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 --> 00:00:13,600 Speaker 1: stuff works dot com. Hey there, and welcome to tech Stuff. 3 00:00:13,600 --> 00:00:16,319 Speaker 1: I'm your host, Johnathan Strickling. I'm an executive producer at 4 00:00:16,320 --> 00:00:19,400 Speaker 1: how Stuff Works in I love all Things tech. And 5 00:00:19,480 --> 00:00:23,360 Speaker 1: this is our second part of our episodes about Blockbuster. 6 00:00:23,520 --> 00:00:25,920 Speaker 1: The first one was the Birth of Blockbuster. If you've 7 00:00:25,960 --> 00:00:28,600 Speaker 1: not heard that, go listen to that episode first, because 8 00:00:28,640 --> 00:00:32,800 Speaker 1: this is the death of Blockbuster. Spoiler alert. We left 9 00:00:32,840 --> 00:00:35,800 Speaker 1: off at the tail end of nineteen three. In the 10 00:00:35,840 --> 00:00:39,200 Speaker 1: last episode. Blockbuster had grown from a modest video rental 11 00:00:39,240 --> 00:00:42,760 Speaker 1: operation in the mid nineteen eighties into the dominant company 12 00:00:42,880 --> 00:00:46,400 Speaker 1: in the home video rental industry a decade later, but 13 00:00:46,520 --> 00:00:50,560 Speaker 1: a slowing market and some questionable accounting strategies had put 14 00:00:50,560 --> 00:00:53,279 Speaker 1: the brakes on the meteoric growth the company had been 15 00:00:53,360 --> 00:00:58,920 Speaker 1: enjoying in the late nineteen eighties. In September nineteen Wayne Wazingo, 16 00:00:59,040 --> 00:01:03,440 Speaker 1: head of Blockbuster, announced a planned merger agreement between Blockbuster 17 00:01:03,800 --> 00:01:07,440 Speaker 1: and the media company Viacom. The proposed merger would be 18 00:01:07,480 --> 00:01:11,640 Speaker 1: a four point seven billion dollar deal, but there was 19 00:01:11,680 --> 00:01:16,320 Speaker 1: a problem. Viacom was already engaged in another big acquisition 20 00:01:16,360 --> 00:01:19,399 Speaker 1: effort at that time. The company was in a little 21 00:01:19,400 --> 00:01:22,399 Speaker 1: bit of a bidding war with QVC in order to 22 00:01:22,440 --> 00:01:26,880 Speaker 1: try and purchase Paramount Communications. Viacom's talks with Blockbuster were 23 00:01:26,959 --> 00:01:30,200 Speaker 1: kind of put on hold while that battle was raging. Ultimately, 24 00:01:30,319 --> 00:01:34,080 Speaker 1: Viacom won the bidding war and it bought Paramount, with 25 00:01:34,160 --> 00:01:38,679 Speaker 1: Blockbuster investing in Viacom to help fund that acquisition. But 26 00:01:38,880 --> 00:01:42,759 Speaker 1: both Viacom and Blockbuster were suffering in the stock market 27 00:01:42,959 --> 00:01:46,840 Speaker 1: after this bidding war. The value of both companies took 28 00:01:46,840 --> 00:01:49,520 Speaker 1: a hit. By the time Viacom was finally ready to 29 00:01:49,560 --> 00:01:54,520 Speaker 1: move forward with the Blockbuster acquisition, in that four point 30 00:01:54,600 --> 00:01:57,880 Speaker 1: seven billion dollar proposed deal had ballooned up to eight 31 00:01:57,920 --> 00:02:02,600 Speaker 1: point four billion with Zinga said CIA shortly after the 32 00:02:02,640 --> 00:02:05,840 Speaker 1: deal was over, and then pursued his hobby of buying 33 00:02:05,960 --> 00:02:11,040 Speaker 1: Florida professional sports teams. Seriously. He was an owner of 34 00:02:11,080 --> 00:02:14,920 Speaker 1: the Miami Dolphins, the Florida Panthers, and the Florida Marlins. 35 00:02:14,960 --> 00:02:17,320 Speaker 1: He actually was the guy who brought the Marlins and 36 00:02:17,360 --> 00:02:20,680 Speaker 1: the Panthers teams into existence. He would go on to 37 00:02:21,000 --> 00:02:24,200 Speaker 1: found a little company called Auto Nation that kind of 38 00:02:24,240 --> 00:02:27,120 Speaker 1: followed the Blockbuster model, but you know, with car sales 39 00:02:27,120 --> 00:02:31,200 Speaker 1: instead of video rentals and Huazinga was a billionaire. He 40 00:02:31,400 --> 00:02:35,120 Speaker 1: passed away earlier this year, on March two thousand eighteen. 41 00:02:35,480 --> 00:02:38,880 Speaker 1: All right back to Blockbuster, the company that whizzing A left, 42 00:02:39,720 --> 00:02:43,440 Speaker 1: Viacom's Blockbuster was well, it was a mess. The company 43 00:02:43,560 --> 00:02:47,919 Speaker 1: was already starting to teeter after the incredibly aggressive expansion 44 00:02:48,000 --> 00:02:51,920 Speaker 1: strategy that was Zinga had initiated, and Viacom was having 45 00:02:52,000 --> 00:02:54,639 Speaker 1: problems finding someone who could take the helm and be 46 00:02:54,760 --> 00:02:57,519 Speaker 1: an effective leader of the company. Now this is not 47 00:02:57,760 --> 00:03:02,080 Speaker 1: necessarily to cast shade on the CEOs who would inhabit 48 00:03:02,240 --> 00:03:05,280 Speaker 1: the position of head of Blockbuster from the fall of 49 00:03:05,360 --> 00:03:09,760 Speaker 1: nineteen into the spring of n but rather put into 50 00:03:09,800 --> 00:03:12,760 Speaker 1: perspective the kind of trouble the company was in. It 51 00:03:12,960 --> 00:03:17,000 Speaker 1: was getting really tough out there in the market. Blockbuster 52 00:03:17,120 --> 00:03:21,519 Speaker 1: had grown super fast through opening lots of stores and 53 00:03:21,840 --> 00:03:26,880 Speaker 1: tons of acquisitions. The video rental industry just wasn't as 54 00:03:27,080 --> 00:03:31,280 Speaker 1: lucrative in nine as it had been in the mid eighties. 55 00:03:31,880 --> 00:03:35,760 Speaker 1: Videotape prices had started to come down considerably, which led 56 00:03:35,800 --> 00:03:39,120 Speaker 1: to a lot of home theater enthusiasts going away for 57 00:03:39,240 --> 00:03:42,600 Speaker 1: rentals and just buying movies outright for their home libraries. 58 00:03:42,640 --> 00:03:45,200 Speaker 1: I mean, why would you spend five dollars to rent 59 00:03:45,240 --> 00:03:47,600 Speaker 1: a movie for three nights when you can own one 60 00:03:47,680 --> 00:03:50,600 Speaker 1: forever for a bit more, sometimes quite a bit more. 61 00:03:50,720 --> 00:03:52,720 Speaker 1: But people were starting to say I'm just gonna buy 62 00:03:52,880 --> 00:03:56,520 Speaker 1: movies instead of rent them. In addition to decreased consumer demand, 63 00:03:56,960 --> 00:04:00,960 Speaker 1: Blockbuster was being leaned on heavily by Viacom during this period. 64 00:04:01,240 --> 00:04:04,600 Speaker 1: So Viacom's the parent company and it had incurred a 65 00:04:04,720 --> 00:04:07,120 Speaker 1: huge amount of debt while it was trying to make 66 00:04:07,200 --> 00:04:11,640 Speaker 1: that acquisition of Paramount, and executives still wanted to buy 67 00:04:12,080 --> 00:04:16,880 Speaker 1: more companies. Viacom wasn't done acquiring companies, and Blockbuster was 68 00:04:17,320 --> 00:04:21,840 Speaker 1: really a productive revenue generator, so Blockbuster became a way 69 00:04:22,040 --> 00:04:27,600 Speaker 1: of fueling those acquisition efforts. Stephen Barrard became the CEO 70 00:04:27,880 --> 00:04:32,600 Speaker 1: after Whizinga left in September nine. Initially, he tried to 71 00:04:32,640 --> 00:04:36,680 Speaker 1: follow wizing as philosophy. He pushed for more expansion, but 72 00:04:36,920 --> 00:04:38,920 Speaker 1: he also ended up getting caught up in a little 73 00:04:38,920 --> 00:04:42,400 Speaker 1: bit of a scandal. In February, he was investigated for 74 00:04:42,520 --> 00:04:47,240 Speaker 1: possible perjury. The matter concerned a lawsuit between former Blockbuster 75 00:04:47,480 --> 00:04:51,440 Speaker 1: vice chairman Scott Beck and the company. The District Attorney 76 00:04:51,800 --> 00:04:55,120 Speaker 1: uh just concluded that there just wasn't sufficient evidence to 77 00:04:55,240 --> 00:04:57,920 Speaker 1: support the accusation of perjury, and so they did not 78 00:04:58,080 --> 00:05:01,680 Speaker 1: pursue charges against Berard. But it still was kind of 79 00:05:02,240 --> 00:05:06,279 Speaker 1: not great pr for Blockbuster, even