Speaker 1: Get in touch with technology with tech Stuff from how
Speaker 1: stuff works dot com. Hey there, and welcome to tech Stuff.
Speaker 1: I'm your host, Johnathan Strickling. I'm an executive producer at
Speaker 1: how Stuff Works in I love all Things tech. And
Speaker 1: this is our second part of our episodes about Blockbuster.
Speaker 1: The first one was the Birth of Blockbuster. If you've
Speaker 1: not heard that, go listen to that episode first, because
Speaker 1: this is the death of Blockbuster. Spoiler alert. We left
Speaker 1: off at the tail end of nineteen three. In the
Speaker 1: last episode. Blockbuster had grown from a modest video rental
Speaker 1: operation in the mid nineteen eighties into the dominant company
Speaker 1: in the home video rental industry a decade later, but
Speaker 1: a slowing market and some questionable accounting strategies had put
Speaker 1: the brakes on the meteoric growth the company had been
Speaker 1: enjoying in the late nineteen eighties. In September nineteen Wayne Wazingo,
Speaker 1: head of Blockbuster, announced a planned merger agreement between Blockbuster
Speaker 1: and the media company Viacom. The proposed merger would be
Speaker 1: a four point seven billion dollar deal, but there was
Speaker 1: a problem. Viacom was already engaged in another big acquisition
Speaker 1: effort at that time. The company was in a little
Speaker 1: bit of a bidding war with QVC in order to
Speaker 1: try and purchase Paramount Communications. Viacom's talks with Blockbuster were
Speaker 1: kind of put on hold while that battle was raging. Ultimately,
Speaker 1: Viacom won the bidding war and it bought Paramount, with
Speaker 1: Blockbuster investing in Viacom to help fund that acquisition. But
Speaker 1: both Viacom and Blockbuster were suffering in the stock market
Speaker 1: after this bidding war. The value of both companies took
Speaker 1: a hit. By the time Viacom was finally ready to
Speaker 1: move forward with the Blockbuster acquisition, in that four point
Speaker 1: seven billion dollar proposed deal had ballooned up to eight
Speaker 1: point four billion with Zinga said CIA shortly after the
Speaker 1: deal was over, and then pursued his hobby of buying
Speaker 1: Florida professional sports teams. Seriously. He was an owner of
Speaker 1: the Miami Dolphins, the Florida Panthers, and the Florida Marlins.
Speaker 1: He actually was the guy who brought the Marlins and
Speaker 1: the Panthers teams into existence. He would go on to
Speaker 1: found a little company called Auto Nation that kind of
Speaker 1: followed the Blockbuster model, but you know, with car sales
Speaker 1: instead of video rentals and Huazinga was a billionaire. He
Speaker 1: passed away earlier this year, on March two thousand eighteen.
Speaker 1: All right back to Blockbuster, the company that whizzing A left,
Speaker 1: Viacom's Blockbuster was well, it was a mess. The company
Speaker 1: was already starting to teeter after the incredibly aggressive expansion
Speaker 1: strategy that was Zinga had initiated, and Viacom was having
Speaker 1: problems finding someone who could take the helm and be
Speaker 1: an effective leader of the company. Now this is not
Speaker 1: necessarily to cast shade on the CEOs who would inhabit
Speaker 1: the position of head of Blockbuster from the fall of
Speaker 1: nineteen into the spring of n but rather put into
Speaker 1: perspective the kind of trouble the company was in. It
Speaker 1: was getting really tough out there in the market. Blockbuster
Speaker 1: had grown super fast through opening lots of stores and
Speaker 1: tons of acquisitions. The video rental industry just wasn't as
Speaker 1: lucrative in nine as it had been in the mid eighties.
Speaker 1: Videotape prices had started to come down considerably, which led
Speaker 1: to a lot of home theater enthusiasts going away for
Speaker 1: rentals and just buying movies outright for their home libraries.
Speaker 1: I mean, why would you spend five dollars to rent
Speaker 1: a movie for three nights when you can own one
Speaker 1: forever for a bit more, sometimes quite a bit more.
