:50,719 --> 00:35:55,280 Speaker 1: stores and more franchises, but it was a diminishing returns 591 00:35:55,320 --> 00:35:58,640 Speaker 1: on the amount of earnings. Wazinga had an interesting explanation 592 00:35:58,719 --> 00:36:01,400 Speaker 1: for the decline and growth. He said the Gulf War 593 00:36:01,640 --> 00:36:04,759 Speaker 1: was to blame. Specifically, he said people were watching the 594 00:36:04,800 --> 00:36:09,080 Speaker 1: news more frequently rather than watching movies, and so television 595 00:36:09,320 --> 00:36:11,960 Speaker 1: was sapping his customer base, at least that was his 596 00:36:12,040 --> 00:36:14,319 Speaker 1: take on it. So he's saying, no one's coming out 597 00:36:14,360 --> 00:36:16,560 Speaker 1: to rent a movie because they are glued to the 598 00:36:16,560 --> 00:36:18,560 Speaker 1: television to see what's going on with the Gulf. For 599 00:36:19,120 --> 00:36:23,080 Speaker 1: Blockbuster was starting to see some new competition. To pay 600 00:36:23,080 --> 00:36:25,120 Speaker 1: per view had been around for a bit, and on 601 00:36:25,239 --> 00:36:28,400 Speaker 1: demand content was just kind of getting started around this time, 602 00:36:28,800 --> 00:36:31,279 Speaker 1: but they were starting to gain traction. And these were 603 00:36:31,400 --> 00:36:33,879 Speaker 1: very convenient offerings because there was no need to leave 604 00:36:33,920 --> 00:36:36,040 Speaker 1: the house to go get a tape or to return one, 605 00:36:36,280 --> 00:36:37,719 Speaker 1: and you didn't have to worry about late fee and 606 00:36:37,760 --> 00:36:39,960 Speaker 1: you didn't even have to rewind a videotape at the end. 607 00:36:40,640 --> 00:36:43,279 Speaker 1: Uh In the early days pay per view, you had 608 00:36:43,320 --> 00:36:46,160 Speaker 1: to tune in at a specific time. It wasn't on 609 00:36:46,320 --> 00:36:49,719 Speaker 1: demand early early on, but on demand was starting to 610 00:36:49,760 --> 00:36:54,120 Speaker 1: come out with things like satellite television. Management noticed this 611 00:36:54,800 --> 00:36:58,240 Speaker 1: and so some Blockbuster stores began offering new services beyond 612 00:36:58,360 --> 00:37:00,520 Speaker 1: video rental. You know, it wanted to so fi a 613 00:37:00,560 --> 00:37:03,959 Speaker 1: bit appeal to a broader audience, a broader customer base. 614 00:37:04,360 --> 00:37:07,080 Speaker 1: So they started renting out video games and even video 615 00:37:07,120 --> 00:37:10,240 Speaker 1: game consoles like the Sega Genesis, and if You began 616 00:37:10,320 --> 00:37:13,480 Speaker 1: to sell music, mostly in the form of audio cassettes 617 00:37:13,520 --> 00:37:17,600 Speaker 1: and then CDs. The company also changed its rental policies 618 00:37:17,680 --> 00:37:20,720 Speaker 1: for new movies, and this was an effort to increase 619 00:37:20,840 --> 00:37:26,080 Speaker 1: volume or increase the rate of rentals. So for brand 620 00:37:26,120 --> 00:37:29,920 Speaker 1: new movies, the idea was, we're gonna reduce the rental fee. 621 00:37:30,040 --> 00:37:32,080 Speaker 1: It's going to be cheaper to rent a brand new 622 00:37:32,120 --> 00:37:36,120 Speaker 1: movie than it is other films. However, the do date 623 00:37:36,400 --> 00:37:38,960 Speaker 1: is earlier, so you can rent a movie, a brand 624 00:37:38,960 --> 00:37:41,480 Speaker 1: new film that's just come out, and it's going to 625 00:37:41,600 --> 00:37:43,720 Speaker 1: be less money than it would be for something else, 626 00:37:43,920 --> 00:37:46,239 Speaker 1: but you have to return it to the store earlier. 627 00:37:46,800 --> 00:37:48,799 Speaker 1: And the idea here was that they would be able 628 00:37:48,840 --> 00:37:52,600 Speaker 1: to rent the same films out more frequently and keep 629 00:37:52,640 --> 00:37:55,680 Speaker 1: that revenue stream coming in. Blockbuster also began to look 630 00:37:55,680 --> 00:37:58,600 Speaker 1: around in the retail world for senior level executives with 631 00:37:58,640 --> 00:38:01,160 Speaker 1: a lot of experience in retail to bring them on board. 