though ultimately the district 80 00:05:06,320 --> 00:05:09,560 Speaker 1: attorney said, no, I can't find enough here to warrant 81 00:05:10,000 --> 00:05:15,239 Speaker 1: going any further. Burrard would actually resign in March nineteen 82 00:05:15,360 --> 00:05:18,800 Speaker 1: ninety six. So he had been at a CEO of 83 00:05:18,839 --> 00:05:21,560 Speaker 1: Blockbuster for about a year and a half and he 84 00:05:21,760 --> 00:05:23,600 Speaker 1: left the company. Where did he go, Well, he went 85 00:05:23,680 --> 00:05:27,040 Speaker 1: to go join his buddy Huazinga and his new venture 86 00:05:27,120 --> 00:05:30,400 Speaker 1: of Auto Nation, and then he actually followed along with 87 00:05:30,720 --> 00:05:34,120 Speaker 1: some of Wazinga's other ventures. They would go from one 88 00:05:34,200 --> 00:05:36,480 Speaker 1: company to the next, and he did pretty darn well 89 00:05:36,560 --> 00:05:40,240 Speaker 1: for himself. Replacing Burrard as CEO would be a guy 90 00:05:40,360 --> 00:05:44,640 Speaker 1: named Bill Fields. He had formerly been with Walmart. Fields 91 00:05:44,720 --> 00:05:47,800 Speaker 1: of strategy was to push for Blockbuster to become an 92 00:05:48,200 --> 00:05:52,000 Speaker 1: entertainment variety store. He started pushing for Blockbuster to open 93 00:05:52,080 --> 00:05:56,320 Speaker 1: more stores in smaller markets like rural communities. He saw 94 00:05:56,440 --> 00:05:59,279 Speaker 1: how Walmart had been a huge success by moving into 95 00:05:59,320 --> 00:06:01,520 Speaker 1: these rural unit these and you thought Blockbuster could do 96 00:06:01,600 --> 00:06:04,920 Speaker 1: the same thing. He also began laying off a bunch 97 00:06:05,120 --> 00:06:09,240 Speaker 1: of middle management out of corporate headquarters. He he slashed 98 00:06:09,520 --> 00:06:13,120 Speaker 1: lots of jobs while he was CEO, and that was 99 00:06:13,240 --> 00:06:17,280 Speaker 1: to both streamline operations and to reduce costs. He began 100 00:06:17,360 --> 00:06:20,400 Speaker 1: to push for Blockbuster to get more into video sales, 101 00:06:20,600 --> 00:06:23,520 Speaker 1: not just rentals, and he wanted to take on his 102 00:06:23,640 --> 00:06:27,240 Speaker 1: former employer Walmart in that regard. Walmart was the dominant 103 00:06:28,080 --> 00:06:32,480 Speaker 1: UH merchant for videotaped sales at this stage. And he 104 00:06:32,560 --> 00:06:36,480 Speaker 1: also wanted Blockbuster to offer other products and services, including 105 00:06:36,480 --> 00:06:39,800 Speaker 1: the possibility of signing customers up for Internet service with 106 00:06:40,040 --> 00:06:43,440 Speaker 1: partnered providers who worked with Blockbuster, or for offering up 107 00:06:43,480 --> 00:06:46,479 Speaker 1: a PC upgrade service, so you would bring your computer 108 00:06:46,680 --> 00:06:51,400 Speaker 1: in and a PC upgrade business would end up souping 109 00:06:51,520 --> 00:06:55,000 Speaker 1: up your your system. Fields also had really big plans 110 00:06:55,080 --> 00:06:59,840 Speaker 1: to customize the store experience for different regions. He actually said, 111 00:07:00,080 --> 00:07:02,640 Speaker 1: and this is a quote, New York City will have 112 00:07:03,040 --> 00:07:09,720 Speaker 1: much more sophisticated products than winder Georgia. Ouch dude, as 113 00:07:09,760 --> 00:07:17,080 Speaker 1: someone who comes from rural Georgia, ouch New Yorker sophisticated 114 00:07:17,240 --> 00:07:23,040 Speaker 1: products in Blockbuster headquarters would relocate again. Now you might 115 00:07:23,120 --> 00:07:26,160 Speaker 1: remember in the first episode I talked about how Blockbuster 116 00:07:26,720 --> 00:07:29,920 Speaker 1: started in Dallas, Texas and then moved from Dallas, Texas 117 00:07:29,960 --> 00:07:33,480 Speaker 1: to Fort Lauderdale, Florida, because that's where Wazinga wanted to 118 00:07:33,520 --> 00:07:36,680 Speaker 1: set up shop but now waszing his out. So Bill 119 00:07:36,800 --> 00:07:40,600 Speaker 1: Fields decides to relocate the headquarters again. Now where are 120 00:07:40,640 --> 00:07:43,400 Speaker 1: they going to move back to Dallas, Texas where it 121 00:07:43,480 --> 00:07:46,600 Speaker 1: all started. However, one person would not go along with 122 00:07:46,720 --> 00:07:50,800 Speaker 1: the company to this new headquarters, and that was drumroll, please, 123 00:07:51,920 --> 00:07:58,440 Speaker 1: Bill Fields, the CEO, quit his job just thirteen months 124 00:07:59,040 --> 00:08:02,920 Speaker 1: in that position. Here was this powerhouse of retail with 125 00:08:03,120 --> 00:08:05,440 Speaker 1: huge plans for a Blockbuster, who now was going to 126 00:08:05,600 --> 00:08:08,560 Speaker 1: step back. Why was he leaving? He said he wanted 127 00:08:08,600 --> 00:08:12,520 Speaker 1: to get back to quote general retailing end quote. Now 128 00:08:12,600 --> 00:08:16,080 Speaker 1: that caused major concerns in the company. So for one thing, 129 00:08:16,960 --> 00:08:20,440 Speaker 1: Fields had hired a whole bunch of former Walmart executives 130 00:08:20,480 --> 00:08:24,000 Speaker 1: to join him at Blockbuster. So the first fear is 131 00:08:24,080 --> 00:08:26,600 Speaker 1: that while the Fields is leaving, are all of his 132 00:08:26,720 --> 00:08:29,600 Speaker 1: hires going to leave too? Because that frequently happens if 133 00:08:29,640 --> 00:08:32,240 Speaker 1: you have an executive come in, that executive ends up 134 00:08:32,320 --> 00:08:35,280 Speaker 1: hiring his or her buddies or people that they know 135 00:08:35,559 --> 00:08:40,080 Speaker 1: from a former company, and then that executive leaves. Frequently 136 00:08:40,120 --> 00:08:41,599 Speaker 1: the other people will leave to They'll say, well, the 137 00:08:41,640 --> 00:08:43,559 Speaker 1: whole reason why I came in here was because this 138 00:08:43,720 --> 00:08:46,400 Speaker 1: person convinced me to, and now that they're gone, there's 139 00:08:46,440 --> 00:08:48,199 Speaker 1: no reason for me to stay. So that was a 140 00:08:48,240 --> 00:08:51,720 Speaker 1: big fear for another fear. According to The Sun Sentinel, 141 00:08:52,160 --> 00:08:56,280 Speaker 1: thirty three of the forty top executives who are listed 142 00:08:56,320 --> 00:08:59,840 Speaker 1: in blockbusters annual report that was filed in spring night 143 00:09:01,480 --> 00:09:05,840 Speaker 1: had left the company by spring of n so nearly 144 00:09:06,040 --> 00:09:09,880 Speaker 1: all of the top executives of the company had changed 145 00:09:10,520 --> 00:09:15,520 Speaker 1: out of Blockbuster in just three years. Meanwhile, company financial 146 00:09:15,600 --> 00:09:18,800 Speaker 1: reports were not in great shape either. The cash flow 147 00:09:19,200 --> 00:09:23,839 Speaker 1: was down significantly. Viacom's share price had fallen twelve percent. 