Speaker 1: But people were starting to say I'm just gonna buy
Speaker 1: movies instead of rent them. In addition to decreased consumer demand,
Speaker 1: Blockbuster was being leaned on heavily by Viacom during this period.
Speaker 1: So Viacom's the parent company and it had incurred a
Speaker 1: huge amount of debt while it was trying to make
Speaker 1: that acquisition of Paramount, and executives still wanted to buy
Speaker 1: more companies. Viacom wasn't done acquiring companies, and Blockbuster was
Speaker 1: really a productive revenue generator, so Blockbuster became a way
Speaker 1: of fueling those acquisition efforts. Stephen Barrard became the CEO
Speaker 1: after Whizinga left in September nine. Initially, he tried to
Speaker 1: follow wizing as philosophy. He pushed for more expansion, but
Speaker 1: he also ended up getting caught up in a little
Speaker 1: bit of a scandal. In February, he was investigated for
Speaker 1: possible perjury. The matter concerned a lawsuit between former Blockbuster
Speaker 1: vice chairman Scott Beck and the company. The District Attorney
Speaker 1: uh just concluded that there just wasn't sufficient evidence to
Speaker 1: support the accusation of perjury, and so they did not
Speaker 1: pursue charges against Berard. But it still was kind of
Speaker 1: not great pr for Blockbuster, even though ultimately the district
Speaker 1: attorney said, no, I can't find enough here to warrant
Speaker 1: going any further. Burrard would actually resign in March nineteen
Speaker 1: ninety six. So he had been at a CEO of
Speaker 1: Blockbuster for about a year and a half and he
Speaker 1: left the company. Where did he go, Well, he went
Speaker 1: to go join his buddy Huazinga and his new venture
Speaker 1: of Auto Nation, and then he actually followed along with
Speaker 1: some of Wazinga's other ventures. They would go from one
Speaker 1: company to the next, and he did pretty darn well
Speaker 1: for himself. Replacing Burrard as CEO would be a guy
Speaker 1: named Bill Fields. He had formerly been with Walmart. Fields
Speaker 1: of strategy was to push for Blockbuster to become an
Speaker 1: entertainment variety store. He started pushing for Blockbuster to open
Speaker 1: more stores in smaller markets like rural communities. He saw
Speaker 1: how Walmart had been a huge success by moving into
Speaker 1: these rural unit these and you thought Blockbuster could do
Speaker 1: the same thing. He also began laying off a bunch
Speaker 1: of middle management out of corporate headquarters. He he slashed
Speaker 1: lots of jobs while he was CEO, and that was
Speaker 1: to both streamline operations and to reduce costs. He began
Speaker 1: to push for Blockbuster to get more into video sales,
Speaker 1: not just rentals, and he wanted to take on his
Speaker 1: former employer Walmart in that regard. Walmart was the dominant
Speaker 1: UH merchant for videotaped sales at this stage. And he
Speaker 1: also wanted Blockbuster to offer other products and services, including
Speaker 1: the possibility of signing customers up for Internet service with
Speaker 1: partnered providers who worked with Blockbuster, or for offering up
Speaker 1: a PC upgrade service, so you would bring your computer
Speaker 1: in and a PC upgrade business would end up souping
Speaker 1: up your your system. Fields also had really big plans
Speaker 1: to customize the store experience for different regions. He actually said,
Speaker 1: and this is a quote, New York City will have
Speaker 1: much more sophisticated products than winder Georgia. Ouch dude, as
Speaker 1: someone who comes from rural Georgia, ouch New Yorker sophisticated
Speaker 1: products in Blockbuster headquarters would relocate again. Now you might
Speaker 1: remember in the first episode I talked about how Blockbuster
Speaker 1: started in Dallas, Texas and then moved from Dallas, Texas
Speaker 1: to Fort Lauderdale, Florida, because that's where Wazinga wanted to
Speaker 1: set up shop but now waszing his out. So Bill
Speaker 1: Fields decides to relocate the headquarters again. Now where are