632 00:38:01,200 --> 00:38:04,200 Speaker 1: And enhance company leadership because you know, the guys who 633 00:38:04,200 --> 00:38:07,080 Speaker 1: were in charge, they all came from waste management. They 634 00:38:07,120 --> 00:38:10,000 Speaker 1: wanted to find other people who had this bigger, big 635 00:38:10,080 --> 00:38:14,680 Speaker 1: experience with bigger retail companies to help advise UH the 636 00:38:14,800 --> 00:38:19,360 Speaker 1: senior level of management. By Blockbuster head stores, numerous countries 637 00:38:19,760 --> 00:38:25,919 Speaker 1: including Spain, Venezuela, Japan, New Zealand, and more. Phillips Electronics 638 00:38:26,080 --> 00:38:29,400 Speaker 1: would invest more than sixty million dollars in Blockbuster in 639 00:38:30,360 --> 00:38:34,520 Speaker 1: and across the company. Blockbuster made one point five billion 640 00:38:34,600 --> 00:38:37,760 Speaker 1: dollars in sales. Now, that is a phenomenal amount of money. 641 00:38:37,800 --> 00:38:41,000 Speaker 1: One and a half billion dollars in sales. However, when 642 00:38:41,000 --> 00:38:44,400 Speaker 1: you look at earnings, while they sold one and a 643 00:38:44,440 --> 00:38:48,720 Speaker 1: half billion dollars worth of product, they earned only eighty 644 00:38:48,800 --> 00:38:53,280 Speaker 1: nine million dollars out of one point five billion in sales. 645 00:38:54,440 --> 00:38:57,680 Speaker 1: That's amazing. You know, to to have a one point 646 00:38:57,680 --> 00:39:01,239 Speaker 1: five billion in sales, but you're earnings are eighty nine 647 00:39:01,280 --> 00:39:05,120 Speaker 1: million dollars. That shows that this was a very expensive 648 00:39:05,280 --> 00:39:08,280 Speaker 1: business to be in. The those upfront costs of opening 649 00:39:08,360 --> 00:39:12,760 Speaker 1: up those stores. The acquisition cost was incredibly high, so 650 00:39:13,040 --> 00:39:17,240 Speaker 1: was Zinga and Company. They were really growing very quickly 651 00:39:18,160 --> 00:39:23,160 Speaker 1: but they weren't making that much money once you factored 652 00:39:23,160 --> 00:39:26,239 Speaker 1: in all the costs. Compared comparatively speaking, I mean a 653 00:39:26,360 --> 00:39:28,759 Speaker 1: nine million dollars is still a huge amount of money, 654 00:39:28,960 --> 00:39:32,240 Speaker 1: it's just dwarfed by one point five billion dollars in sales. 655 00:39:34,000 --> 00:39:37,640 Speaker 1: Blockbuster would make more acquisitions and video rental stores. No surprise, 656 00:39:37,680 --> 00:39:40,760 Speaker 1: they're same as it ever was. But the company also 657 00:39:41,000 --> 00:39:45,120 Speaker 1: entered a new phase. It acquired companies called Music Plus 658 00:39:45,200 --> 00:39:49,400 Speaker 1: and Sound Warehouse. This warehouse is spelled w H E 659 00:39:49,600 --> 00:39:52,920 Speaker 1: R E. And this was an effort to expand Blockbuster 660 00:39:53,000 --> 00:39:56,920 Speaker 1: into a multimedia company that not only rented videos but 661 00:39:57,040 --> 00:40:00,799 Speaker 1: also would act as a music store, so expanding that 662 00:40:01,400 --> 00:40:04,960 Speaker 1: cassette tape and CD business they had started earlier. Blockbuster 663 00:40:05,000 --> 00:40:08,480 Speaker 1: also foreigned a partnership with Virgin Group. That's the UK 664 00:40:08,680 --> 00:40:13,880 Speaker 1: company that uh, it's a big media company over in England. 665 00:40:14,160 --> 00:40:17,520 Speaker 1: And the goal was to create mega stores. Was Zinga 666 00:40:17,560 --> 00:40:20,680 Speaker 1: had a vision of these huge box stores that you 667 00:40:20,680 --> 00:40:24,080 Speaker 1: would go into, kind of like the big electronics or 668 00:40:24,160 --> 00:40:28,000 Speaker 1: big media stores things like think about Best Buy or 669 00:40:28,080 --> 00:40:30,920 Speaker 1: Circuit City something like that, but really big store and 670 00:40:30,960 --> 00:40:33,399 Speaker 1: it would offer not just video rentals, but it would 671 00:40:33,400 --> 00:40:37,040 Speaker 1: also sell stuff like that might sell movies, computer software, 672 00:40:37,160 --> 00:40:41,400 Speaker 1: video games, music, and even have like an an Arcade 673 00:40:41,560 --> 00:40:47,760 Speaker 1: type experience with virtual reality attractions. That was his idea, 674 00:40:48,440 --> 00:40:52,719 Speaker 1: and he had sort of a prototype open up in Florida, 675 00:40:52,800 --> 00:40:55,080 Speaker 1: but it never really took off the way he had 676 00:40:55,080 --> 00:40:58,640 Speaker 1: planned the way. Zinga also had a interesting idea that 677 00:40:58,680 --> 00:41:04,080 Speaker 1: foreshadowed the digital media age. He ended up starting a 678 00:41:04,120 --> 00:41:07,000 Speaker 1: project with IBM. He worked