148 00:09:23,920 --> 00:09:29,240 Speaker 1: Remember Viacom was the parent company, and the industrial average 149 00:09:29,320 --> 00:09:31,880 Speaker 1: for the stock market was actually on the rise, so 150 00:09:32,760 --> 00:09:35,920 Speaker 1: in general, companies were doing great on the stock market, 151 00:09:36,000 --> 00:09:39,120 Speaker 1: and even when that was happening, Viacom's share was dropping 152 00:09:39,160 --> 00:09:42,240 Speaker 1: twelve So Viacom announced it would sell off some of 153 00:09:42,280 --> 00:09:45,240 Speaker 1: its stock and Blockbuster in order to pay towards Viacom's 154 00:09:45,280 --> 00:09:49,880 Speaker 1: twelve billion dollars in debt. The move left many corporate 155 00:09:49,960 --> 00:09:54,160 Speaker 1: employees confused at the relocation to Dallas because it was 156 00:09:54,240 --> 00:09:58,000 Speaker 1: Bill Fields who had led that move to relocate the 157 00:09:58,080 --> 00:10:01,439 Speaker 1: company from Fort Lauderdale back Dallas, Texas, and now he 158 00:10:01,640 --> 00:10:06,160 Speaker 1: was leaving Blockbuster, but Blockbuster was still going to relocate. Now, 159 00:10:06,240 --> 00:10:09,160 Speaker 1: not everyone can just pick up and move right. You 160 00:10:09,200 --> 00:10:11,719 Speaker 1: can't just pick up your entire life and move to 161 00:10:11,800 --> 00:10:14,320 Speaker 1: an entirely new state. Not a lot of people are 162 00:10:14,360 --> 00:10:17,000 Speaker 1: able to do that. In fact, less than thirty percent 163 00:10:17,200 --> 00:10:22,000 Speaker 1: of all corporate employees at Blockbuster headquarters chose to move 164 00:10:22,160 --> 00:10:26,520 Speaker 1: with the company. That represents an enormous loss in knowledge 165 00:10:26,880 --> 00:10:31,400 Speaker 1: and talent. It's a huge setback. People who have dedicated 166 00:10:31,480 --> 00:10:34,920 Speaker 1: their time and efforts and their skill to that company 167 00:10:35,120 --> 00:10:39,000 Speaker 1: were gone, and there was a huge void left. Meanwhile, 168 00:10:39,600 --> 00:10:43,680 Speaker 1: the employees who decided not to go with the move, 169 00:10:43,760 --> 00:10:47,839 Speaker 1: we're wondering, why the heck is the company relocating when 170 00:10:47,880 --> 00:10:50,880 Speaker 1: the guy who made that decision wasn't even going to 171 00:10:51,120 --> 00:10:57,679 Speaker 1: go there. It seemed counterintuitive. Jessica rief Cohen, who as 172 00:10:57,679 --> 00:11:01,640 Speaker 1: an analyst for Merrill Lynch, estimated that Blockbusters value had 173 00:11:01,720 --> 00:11:05,800 Speaker 1: dropped forty percent since it had merged with Viacom, and 174 00:11:05,920 --> 00:11:09,320 Speaker 1: because Bill Fields was leaving, she estimated it was going 175 00:11:09,360 --> 00:11:12,280 Speaker 1: to take at least a year or maybe a year 176 00:11:12,320 --> 00:11:15,440 Speaker 1: and a half to turn things around, and that's assuming 177 00:11:15,640 --> 00:11:18,559 Speaker 1: that Blockbuster could find the right leader to do it. 178 00:11:19,160 --> 00:11:22,199 Speaker 1: There are also stories about Sumner Redstone, who was the 179 00:11:22,240 --> 00:11:26,319 Speaker 1: head of Viacom, and his managerial approach, which, according to 180 00:11:26,480 --> 00:11:29,480 Speaker 1: some people was a little bit on the authoritarian side. 181 00:11:29,960 --> 00:11:33,600 Speaker 1: He was clearly unhappy with Blockbusters performance in the market, 182 00:11:34,000 --> 00:11:37,959 Speaker 1: and it didn't help that while Blockbusters seemed to be floundering, 183 00:11:38,400 --> 00:11:42,960 Speaker 1: Hollywood Video, its largest rival in the video rental industry, 184 00:11:43,480 --> 00:11:48,160 Speaker 1: was reporting a modest sales gain. So Blockbusters doing really 185 00:11:48,240 --> 00:11:52,719 Speaker 1: badly and it's the biggest fish in the pond. And 186 00:11:52,800 --> 00:11:55,200 Speaker 1: then the next biggest fish is not doing badly at all, 187 00:11:55,400 --> 00:11:58,559 Speaker 1: or doesn't It seems to be doing pretty well. So 188 00:11:58,720 --> 00:12:01,719 Speaker 1: who was going to come in to Blockbuster to try 189 00:12:01,760 --> 00:12:04,719 Speaker 1: and turn things around. Well, I'll tell you in just 190 00:12:04,880 --> 00:12:07,360 Speaker 1: a moment, but first let's take a quick break and 191 00:12:07,480 --> 00:12:17,960 Speaker 1: thank our sponsor. The next leader for Blockbuster who had 192 00:12:18,040 --> 00:12:21,720 Speaker 1: the unenviable job of trying to write a listing ship 193 00:12:22,000 --> 00:12:26,079 Speaker 1: was John Antiocho, and boy, his story is one that 194 00:12:26,160 --> 00:12:28,880 Speaker 1: has been hashed over a lot in the business world. 195 00:12:29,000 --> 00:12:32,360 Speaker 1: He's been raped over the coals multiple times, largely because 196 00:12:32,440 --> 00:12:35,959 Speaker 1: in hindsight there appeared to be some enormous missed opportunities 197 00:12:36,040 --> 00:12:38,839 Speaker 1: that might have saved Blockbuster. But the truth is a 198 00:12:38,920 --> 00:12:41,760 Speaker 1: little more complicated than that, and I don't think that 199 00:12:41,800 --> 00:12:45,720 Speaker 1: Antiocho should shoulder all the blame. He has some responsibility, 200 00:12:45,800 --> 00:12:49,800 Speaker 1: but I really don't think that ultimately it was his 201 00:12:50,000 --> 00:12:54,880 Speaker 1: leadership that doomed Blockbuster. Antiocho had spent twenty years working 202 00:12:55,160 --> 00:12:58,040 Speaker 1: at seven eleven. He was someone originally who would move 203 00:12:58,080 --> 00:13:01,440 Speaker 1: in to help failing stores recover, and ultimately he would 204 00:13:01,480 --> 00:13:04,120 Speaker 1: get promoted to a vice president position at that company. 205 00:13:04,360 --> 00:13:06,839 Speaker 1: He would later work for Pearl Vision, he worked for 206 00:13:06,960 --> 00:13:09,599 Speaker 1: Circle caver A while he worked for Taco Bell for 207 00:13:09,720 --> 00:13:12,439 Speaker 1: a while, and that's when Sumner Redstone reached out to 208 00:13:12,520 --> 00:13:15,080 Speaker 1: him and said, would you like the role of CEO 209 00:13:15,200 --> 00:13:18,640 Speaker 1: a Blockbuster? And Antiocho thought, well, here's an opportunity to 210 00:13:18,800 --> 00:13:22,800 Speaker 1: try and really turn this company around. He walked into 211 00:13:23,040 --> 00:13:26,640 Speaker 1: a seriously bad situation. The company's talent had been gutted. 212 00:13:27,240 --> 00:13:30,160 Speaker 1: Store operations were suffering. As a result, stores were not 213 00:13:30,360 --> 00:13:33,280 Speaker 1: getting the latest titles on their street date. That meant 214 00:13:33,320 --> 00:13:35,000 Speaker 1: that you could go to a store and buy a 215 00:13:35,120 --> 00:13:37,880 Speaker 1: video on its release date, but you couldn't find it 216 00:13:37,960 --> 00:13:41,000 Speaker 1: in a blockbuster. That was not great either. One of 217 00:13:41,040 --> 00:13:43,640 Speaker 1: Antioca's first big moves was to go to the movie 218 00:13:43,679 --> 00:13:47,280 Speaker 1: industry and renegotiate the way things worked with them. So 219 00:13:48,040 --> 00:13:50,080 Speaker 1: the way it had been working was that video rental 220 00:13:50,120 --> 00:13:53,719 Speaker 1: companies would pay higher prices for copies of movies. So 221 00:13:54,080 --> 00:13:59,160 Speaker 1: a cassette of a movie might cost sixty dollars. You know, 222 00:13:59,280 --> 00:14:01,000 Speaker 1: you could go out buy it at a store for 223 00:14:01,120 --> 00:14:03,720 Speaker 1: much less, but the video rental copies would be sixty 224 00:14:03,800 --> 00:14:07,480 Speaker 1: five bucks. When you're buying hundreds or thousands of cassettes 225 00:14:07,600 --> 00:14:09,760 Speaker 1: in order to build on an inventory, that adds up 226 00:14:09,840 --> 00:14:11,959 Speaker 1: super fast. And I meant that the store would need 227 00:14:12,000 --> 00:14:16,920 Speaker 1: to rent out a little around thirty times per title 228 00:14:17,040 --> 00:14:19,520 Speaker 1: in order to earn back the investment made on that purchase. 