Speaker 1: they going to move back to Dallas, Texas where it
Speaker 1: all started. However, one person would not go along with
Speaker 1: the company to this new headquarters, and that was drumroll, please,
Speaker 1: Bill Fields, the CEO, quit his job just thirteen months
Speaker 1: in that position. Here was this powerhouse of retail with
Speaker 1: huge plans for a Blockbuster, who now was going to
Speaker 1: step back. Why was he leaving? He said he wanted
Speaker 1: to get back to quote general retailing end quote. Now
Speaker 1: that caused major concerns in the company. So for one thing,
Speaker 1: Fields had hired a whole bunch of former Walmart executives
Speaker 1: to join him at Blockbuster. So the first fear is
Speaker 1: that while the Fields is leaving, are all of his
Speaker 1: hires going to leave too? Because that frequently happens if
Speaker 1: you have an executive come in, that executive ends up
Speaker 1: hiring his or her buddies or people that they know
Speaker 1: from a former company, and then that executive leaves. Frequently
Speaker 1: the other people will leave to They'll say, well, the
Speaker 1: whole reason why I came in here was because this
Speaker 1: person convinced me to, and now that they're gone, there's
Speaker 1: no reason for me to stay. So that was a
Speaker 1: big fear for another fear. According to The Sun Sentinel,
Speaker 1: thirty three of the forty top executives who are listed
Speaker 1: in blockbusters annual report that was filed in spring night
Speaker 1: had left the company by spring of n so nearly
Speaker 1: all of the top executives of the company had changed
Speaker 1: out of Blockbuster in just three years. Meanwhile, company financial
Speaker 1: reports were not in great shape either. The cash flow
Speaker 1: was down significantly. Viacom's share price had fallen twelve percent.
Speaker 1: Remember Viacom was the parent company, and the industrial average
Speaker 1: for the stock market was actually on the rise, so
Speaker 1: in general, companies were doing great on the stock market,
Speaker 1: and even when that was happening, Viacom's share was dropping
Speaker 1: twelve So Viacom announced it would sell off some of
Speaker 1: its stock and Blockbuster in order to pay towards Viacom's
Speaker 1: twelve billion dollars in debt. The move left many corporate
Speaker 1: employees confused at the relocation to Dallas because it was
Speaker 1: Bill Fields who had led that move to relocate the
Speaker 1: company from Fort Lauderdale back Dallas, Texas, and now he
Speaker 1: was leaving Blockbuster, but Blockbuster was still going to relocate. Now,
Speaker 1: not everyone can just pick up and move right. You
Speaker 1: can't just pick up your entire life and move to
Speaker 1: an entirely new state. Not a lot of people are
Speaker 1: able to do that. In fact, less than thirty percent
Speaker 1: of all corporate employees at Blockbuster headquarters chose to move
Speaker 1: with the company. That represents an enormous loss in knowledge
Speaker 1: and talent. It's a huge setback. People who have dedicated
Speaker 1: their time and efforts and their skill to that company
Speaker 1: were gone, and there was a huge void left. Meanwhile,
Speaker 1: the employees who decided not to go with the move,
Speaker 1: we're wondering, why the heck is the company relocating when
Speaker 1: the guy who made that decision wasn't even going to
Speaker 1: go there. It seemed counterintuitive. Jessica rief Cohen, who as
Speaker 1: an analyst for Merrill Lynch, estimated that Blockbusters value had
Speaker 1: dropped forty percent since it had merged with Viacom, and
Speaker 1: because Bill Fields was leaving, she estimated it was going
Speaker 1: to take at least a year or maybe a year
Speaker 1: and a half to turn things around, and that's assuming
Speaker 1: that Blockbuster could find the right leader to do it.
Speaker 1: There are also stories about Sumner Redstone, who was the
Speaker 1: head of Viacom, and his managerial approach, which, according to
Speaker 1: some people was a little bit on the authoritarian side.