with folks over at IBM. 679 00:41:07,040 --> 00:41:10,919 Speaker 1: He wanted them to develop a system that would burn 680 00:41:11,080 --> 00:41:14,400 Speaker 1: music tracks to a CD very very fast. And the 681 00:41:14,440 --> 00:41:17,760 Speaker 1: idea he had was that customers would come into his store, 682 00:41:18,120 --> 00:41:19,440 Speaker 1: they would be able to go to up to this 683 00:41:19,520 --> 00:41:22,520 Speaker 1: machine and they would be able to browse through a 684 00:41:22,640 --> 00:41:26,359 Speaker 1: huge digital database of songs, and then they'd be able 685 00:41:26,400 --> 00:41:29,360 Speaker 1: to select songs from that digital database, which would then 686 00:41:29,400 --> 00:41:31,560 Speaker 1: get burned to this c D. You would get a 687 00:41:31,640 --> 00:41:35,440 Speaker 1: custom mixed c D made up of the tracks that 688 00:41:35,520 --> 00:41:38,440 Speaker 1: you had chosen from all these different albums. As it 689 00:41:38,480 --> 00:41:41,480 Speaker 1: turned out, music studios were not too keen on that idea, 690 00:41:41,760 --> 00:41:46,080 Speaker 1: just as they would heartily resist the digital revolution in 691 00:41:46,160 --> 00:41:49,120 Speaker 1: music a couple of years later. Uh So, there was 692 00:41:49,160 --> 00:41:54,200 Speaker 1: a lot of of disagreement on that particular approach in 693 00:41:55,400 --> 00:41:59,040 Speaker 1: Blockbuster had more than three thousand, four hundred stores around 694 00:41:59,040 --> 00:42:01,399 Speaker 1: the world, and about the thousand of those were in 695 00:42:01,400 --> 00:42:05,680 Speaker 1: international markets. Wazinga purchased controlling shares in a movie and 696 00:42:05,719 --> 00:42:09,239 Speaker 1: television production studio called Republic Pictures. That one owned a 697 00:42:09,360 --> 00:42:12,480 Speaker 1: large library of films and TV series, and they also 698 00:42:12,640 --> 00:42:16,560 Speaker 1: bought nearly fifty of the shares in Spelling Entertainment. That's 699 00:42:16,560 --> 00:42:20,040 Speaker 1: a television production company. And that's set the ground for 700 00:42:20,080 --> 00:42:24,360 Speaker 1: what would happen in which we could call the beginning 701 00:42:24,520 --> 00:42:27,719 Speaker 1: of the end. In the next episode we will cover that. 702 00:42:28,080 --> 00:42:31,400 Speaker 1: We will talk about the death of Blockbuster, how it 703 00:42:31,520 --> 00:42:35,239 Speaker 1: went from this enormous peak, and we haven't hit peak 704 00:42:35,320 --> 00:42:40,280 Speaker 1: Blockbuster yet. It continues to grow unsteadily, but it continues 705 00:42:40,320 --> 00:42:43,800 Speaker 1: to grow until things kind of come to a crashing halt. 706 00:42:44,239 --> 00:42:46,040 Speaker 1: That will be in our next episode. If you have 707 00:42:46,160 --> 00:42:49,960 Speaker 1: any suggestions for future episodes of tech Stuff, whether it's 708 00:42:49,960 --> 00:42:53,399 Speaker 1: a company, a technology, a person in tech, maybe it's 709 00:42:53,400 --> 00:42:56,560 Speaker 1: just a specific product that you think needs to have 710 00:42:56,640 --> 00:42:59,440 Speaker 1: a good profile, let me know. Send me a message 711 00:42:59,480 --> 00:43:02,600 Speaker 1: the email I addresses tech Stuff at how stuff works 712 00:43:02,800 --> 00:43:06,120 Speaker 1: dot com, or drop me a line on Facebook or Twitter. 713 00:43:06,200 --> 00:43:08,360 Speaker 1: They handle at both of those is tech Stuff H. 714 00:43:08,560 --> 00:43:11,520 Speaker 1: S W. Don't forget we have a merchandise store over 715 00:43:11,600 --> 00:43:14,799 Speaker 1: at t public dot com slash tech Stuff. Go get 716 00:43:14,840 --> 00:43:18,319 Speaker 1: yourself a tech stuff coffee mug, be cool like me, 717 00:43:19,280 --> 00:43:22,120 Speaker 1: and remember everything you buy there, a little bit of 718 00:43:22,160 --> 00:43:24,200 Speaker 1: that comes to the show, so you help support the 719 00:43:24,200 --> 00:43:26,360 Speaker 1: show and you end up with something cool for yourself, 720 00:43:26,560 --> 00:43:30,719 Speaker 1: which is awesome. And don't forget to follow our Instagram account. 721 00:43:31,120 --> 00:43:33,279 Speaker 1: And that's all for me today. I'll talk to you 722 00:43:33,320 --> 00:43:42,719 Speaker 1: again really soon for more on this and thousands of 723 00:43:42,719 --> 00:43:54,880 Speaker 1: other topics. Is that how stuff works dot com