229 00:14:19,640 --> 00:14:22,240 Speaker 1: So you buy a movie for sixty five dollars, you 230 00:14:22,320 --> 00:14:24,560 Speaker 1: need to you need to rent out that movie thirty 231 00:14:24,640 --> 00:14:27,120 Speaker 1: times in order to make your investment back, and then 232 00:14:27,240 --> 00:14:30,320 Speaker 1: from that point forward it's profit. And Tioko said, hey, 233 00:14:30,400 --> 00:14:32,560 Speaker 1: I got I got an idea. Let's try something else. 234 00:14:33,000 --> 00:14:37,960 Speaker 1: How about we buy your movies at a much lower 235 00:14:38,080 --> 00:14:41,960 Speaker 1: rate like between one to four dollars per cassette. But 236 00:14:42,080 --> 00:14:46,280 Speaker 1: in return, you will get a percentage of rental revenues, 237 00:14:46,360 --> 00:14:49,840 Speaker 1: Like so we'll keep sixty percent of the rental revenues, 238 00:14:50,080 --> 00:14:52,800 Speaker 1: you keep the other for the rental revenues. You get 239 00:14:52,840 --> 00:14:57,240 Speaker 1: a smaller upfront fee for those movies, but there's a 240 00:14:57,400 --> 00:15:00,680 Speaker 1: long tail revenue stream that will keep going for as 241 00:15:00,800 --> 00:15:05,480 Speaker 1: long as the movie is being rented, And the more 242 00:15:06,000 --> 00:15:09,520 Speaker 1: times the titles rented, the more money everybody makes. The 243 00:15:09,600 --> 00:15:12,360 Speaker 1: movie studios came around to this idea. The movie the 244 00:15:12,440 --> 00:15:15,240 Speaker 1: move also meant that a blockbuster could acquire a lot 245 00:15:15,320 --> 00:15:18,080 Speaker 1: more cassettes this way, which was really important for new 246 00:15:18,200 --> 00:15:22,240 Speaker 1: popular titles. So now what blockbuster would do is for 247 00:15:22,400 --> 00:15:24,520 Speaker 1: the brand new titles when they would come out, they 248 00:15:24,560 --> 00:15:28,560 Speaker 1: would purchase a huge number of those. They would flood 249 00:15:28,720 --> 00:15:31,520 Speaker 1: their inventory with the newest titles. I remember walking into 250 00:15:31,640 --> 00:15:35,000 Speaker 1: blockbusters around this era and looking at the wall and 251 00:15:35,120 --> 00:15:38,040 Speaker 1: you would just see a a like half of a 252 00:15:38,160 --> 00:15:41,240 Speaker 1: shelf taken up by a new title. So you might 253 00:15:41,320 --> 00:15:44,040 Speaker 1: see a popular movie and it may even take up 254 00:15:44,080 --> 00:15:47,160 Speaker 1: a full shelf depending upon the popularity. And it was 255 00:15:47,240 --> 00:15:52,680 Speaker 1: largely because this renegotiation made this financially feasible, Blockbuster could 256 00:15:52,720 --> 00:15:55,160 Speaker 1: almost guarantee that a new title was going to be 257 00:15:55,200 --> 00:15:57,360 Speaker 1: in stock when you came by to rent it. That 258 00:15:57,520 --> 00:16:00,960 Speaker 1: removed a big risk in this idea that you would 259 00:16:01,000 --> 00:16:03,200 Speaker 1: show up to the video rental store only to find 260 00:16:03,240 --> 00:16:05,200 Speaker 1: out the movie you wanted to rent was already out. 261 00:16:05,680 --> 00:16:08,760 Speaker 1: Antiocho also chose to move Blockbuster out of some of 262 00:16:08,840 --> 00:16:11,960 Speaker 1: the businesses it had just started to get into, including 263 00:16:12,000 --> 00:16:15,960 Speaker 1: that PC upgrading business that Bill Fields really was pushing for. 264 00:16:16,280 --> 00:16:19,240 Speaker 1: Antiocho felt that the company really needed to refocus on 265 00:16:19,320 --> 00:16:23,560 Speaker 1: its core business of video rentals, and that diversifying really 266 00:16:23,640 --> 00:16:26,680 Speaker 1: meant spreading the company out too thin, particularly in the 267 00:16:26,760 --> 00:16:29,480 Speaker 1: wake of losing so many employees. They didn't have the 268 00:16:29,600 --> 00:16:33,720 Speaker 1: experts expertise to keep all these other businesses afloat. But 269 00:16:33,880 --> 00:16:37,600 Speaker 1: two things emerged there would be huge setbacks for Blockbuster, 270 00:16:37,960 --> 00:16:42,040 Speaker 1: at least in the long run. One was the DVD format, 271 00:16:42,320 --> 00:16:46,200 Speaker 1: which launched in the mid nineteen nineties. Movie studios were 272 00:16:46,200 --> 00:16:49,480 Speaker 1: selling DVDs at twenty bucks or less per title, and 273 00:16:49,600 --> 00:16:52,120 Speaker 1: that created a high adoption rate for movies, and that 274 00:16:52,320 --> 00:16:56,160 Speaker 1: undercut rentals, Especially when you have a customer who says, well, 275 00:16:56,240 --> 00:16:59,600 Speaker 1: I could rent this movie on VHS and watch a 276 00:16:59,680 --> 00:17:03,120 Speaker 1: magnet the film transfer. Or I could buy a DVD, 277 00:17:03,560 --> 00:17:08,600 Speaker 1: an optical transfer that's at a higher resolution, better quality picture, 278 00:17:08,720 --> 00:17:13,080 Speaker 1: better quality sound, and I can own it for less 279 00:17:13,080 --> 00:17:16,000 Speaker 1: than twenty bucks. So we started to see a big 280 00:17:16,119 --> 00:17:19,040 Speaker 1: dip in the video rental industry as a whole once 281 00:17:19,119 --> 00:17:21,520 Speaker 1: DVDs came out like this. The other big thing that 282 00:17:21,640 --> 00:17:25,000 Speaker 1: emerged in though at the time when it emerged it 283 00:17:25,119 --> 00:17:27,159 Speaker 1: wasn't a big thing. It would just become an enormous 284 00:17:27,240 --> 00:17:32,000 Speaker 1: thing was a company called Netflix. I have to do 285 00:17:32,080 --> 00:17:35,600 Speaker 1: a full episode about Netflix as it has become such 286 00:17:35,640 --> 00:17:38,560 Speaker 1: a major player in entertainment now that it produces so 287 00:17:38,680 --> 00:17:43,040 Speaker 1: much original content. But back in read Hastings and Mark 288 00:17:43,160 --> 00:17:46,919 Speaker 1: Randolph co found this brand new company, and their business 289 00:17:46,960 --> 00:17:51,159 Speaker 1: plan originally was to act as merely an online DVD 290 00:17:51,320 --> 00:17:53,359 Speaker 1: rental company. They still do this, by the way, but 291 00:17:53,480 --> 00:17:57,040 Speaker 1: this was their only business when they first started. So 292 00:17:57,160 --> 00:17:59,680 Speaker 1: the way it works is you would create a membership profile, 293 00:18:00,040 --> 00:18:03,440 Speaker 1: you would subscribe, you select a plan, whatever that subscription 294 00:18:03,520 --> 00:18:07,320 Speaker 1: plan is. They introduced different subscription plans about a year 295 00:18:07,400 --> 00:18:11,040 Speaker 1: after they started really getting into business. You would log 296 00:18:11,119 --> 00:18:14,399 Speaker 1: into Netflix's system, you would choose which titles you wanted. 297 00:18:14,720 --> 00:18:17,920 Speaker 1: They would ship those titles to your mailbox and it 298 00:18:17,960 --> 00:18:20,320 Speaker 1: would come along with a return envelope. So as soon 299 00:18:20,359 --> 00:18:22,359 Speaker 1: as you were done watching, you slipped the disk in 300 00:18:22,400 --> 00:18:24,800 Speaker 1: the return envelope, throw that back in the mail and 301 00:18:24,880 --> 00:18:28,240 Speaker 1: you're done. The company began renting DVDs in that way 302 00:18:28,320 --> 00:18:31,520 Speaker 1: in and the following year. That's when it would offer 303 00:18:31,640 --> 00:18:35,639 Speaker 1: up the unlimited DVD rental plan for a monthly membership fee, 304 00:18:36,040 --> 00:18:39,359 Speaker 1: And in two thousand Hastings would meet with some of 305 00:18:39,400 --> 00:18:43,399 Speaker 1: Antiocho's people over at Blockbuster. But more on that in 306 00:18:43,520 --> 00:18:47,480 Speaker 1: just a second. Blockbuster, however, did not jump on the 307 00:18:47,600 --> 00:18:50,480 Speaker 1: DVD bandwagon right away. In fact, it held back for 308 00:18:50,600 --> 00:18:54,400 Speaker 1: several years, so DVDs debut in the mid nineties. Blockbuster 309 00:18:54,600 --> 00:18:59,399 Speaker 1: committed to start carrying DVDs in ninete, but it did 310 00:18:59,480 --> 00:19:02,560 Speaker 1: so in a pretty slow adoption rate, and it would 311 00:19:02,640 --> 00:19:07,160 Speaker 1: not really commit fully to DVDs until two thousand two, 312 00:19:07,760 --> 00:19:11,920 Speaker 1: all right back to the late nineties with Blockbuster. In 313 00:19:12,040 --> 00:19:16,320 Speaker 1: ninety Viacoms sold off Blockbuster Music for a hundred fifteen 314 00:19:16,400 --> 00:19:20,000 Speaker 1: million dollars because the music business just wasn't working out 315 00:19:20,040 --> 00:19:23,280 Speaker 1: for a Blockbuster and Viacom executives had grown impatient with 316 00:19:23,440 --> 00:19:26,160 Speaker 1: the low performance. They just felt that it wasn't worth 317 00:19:26,320 --> 00:19:27,800 Speaker 1: keeping it around, so they sell it off for a 318 00:19:27,920 --> 00:19:32,199 Speaker 1: hundred fifteen million. Blockbuster