Speaker 1: He was clearly unhappy with Blockbusters performance in the market,
Speaker 1: and it didn't help that while Blockbusters seemed to be floundering,
Speaker 1: Hollywood Video, its largest rival in the video rental industry,
Speaker 1: was reporting a modest sales gain. So Blockbusters doing really
Speaker 1: badly and it's the biggest fish in the pond. And
Speaker 1: then the next biggest fish is not doing badly at all,
Speaker 1: or doesn't It seems to be doing pretty well. So
Speaker 1: who was going to come in to Blockbuster to try
Speaker 1: and turn things around. Well, I'll tell you in just
Speaker 1: a moment, but first let's take a quick break and
Speaker 1: thank our sponsor. The next leader for Blockbuster who had
Speaker 1: the unenviable job of trying to write a listing ship
Speaker 1: was John Antiocho, and boy, his story is one that
Speaker 1: has been hashed over a lot in the business world.
Speaker 1: He's been raped over the coals multiple times, largely because
Speaker 1: in hindsight there appeared to be some enormous missed opportunities
Speaker 1: that might have saved Blockbuster. But the truth is a
Speaker 1: little more complicated than that, and I don't think that
Speaker 1: Antiocho should shoulder all the blame. He has some responsibility,
Speaker 1: but I really don't think that ultimately it was his
Speaker 1: leadership that doomed Blockbuster. Antiocho had spent twenty years working
Speaker 1: at seven eleven. He was someone originally who would move
Speaker 1: in to help failing stores recover, and ultimately he would
Speaker 1: get promoted to a vice president position at that company.
Speaker 1: He would later work for Pearl Vision, he worked for
Speaker 1: Circle caver A while he worked for Taco Bell for
Speaker 1: a while, and that's when Sumner Redstone reached out to
Speaker 1: him and said, would you like the role of CEO
Speaker 1: a Blockbuster? And Antiocho thought, well, here's an opportunity to
Speaker 1: try and really turn this company around. He walked into
Speaker 1: a seriously bad situation. The company's talent had been gutted.
Speaker 1: Store operations were suffering. As a result, stores were not
Speaker 1: getting the latest titles on their street date. That meant
Speaker 1: that you could go to a store and buy a
Speaker 1: video on its release date, but you couldn't find it
Speaker 1: in a blockbuster. That was not great either. One of
Speaker 1: Antioca's first big moves was to go to the movie
Speaker 1: industry and renegotiate the way things worked with them. So
Speaker 1: the way it had been working was that video rental
Speaker 1: companies would pay higher prices for copies of movies. So
Speaker 1: a cassette of a movie might cost sixty dollars. You know,
Speaker 1: you could go out buy it at a store for
Speaker 1: much less, but the video rental copies would be sixty
Speaker 1: five bucks. When you're buying hundreds or thousands of cassettes
Speaker 1: in order to build on an inventory, that adds up
Speaker 1: super fast. And I meant that the store would need
Speaker 1: to rent out a little around thirty times per title
Speaker 1: in order to earn back the investment made on that purchase.
Speaker 1: So you buy a movie for sixty five dollars, you
Speaker 1: need to you need to rent out that movie thirty
Speaker 1: times in order to make your investment back, and then
Speaker 1: from that point forward it's profit. And Tioko said, hey,
Speaker 1: I got I got an idea. Let's try something else.
Speaker 1: How about we buy your movies at a much lower
Speaker 1: rate like between one to four dollars per cassette. But
Speaker 1: in return, you will get a percentage of rental revenues,
Speaker 1: Like so we'll keep sixty percent of the rental revenues,
Speaker 1: you keep the other for the rental revenues. You get
Speaker 1: a smaller upfront fee for those movies, but there's a
Speaker 1: long tail revenue stream that will keep going for as
Speaker 1: long as the movie is being rented, And the more
Speaker 1: times the titles rented, the more money everybody makes. The
Speaker 1: movie studios came around to this idea. The movie the
Speaker 1: move also meant that a blockbuster could acquire a lot
Speaker 1: more cassettes this way, which was really important for new
Speaker 1: popular titles. So now what blockbuster would do is for
Speaker 1: the brand new titles when they would come out, they
Speaker 1: would purchase a huge number of those. They would flood
Speaker 1: their inventory with the newest titles. I remember walking into
Speaker 1: blockbusters around this era and looking at the wall and
Speaker 1: you would just see a a like half of a
Speaker 1: shelf taken up by a new title. So you might
Speaker 1: see a popular movie and it may even take up
Speaker 1: a full shelf depending upon the popularity. And it was
Speaker 1: largely because this renegotiation made this financially feasible, Blockbuster could
Speaker 1: almost guarantee that a new title was going to be
Speaker 1: in stock when you came by to rent it. That
Speaker 1: removed a big risk in this idea that you would
Speaker 1: show up to the video rental store only to find
Speaker 1: out the movie you wanted to rent was already out.