meanwhile closes some stores, a lot 319 00:19:32,240 --> 00:19:35,840 Speaker 1: of them in international markets, and Viacom was starting to 320 00:19:36,080 --> 00:19:40,480 Speaker 1: get a little concern because Viacom had been relying on 321 00:19:40,560 --> 00:19:44,000 Speaker 1: Blockbuster to provide cash flow to help pay off debt 322 00:19:44,119 --> 00:19:48,880 Speaker 1: and fund acquisitions. But now Viacom found itself having having 323 00:19:48,960 --> 00:19:52,880 Speaker 1: to fund money to Blockbuster, so it was no longer 324 00:19:53,080 --> 00:19:55,239 Speaker 1: getting money from Blockbuster. Now it was having to kind 325 00:19:55,240 --> 00:19:59,600 Speaker 1: of help keep Blockbuster afloat. That was not very attractive 326 00:19:59,640 --> 00:20:03,639 Speaker 1: to via Calm executives. In August, Viacom held an i 327 00:20:03,720 --> 00:20:07,879 Speaker 1: p O of a percentage of its stock and this 328 00:20:08,040 --> 00:20:10,640 Speaker 1: was all a cash raising strategy. They thought, well, we'll 329 00:20:10,720 --> 00:20:13,520 Speaker 1: raise some quick cash. We'll sell off about eight of 330 00:20:13,600 --> 00:20:16,399 Speaker 1: the stock we have, and then we will will make 331 00:20:16,480 --> 00:20:18,679 Speaker 1: money that way. And they thought that the shares were 332 00:20:18,680 --> 00:20:22,520 Speaker 1: going to trade somewhere between sixteen and eighteen dollars. In reality, 333 00:20:22,560 --> 00:20:26,080 Speaker 1: they traded at fifteen dollars, so they didn't make nearly 334 00:20:26,119 --> 00:20:30,040 Speaker 1: as much money as they had hoped. Also, in another 335 00:20:30,119 --> 00:20:32,639 Speaker 1: giant one that I've actually covered in previous tech stuff 336 00:20:32,640 --> 00:20:36,080 Speaker 1: episodes got into Blockbusters grill in the big way. That 337 00:20:36,240 --> 00:20:39,480 Speaker 1: company was Amazon. So now we have Jeff Bezos and 338 00:20:39,720 --> 00:20:42,400 Speaker 1: Read Hastings both chomping at the bit to carve into 339 00:20:42,440 --> 00:20:46,520 Speaker 1: the same market that Blockbuster was really after. Amazon was 340 00:20:46,600 --> 00:20:50,879 Speaker 1: not interested in renting videos unlike Netflix, but it did 341 00:20:50,960 --> 00:20:55,439 Speaker 1: expand beyond selling books to include other items like DVDs 342 00:20:55,480 --> 00:20:58,680 Speaker 1: and sold them for a very low price. So now 343 00:20:59,640 --> 00:21:01,159 Speaker 1: you could see a lot of find a lot of 344 00:21:01,200 --> 00:21:04,200 Speaker 1: those same titles over at Amazon for a price that 345 00:21:04,359 --> 00:21:06,359 Speaker 1: was not that different from the rental fee that you 346 00:21:06,400 --> 00:21:08,760 Speaker 1: would incur, especially when you put it on top of 347 00:21:08,840 --> 00:21:12,040 Speaker 1: a membership fee at a Blockbuster, so that really ate 348 00:21:12,119 --> 00:21:16,160 Speaker 1: into their their business as well. Andiogo didn't did see 349 00:21:16,240 --> 00:21:20,600 Speaker 1: that home delivery and streaming services would poise either a 350 00:21:20,680 --> 00:21:23,760 Speaker 1: great opportunity for Blockbuster or a threat to the company, 351 00:21:24,520 --> 00:21:28,560 Speaker 1: and he tried to take steps to build out Blockbusters 352 00:21:29,359 --> 00:21:34,800 Speaker 1: capabilities to enter into those fields, but he he had 353 00:21:34,880 --> 00:21:38,520 Speaker 1: some resistance from Viacom. He also just had the problem 354 00:21:38,640 --> 00:21:41,280 Speaker 1: of the fact that he was presiding over a company 355 00:21:41,359 --> 00:21:44,720 Speaker 1: that still was was kind of teetering from that massive 356 00:21:44,800 --> 00:21:49,359 Speaker 1: loss of talent in he led Blockbuster to form a 357 00:21:49,520 --> 00:21:53,600 Speaker 1: three year partnership with America Online, the online service provider. 358 00:21:54,080 --> 00:21:57,119 Speaker 1: Blockbuster would become a premier home video provider for a 359 00:21:57,240 --> 00:21:59,959 Speaker 1: o l's entertainment channel, and a o L would make 360 00:22:00,119 --> 00:22:04,040 Speaker 1: a thirty million dollar investment in Blockbuster and Antiocho began 361 00:22:04,119 --> 00:22:09,280 Speaker 1: to explore options for broadband content and delivery, but internet 362 00:22:09,320 --> 00:22:11,480 Speaker 1: speeds in those days were not what they are today, 363 00:22:11,560 --> 00:22:14,520 Speaker 1: so streaming video was largely seen as being too ambitious 364 00:22:14,600 --> 00:22:17,560 Speaker 1: for what passed as the standard and internet speeds at 365 00:22:17,600 --> 00:22:20,760 Speaker 1: that time. In two thousand, we have that meeting I 366 00:22:20,840 --> 00:22:24,440 Speaker 1: mentioned earlier between Read Hastings and some of Antiocho's people. 367 00:22:24,720 --> 00:22:27,680 Speaker 1: So the head of Netflix and some of the folks 368 00:22:27,720 --> 00:22:30,800 Speaker 1: over at Blockbuster. So what was going on. Well, Read 369 00:22:30,840 --> 00:22:34,840 Speaker 1: Hastings was willing to sell Netflix to Blockbuster for the 370 00:22:35,080 --> 00:22:41,080 Speaker 1: princely sum of fifty million dollars, but Blockbuster says no deal. 371 00:22:41,680 --> 00:22:44,440 Speaker 1: Apparently they thought Netflix was kind of a small time 372 00:22:44,480 --> 00:22:46,840 Speaker 1: player in a niche market. They had seen that Netflix 373 00:22:46,920 --> 00:22:50,840 Speaker 1: was struggling to really make money, but it was early 374 00:22:50,920 --> 00:22:54,960 Speaker 1: days for Netflix. But let's flash forward today just for 375 00:22:55,040 --> 00:22:58,640 Speaker 1: a quick second. Blockbuster is all but gone. It's it's 376 00:22:59,000 --> 00:23:03,960 Speaker 1: really it exists kind of in name only. At this point. Netflix, however, 377 00:23:04,080 --> 00:23:06,680 Speaker 1: has a market cap of a hundred fifty one point 378 00:23:06,800 --> 00:23:13,360 Speaker 1: five eight billion dollars. But then again, hindsight is still 379 00:23:14,560 --> 00:23:19,560 Speaker 1: double yikes. So instead of this Netflix deal, Blockbuster decides 380 00:23:19,600 --> 00:23:23,160 Speaker 1: to sign a twenty year video on demand exclusive deal 381 00:23:23,400 --> 00:23:28,280 Speaker 1: with a broadband services company. That broadband services company belonged 382 00:23:28,320 --> 00:23:32,640 Speaker 1: to a company called Enron. Now you might have heard 383 00:23:32,720 --> 00:23:36,840 Speaker 1: that name because en Ron employees got up to some 384 00:23:36,920 --> 00:23:40,840 Speaker 1: pretty serious shenanigans, and by employees, I mean executives, and 385 00:23:40,880 --> 00:23:45,159 Speaker 1: by shenanigans, I mean really illegal activity. Blockbuster ended up 386 00:23:45,240 --> 00:23:49,560 Speaker 1: scuttling the deal just nine months after the ink had dried, 387 00:23:50,400 --> 00:23:55,600 Speaker 1: so didn't go in Netflix, they did go within Ron ouch. Also, 388 00:23:55,680 --> 00:23:59,199 Speaker 1: in two thousand, nearly eight hundred million dollars that Blockbuster 389 00:23:59,560 --> 00:24:03,040 Speaker 1: takes in that year would come from late fees, So 390 00:24:03,200 --> 00:24:06,000 Speaker 1: late fees would account for nearly sixteen per cent of 391 00:24:06,119 --> 00:24:09,400 Speaker 1: the revenue of the company, and as services like Netflix 392 00:24:09,440 --> 00:24:12,440 Speaker 1: would offer up rentals without late fees, Blockbuster would see 393 00:24:12,440 --> 00:24:15,600 Speaker 1: a steady decline in rental revenues. In two thousand one, 394 00:24:15,680 --> 00:24:19,159 Speaker 1: they would end up changing their minds about rental fees 395 00:24:19,400 --> 00:24:22,600 Speaker 1: and late fees rather, and that becomes a whole mess 396 00:24:22,600 --> 00:24:25,600 Speaker 1: I'll talk about in just a second. Blockbuster had also 397 00:24:25,680 --> 00:24:29,280 Speaker 1: committed to that DVD format back in really started to 398 00:24:29,320 --> 00:24:32,560 Speaker 1: convert to all DVDs and stores by two thousand two, 399 00:24:33,200 --> 00:24:35,960 Speaker 1: and two years later in two thousand four, they finally 400 00:24:36,080 --> 00:24:39,680 Speaker 1: launched an online DVD rental programs similar to what Netflix 401 00:24:39,720 --> 00:24:42,119 Speaker 1: had been doing in two thousand four. But two thousand 402 00:24:42,200 --> 00:24:46,480 Speaker 1: four was also when another company called coin Star introduced 403 00:24:46,600 --> 00:24:50,880 Speaker 1: a new type of video rental service, red box red 404 00:24:50,920 --> 00:24:54,560 Speaker 1: box DVD kiosks, which put DVD rentals in high traffic 405 00:24:54,640 --> 00:25:00,639 Speaker 1: areas like like grocery stores and places like Walmart, that 406 00:25:00,720 --> 00:25:02,280 Speaker 1: kind of thing. You'd see a red box there, you 407 00:25:02,320 --> 00:25:04,960 Speaker 1: could just go up and put some money in and 408 00:25:05,040 --> 00:25:07,560 Speaker 1: rent yourself a film. It got a lot of impulse 409 00:25:07,640 --> 00:25:11,040 Speaker 1: renters that way. Blockbuster would not create a similar strategy 410 00:25:11,320 --> 00:25:16,119 Speaker 1: until two thoight. So in both cases, both with video 411 00:25:16,359 --> 00:25:20,320 Speaker 1: DVD over the mail and by doing this kiosk approach, 412 00:25:20,520 --> 00:25:24,560 Speaker 1: Blockbuster fell way behind the industry leaders and was suffering 413 00:25:24,600 --> 00:25:26,960 Speaker 1: because of that. Now, the end of two thousand four 414 00:25:27,440 --> 00:25:31,160 Speaker 1: saw the involvement of someone whose actions, ultimately, I would argue, 415 00:25:31,240 --> 00:25:33,760 Speaker 1: would lead to the demise of the company and all 416 00:25:33,840 --> 00:25:38,399 Speaker 1: because he was trying really hard to turn things around. 417 00:25:39,000 --> 00:25:41,360 Speaker 1: More on that in just a second, but first let's 418 00:25:41,400 --> 00:25:51,840 Speaker 1: take another quick break to thank our sponsors. The person 419 00:25:51,920 --> 00:25:55,560 Speaker 1: I alluded to before the break is investor Carl icon 420 00:25:56,320 --> 00:25:58,399 Speaker 1: This is a name that pops up a lot in 421 00:25:58,600 --> 00:26:02,080 Speaker 1: technology just and business in general. Carl icon Is is 422 00:26:02,160 --> 00:26:05,800 Speaker 1: famous for his aggressive investment strategies and getting involved in 423 00:26:05,880 --> 00:26:09,119 Speaker 1: corporate governance, largely through proxy fights. He buys up a 424 00:26:09,200 --> 00:26:12,520 Speaker 1: whole bunch of stock shares of stock, and then gets 425 00:26:12,520 --> 00:26:15,200 Speaker 1: a bunch of other shareholders together and then challenges the 426 00:26:15,920 --> 00:26:19,160 Speaker 1: board of directors of various companies. This is the way 427 00:26:19,320 --> 00:26:22,680 Speaker 1: it went with Blockbuster. So icon spent about eighty four 428 00:26:23,000 --> 00:26:27,280 Speaker 1: million dollars to buy nearly ten million shares of Blockbuster, 429 00:26:27,840 --> 00:26:30,520 Speaker 1: which amounted to about five point eight percent ownership of 430 00:26:30,600 --> 00:26:33,080 Speaker 1: the whole company, and he pushed for Blockbuster to make 431 00:26:33,119 --> 00:26:36,600 Speaker 1: a move to make a hostile takeover of Hollywood Video, 432 00:26:36,680 --> 00:26:39,199 Speaker 1: which by the way, he also owned shares of. At 433 00:26:39,280 --> 00:26:41,840 Speaker 1: that time, and Hollywood Video was still the arch rival 434 00:26:41,960 --> 00:26:45,679 Speaker 1: for Blockbuster in the traditional video rental space, although obviously 435 00:26:45,800 --> 00:26:48,960 Speaker 1: Netflix was a rising star that was taking more and 436 00:26:49,080 --> 00:26:53,359 Speaker 1: more of their business. The first offer that Blockbuster would 437 00:26:53,400 --> 00:26:57,080 Speaker 1: make would be a seven million dollar deal which valued 438 00:26:57,119 --> 00:27:00,159 Speaker 1: Hollywood Video shares at ten dollars cents a share. So 439 00:27:00,280 --> 00:27:04,119 Speaker 1: essentially the idea was that let's go out to Hollywood 440 00:27:04,280 --> 00:27:07,399 Speaker 1: Video shareholders and say we'll buy up your shares for 441 00:27:07,520 --> 00:27:11,080 Speaker 1: ten dollars five cents per share, and if you agree, 442 00:27:11,520 --> 00:27:14,080 Speaker 1: then that's awesome. Everyone's happy, and then we end up 443 00:27:14,080 --> 00:27:18,000 Speaker 1: with a majority shareholding of the company and we can 444 00:27:18,080 --> 00:27:20,080 Speaker 1: force the board of directors to do what we wanted 445 00:27:20,080 --> 00:27:22,720 Speaker 1: to do and do a hostel takeover. But that deal 446 00:27:22,800 --> 00:27:26,879 Speaker 1: didn't get enough traction. Eventually the amount the offer crept 447 00:27:27,000 --> 00:27:30,920 Speaker 1: up to a billion dollars, but ultimately Hollywood Video shareholders 448 00:27:30,960 --> 00:27:34,159 Speaker 1: would accept a totally different offer extended by a company 449 00:27:34,200 --> 00:27:38,560 Speaker 1: called Movie Gallery. In early two thousand five, Icon, not 450 00:27:38,720 --> 00:27:41,960 Speaker 1: to be deterred this Hollywood Video takeover didn't work out, 451 00:27:42,280 --> 00:27:45,680 Speaker 1: he decides to get more involved in Blockbusters operations, much 452 00:27:45,760 --> 00:27:49,159 Speaker 1: to the constern nation of Antiago. In two thousand five, 453 00:27:49,800 --> 00:27:52,359 Speaker 1: Icon would be able to launch a proxy fight and 454 00:27:52,520 --> 00:27:57,440 Speaker 1: have himself and two of his buddies elected to Blockbusters 455 00:27:57,560 --> 00:28:00,399 Speaker 1: Board of directors. Uh he was able to get fourth 456 00:28:00,600 --> 00:28:02,639 Speaker 1: seat a little bit later after one of the other 457 00:28:02,720 --> 00:28:07,200 Speaker 1: board of directors resigned or retired really, and then Icon says, Hayntiocho, 458 00:28:07,520 --> 00:28:09,560 Speaker 1: your salary is way too high. You made more than 459 00:28:09,640 --> 00:28:12,000 Speaker 1: fifty million dollars in two thousand four, and the company 460 00:28:12,040 --> 00:28:15,520 Speaker 1: you're leading ain't doing so hot. I am paraphrasing, by 461 00:28:15,560 --> 00:28:18,879 Speaker 1: the way. Icon also didn't like that Blockbuster had eliminated 462 00:28:18,960 --> 00:28:22,520 Speaker 1: late fees in response to competitors, because late fees had 463 00:28:22,840 --> 00:28:25,480 Speaker 1: accounted for a good deal of revenue in the past, 464 00:28:26,280 --> 00:28:29,080 Speaker 1: and he also felt that the company had spent too 465 00:28:29,160 --> 00:28:32,240 Speaker 1: much money to launch its own online store. So essentially, 466 00:28:32,440 --> 00:28:35,159 Speaker 1: Icon was taking exception to all the more recent moves 467 00:28:35,240 --> 00:28:38,680 Speaker 1: that the company had made and wanted to turn back times. Somehow, 468 00:28:39,120 --> 00:28:42,000 Speaker 1: this kept on going throughout two thousand four, two thousand five, 469 00:28:42,080 --> 00:28:45,040 Speaker 1: and two thousand six, all while Blockbuster was struggling to 470 00:28:45,160 --> 00:28:48,480 Speaker 1: hold its place. The board kept wanting to reinstate late 471 00:28:48,560 --> 00:28:51,040 Speaker 1: fees to focus more on the old revenue models that 472 00:28:51,080 --> 00:28:54,600 Speaker 1: Blockbuster had relied upon previously, and Antiocho and his executive 473 00:28:54,640 --> 00:28:59,160 Speaker 1: staff argued strenuously against those moves. In two thousand five, 474 00:28:59,200 --> 00:29:02,920 Speaker 1: Blockbuster became the focal point for several investigations from forty 475 00:29:03,000 --> 00:29:06,600 Speaker 1: eight different states in response to its no late fees 476 00:29:06,720 --> 00:29:11,680 Speaker 1: marketing campaign. They alleged that the company was misrepresenting the 477 00:29:11,800 --> 00:29:15,640 Speaker 1: policy to customers, and Blockbuster would ultimately settle that case 478 00:29:15,680 --> 00:29:20,080 Speaker 1: for six dollars. So what actually happened, Well, the advertised 479 00:29:20,120 --> 00:29:24,400 Speaker 1: policy was that Blockbuster was instituting a no late fees approach, 480 00:29:24,720 --> 00:29:26,400 Speaker 1: which sounds like, hey, you can run a movie and 481 00:29:26,440 --> 00:29:28,480 Speaker 1: it doesn't matter how long you hold onto it. You'll 482 00:29:28,520 --> 00:29:30,200 Speaker 1: never get charged a late fee and you can just 483 00:29:30,280 --> 00:29:34,440 Speaker 1: return it whenever. That's not actually how it worked in actuality. 484 00:29:34,520 --> 00:29:37,520 Speaker 1: If a customer were to hold onto a rental beyond 485 00:29:37,880 --> 00:29:41,320 Speaker 1: seven days past its due date, so a week after 486 00:29:41,440 --> 00:29:43,600 Speaker 1: it was due, if you still had that title, Blockbuster 487 00:29:43,680 --> 00:29:46,760 Speaker 1: would put a charge on your credit card for the 488 00:29:46,920 --> 00:29:50,400 Speaker 1: full sales price of that rental. So let's say you're 489 00:29:50,400 --> 00:29:52,640 Speaker 1: renting a video game that has a retail price of 490 00:29:52,720 --> 00:29:57,760 Speaker 1: forty dollars and you rent it it's Dube on a Tuesday. 491 00:29:57,920 --> 00:30:00,520 Speaker 1: The following tuesday, you still have it, you get charged 492 00:30:00,600 --> 00:30:03,480 Speaker 1: that forty bucks. Now, you could get reimbursed for that 493 00:30:03,760 --> 00:30:06,280 Speaker 1: if you returned the title within thirty days, but you 494 00:30:06,320 --> 00:30:09,160 Speaker 1: would still get charged a restocking fee. And people said, 495 00:30:09,520 --> 00:30:11,240 Speaker 1: I don't know. That sounds a lot like late fees 496 00:30:11,280 --> 00:30:13,920 Speaker 1: to me. You're you're wording it in a different way, 497 00:30:14,000 --> 00:30:16,560 Speaker 1: but it still seems like I'm getting penalized for returning 498 00:30:16,600 --> 00:30:19,560 Speaker 1: this late. And that's kind of what the court said. 499 00:30:19,680 --> 00:30:23,000 Speaker 1: And so Blockbuster ended up settling without admitting wrongdoing for 500 00:30:23,040 --> 00:30:26,000 Speaker 1: six d fifty thousand dollars. And in two thousand six, 501 00:30:26,160 --> 00:30:28,360 Speaker 1: the board told Antiocha that they were going to cut 502 00:30:28,480 --> 00:30:31,360 Speaker 1: him a much smaller bonus check than what he was 503 00:30:31,520 --> 00:30:34,840 Speaker 1: due according to his contract, and so Antiocha said, see 504 00:30:34,920 --> 00:30:38,680 Speaker 1: in court, and eventually Antiocho and Icon came to an 505 00:30:38,680 --> 00:30:42,240 Speaker 1: agreement that Antiocho would step down as CEO in July 506 00:30:42,360 --> 00:30:44,600 Speaker 1: two thousand seven, and in return, he would get his 507 00:30:44,680 --> 00:30:47,160 Speaker 1: bonus and a big exit package. And he was happy 508 00:30:47,400 --> 00:30:49,640 Speaker 1: to take that offer. He was like, you know what, 509 00:30:50,000 --> 00:30:52,280 Speaker 1: I feel like I've done what I needed to do 510 00:30:52,520 --> 00:30:55,000 Speaker 1: as best I could and my hands were tied and 511 00:30:55,520 --> 00:30:57,960 Speaker 1: I don't need this aggravation. I'm out of here. Two 512 00:30:58,000 --> 00:31:01,480 Speaker 1: thousand seven also saw a meeting between Antiocho and and 513 00:31:01,560 --> 00:31:04,560 Speaker 1: Read Hastings again, uh well really for the first time. Before. 514 00:31:04,720 --> 00:31:07,560 Speaker 1: Hastings had met with some of Antiocho's people, but now. 515 00:31:07,680 --> 00:31:11,040 Speaker 1: They met at the Sundance Film Festival. This was obviously 516 00:31:11,080 --> 00:31:14,920 Speaker 1: before Antiocho actually stepped down. The CEO Hastings was giving 517 00:31:15,200 --> 00:31:17,920 Speaker 1: an offer. This time, Hastings was coming forward and saying, hey, 518 00:31:18,040 --> 00:31:21,080 Speaker 1: I will take your online business off your hands. I 519 00:31:21,120 --> 00:31:25,480 Speaker 1: will buy Blockbusters online business. Antiocho thought that it would 520 00:31:25,520 --> 00:31:27,760 Speaker 1: make way more sense to have a merger between the 521 00:31:27,800 --> 00:31:31,480 Speaker 1: two companies, and ultimately the deal went nowhere. The new 522 00:31:31,600 --> 00:31:34,920 Speaker 1: CEO from Blockbuster was someone else who came from seven eleven. 523 00:31:35,040 --> 00:31:38,640 Speaker 1: His name is James Keys. Keys led the company and 524 00:31:39,000 --> 00:31:43,080 Speaker 1: changed its identity from Blockbuster Video to Blockbuster Media. He 525 00:31:43,200 --> 00:31:45,960 Speaker 1: found various ways to cut costs pretty dramatically, and he 526 00:31:46,000 --> 00:31:49,680 Speaker 1: began changing up the product lines and services. But Blockbuster 527 00:31:50,360 --> 00:31:52,120 Speaker 1: it was too far gone. It wouldn't have mattered if 528 00:31:52,200 --> 00:31:55,320 Speaker 1: keys As efforts were really great or not great at all. 529 00:31:55,640 --> 00:31:59,080 Speaker 1: The company was pretty much beyond help. It had seen 530 00:31:59,160 --> 00:32:02,080 Speaker 1: its business go to competitors like Netflix and red Box, 531 00:32:02,480 --> 00:32:04,360 Speaker 1: had a large amount of debt that it was not 532 00:32:04,520 --> 00:32:06,840 Speaker 1: able to pay off. A lot of that was owed 533 00:32:07,000 --> 00:32:11,280 Speaker 1: to Viacom, and Keys tried his best. He led a 534 00:32:11,360 --> 00:32:14,640 Speaker 1: failed attempt to purchase another big company. This was a 535 00:32:14,800 --> 00:32:18,000 Speaker 1: weird decision. In two thousand and eight, he was trying 536 00:32:18,080 --> 00:32:23,040 Speaker 1: to acquire Circuit City. That was a one billion dollar deal, 537 00:32:23,440 --> 00:32:25,520 Speaker 1: but it fell through and Circuit City would actually go 538 00:32:25,640 --> 00:32:29,560 Speaker 1: bankrupt the following year. Now, I did episodes about Circuit 539 00:32:29,600 --> 00:32:31,520 Speaker 1: City earlier, so you can learn more about that if 540 00:32:31,520 --> 00:32:34,800 Speaker 1: you go through the archives. But plenty of analysts looked 541 00:32:34,960 --> 00:32:37,560 Speaker 1: at keys Is move when he said I want to 542 00:32:37,600 --> 00:32:40,280 Speaker 1: acquire Circuit City, and they thought that just don't make 543 00:32:40,360 --> 00:32:44,880 Speaker 1: no sense. I mean, a struggling company rarely improves once 544 00:32:44,960 --> 00:32:48,920 Speaker 1: they acquire a different struggling company that's in another industry. 545 00:32:49,480 --> 00:32:53,080 Speaker 1: Rarely do you see two struggling companies banned together and 546 00:32:53,240 --> 00:32:56,080 Speaker 1: make a real go at it. It's it's that's a 547 00:32:56,200 --> 00:32:59,640 Speaker 1: Cinderella story. By two thousand nine, there were whispers that 548 00:32:59,680 --> 00:33:03,320 Speaker 1: blocked Buster was headed towards bankruptcy. In March, perhaps in 549 00:33:03,360 --> 00:33:07,840 Speaker 1: a move of desperation, the company reintroduced late fees, so 550 00:33:07,880 --> 00:33:10,959 Speaker 1: they got rid of them and then they put them 551 00:33:11,000 --> 00:33:14,720 Speaker 1: back in. And customers hate late fees, but they did 552 00:33:14,840 --> 00:33:17,400 Speaker 1: represent a decent amount of revenue for Blockbuster in the past, 553 00:33:17,480 --> 00:33:19,600 Speaker 1: which is why the company kind of brought him back. 554 00:33:20,320 --> 00:33:23,400 Speaker 1: Before Blockbuster got rid of late fees. The company had 555 00:33:23,400 --> 00:33:26,480 Speaker 1: already run into trouble once before, so I mentioned that 556 00:33:26,520 --> 00:33:28,600 Speaker 1: one about the no late fees in that lawsuit. There 557 00:33:28,680 --> 00:33:31,280 Speaker 1: was actually a lawsuit that happened even before that, back 558 00:33:31,320 --> 00:33:34,920 Speaker 1: in two thousand one. That's because the late fees back 559 00:33:35,040 --> 00:33:37,800 Speaker 1: before this change could grow to the point where they 560 00:33:37,840 --> 00:33:40,960 Speaker 1: were actually more than the value of the rental, So 561 00:33:41,440 --> 00:33:43,640 Speaker 1: you could end up getting charged more than what it 562 00:33:43,800 --> 00:33:45,680 Speaker 1: was what it would cost for you to go out 563 00:33:45,720 --> 00:33:47,720 Speaker 1: and buy a copy of the thing you were renting, 564 00:33:48,360 --> 00:33:52,440 Speaker 1: and that ended up becoming a lawsuit. So this new 565 00:33:52,520 --> 00:33:54,560 Speaker 1: reinstate of late fee would take a different approach. They 566 00:33:54,600 --> 00:33:56,880 Speaker 1: didn't want to have that same issue. So the idea 567 00:33:56,960 --> 00:34:00,280 Speaker 1: was that a late fee would be incurred. Get a 568 00:34:00,360 --> 00:34:04,720 Speaker 1: dollar fee for every day you were late, up to 569 00:34:05,000 --> 00:34:07,120 Speaker 1: ten days, and at that point it was capped, so 570 00:34:07,920 --> 00:34:10,960 Speaker 1: up to an additional ten dollar fee on a late return. 571 00:34:11,080 --> 00:34:14,440 Speaker 1: Not quite as as exorbitant, but customers don't like late fees, 572 00:34:14,560 --> 00:34:18,960 Speaker 1: so it didn't really matter. In Blockbuster lost more than 573 00:34:19,040 --> 00:34:22,800 Speaker 1: a billion dollars. The valuation for the company at that 574 00:34:22,960 --> 00:34:26,759 Speaker 1: time was twenty four million bucks. Still a lot of money, 575 00:34:26,800 --> 00:34:29,080 Speaker 1: but twenty four million that was a huge fall from 576 00:34:29,120 --> 00:34:32,319 Speaker 1: where Blockbuster was in its peak. Netflix, by the way, 577 00:34:32,400 --> 00:34:36,040 Speaker 1: at that same time, in that little company that antiocause 578 00:34:36,080 --> 00:34:39,440 Speaker 1: people had scoffed at a decade earlier, was valued at 579 00:34:39,480 --> 00:34:44,560 Speaker 1: thirteen billion dollars. Even though the only remaining video chain 580 00:34:44,600 --> 00:34:48,040 Speaker 1: in the United States was Movie Gallery, the only other 581 00:34:48,120 --> 00:34:54,040 Speaker 1: one besides Blockbuster, uh that one underwent liquidation in so 582 00:34:54,320 --> 00:34:58,120 Speaker 1: movie Gallery goes away and liquid dates. That leaves Blockbuster 583 00:34:58,239 --> 00:35:03,880 Speaker 1: as the only video rental store like physical store in 584 00:35:03,920 --> 00:35:08,239 Speaker 1: the United States. And even then it wasn't enough to 585 00:35:08,360 --> 00:35:12,279 Speaker 1: save the company. The stock price dropped so low that 586 00:35:12,400 --> 00:35:15,879 Speaker 1: the New York Stock Exchange delisted the company, and out 587 00:35:15,920 --> 00:35:20,200 Speaker 1: of options, Blockbuster would file for Chapter eleven bankruptcy protection. 588 00:35:20,680 --> 00:35:23,760 Speaker 1: In two thousand eleven, Blockbuster would hit the auction block 589 00:35:24,000 --> 00:35:27,240 Speaker 1: Dish Network would purchase the company for three hundred twenty 590 00:35:27,360 --> 00:35:30,960 Speaker 1: million dollars and for two years, Dish would try to 591 00:35:31,040 --> 00:35:34,520 Speaker 1: keep Blockbuster going. Initially, they said we're going to shut 592 00:35:34,600 --> 00:35:36,759 Speaker 1: down all but six hundred locations, and we're going to 593 00:35:36,880 --> 00:35:40,080 Speaker 1: keep those six hundred locations open. They weren't able to 594 00:35:40,160 --> 00:35:42,920 Speaker 1: do that very well, and the company was past the 595 00:35:42,960 --> 00:35:46,319 Speaker 1: point of no return, and in Dish would end up 596 00:35:46,360 --> 00:35:51,600 Speaker 1: shutting down the remaining three hundred company operated stores. The 597 00:35:51,680 --> 00:35:54,160 Speaker 1: only Blockbusters that were left in the United States after 598 00:35:54,280 --> 00:35:59,120 Speaker 1: this happened were franchises. So these were independent stores that 599 00:35:59,200 --> 00:36:03,160 Speaker 1: had licensed the Blockbuster name and technology, but they were 600 00:36:03,239 --> 00:36:07,040 Speaker 1: not company operated. All the company operates stores were gone. 601 00:36:07,520 --> 00:36:10,880 Speaker 1: Lore has it, by the way, that the last film 602 00:36:11,160 --> 00:36:15,719 Speaker 1: rented from an official, company owned Blockbuster store was the 603 00:36:15,800 --> 00:36:20,480 Speaker 1: movie This Is the End, and it was a Hawaiian location. 604 00:36:20,920 --> 00:36:23,480 Speaker 1: I have no idea if that's actually true, but it 605 00:36:23,600 --> 00:36:26,080 Speaker 1: is a pretty cool story. Here in the United States, 606 00:36:27,080 --> 00:36:33,680 Speaker 1: every single Blockbuster location, both company owned and franchised, has closed, 607 00:36:34,120 --> 00:36:39,880 Speaker 1: with one exception. The very last store is in Bend, Oregon. 608 00:36:40,840 --> 00:36:43,680 Speaker 1: There were two stores that were in Alaska, but both 609 00:36:43,760 --> 00:36:48,279 Speaker 1: of those closed earlier. So if you like, you can 610 00:36:48,320 --> 00:36:51,480 Speaker 1: travel to Bend, Oregon, you can go to that Blockbuster 611 00:36:51,640 --> 00:36:54,400 Speaker 1: Video and you can get yourself a membership card to 612 00:36:54,520 --> 00:36:57,480 Speaker 1: rent movies there. It will cost you thirty dollars a 613 00:36:57,680 --> 00:37:01,840 Speaker 1: month for membership. Now, seeing as Netflix offers a premier 614 00:37:01,920 --> 00:37:05,680 Speaker 1: subscription plan for Blu ray rentals at half that price, 615 00:37:06,320 --> 00:37:09,279 Speaker 1: and it's an even lower price if you're going for 616 00:37:09,440 --> 00:37:12,279 Speaker 1: DVD rentals, it's got to be pretty tough to hold 617 00:37:12,360 --> 00:37:17,120 Speaker 1: on to customers at that Blockbuster. So that's the story 618 00:37:17,920 --> 00:37:22,200 Speaker 1: Blockbuster and its peak, it had nine thousand stores worldwide. 619 00:37:22,400 --> 00:37:25,000 Speaker 1: Some of them were directly operated by the company, some 620 00:37:25,080 --> 00:37:28,920 Speaker 1: of them were franchises. It made several people connected to 621 00:37:29,040 --> 00:37:34,920 Speaker 1: the company extremely wealthy, producing both millionaires and billionaires. But 622 00:37:36,080 --> 00:37:38,800 Speaker 1: ultimately it failed to adapt to a changing market. It 623 00:37:38,920 --> 00:37:41,680 Speaker 1: resisted those changes for too long, and by the time 624 00:37:41,800 --> 00:37:45,600 Speaker 1: it moved to fix those problems, it was already too late. 625 00:37:46,200 --> 00:37:49,279 Speaker 1: It was playing a losing game of catchup and it 626 00:37:49,400 --> 00:37:55,799 Speaker 1: was losing ground with every step. So wow, what a difference. Well, 627 00:37:55,880 --> 00:37:58,520 Speaker 1: I wraps up this episode of tech Stuff. If you 628 00:37:58,640 --> 00:38:02,240 Speaker 1: guys have suggestions for future episodes, Maybe there is a company, 629 00:38:02,440 --> 00:38:04,759 Speaker 1: or a technology or a person in tech you would 630 00:38:04,760 --> 00:38:06,279 Speaker 1: like me to cover. Maybe there's someone you would like 631 00:38:06,400 --> 00:38:08,600 Speaker 1: me to have on as a guest or to interview. 632 00:38:09,239 --> 00:38:11,520 Speaker 1: Let me know. Send me an email. The address is 633 00:38:11,600 --> 00:38:14,319 Speaker 1: tech Stuff at how stuff works dot com, or drop 634 00:38:14,400 --> 00:38:16,800 Speaker 1: me a line on Facebook or Twitter. The handle of 635 00:38:16,880 --> 00:38:20,200 Speaker 1: both of those is tech Stuff H s W. 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