Speaker 1: Antiocho also chose to move Blockbuster out of some of
Speaker 1: the businesses it had just started to get into, including
Speaker 1: that PC upgrading business that Bill Fields really was pushing for.
Speaker 1: Antiocho felt that the company really needed to refocus on
Speaker 1: its core business of video rentals, and that diversifying really
Speaker 1: meant spreading the company out too thin, particularly in the
Speaker 1: wake of losing so many employees. They didn't have the
Speaker 1: experts expertise to keep all these other businesses afloat. But
Speaker 1: two things emerged there would be huge setbacks for Blockbuster,
Speaker 1: at least in the long run. One was the DVD format,
Speaker 1: which launched in the mid nineteen nineties. Movie studios were
Speaker 1: selling DVDs at twenty bucks or less per title, and
Speaker 1: that created a high adoption rate for movies, and that
Speaker 1: undercut rentals, Especially when you have a customer who says, well,
Speaker 1: I could rent this movie on VHS and watch a
Speaker 1: magnet the film transfer. Or I could buy a DVD,
Speaker 1: an optical transfer that's at a higher resolution, better quality picture,
Speaker 1: better quality sound, and I can own it for less
Speaker 1: than twenty bucks. So we started to see a big
Speaker 1: dip in the video rental industry as a whole once
Speaker 1: DVDs came out like this. The other big thing that
Speaker 1: emerged in though at the time when it emerged it
Speaker 1: wasn't a big thing. It would just become an enormous
Speaker 1: thing was a company called Netflix. I have to do
Speaker 1: a full episode about Netflix as it has become such
Speaker 1: a major player in entertainment now that it produces so
Speaker 1: much original content. But back in read Hastings and Mark
Speaker 1: Randolph co found this brand new company, and their business
Speaker 1: plan originally was to act as merely an online DVD
Speaker 1: rental company. They still do this, by the way, but
Speaker 1: this was their only business when they first started. So
Speaker 1: the way it works is you would create a membership profile,
Speaker 1: you would subscribe, you select a plan, whatever that subscription
Speaker 1: plan is. They introduced different subscription plans about a year
Speaker 1: after they started really getting into business. You would log
Speaker 1: into Netflix's system, you would choose which titles you wanted.
Speaker 1: They would ship those titles to your mailbox and it
Speaker 1: would come along with a return envelope. So as soon
Speaker 1: as you were done watching, you slipped the disk in
Speaker 1: the return envelope, throw that back in the mail and
Speaker 1: you're done. The company began renting DVDs in that way
Speaker 1: in and the following year. That's when it would offer
Speaker 1: up the unlimited DVD rental plan for a monthly membership fee,
Speaker 1: And in two thousand Hastings would meet with some of
Speaker 1: Antiocho's people over at Blockbuster. But more on that in
Speaker 1: just a second. Blockbuster, however, did not jump on the
Speaker 1: DVD bandwagon right away. In fact, it held back for
Speaker 1: several years, so DVDs debut in the mid nineties. Blockbuster
Speaker 1: committed to start carrying DVDs in ninete, but it did
Speaker 1: so in a pretty slow adoption rate, and it would
Speaker 1: not really commit fully to DVDs until two thousand two,
Speaker 1: all right back to the late nineties with Blockbuster. In
Speaker 1: ninety Viacoms sold off Blockbuster Music for a hundred fifteen
Speaker 1: million dollars because the music business just wasn't working out
Speaker 1: for a Blockbuster and Viacom executives had grown impatient with
Speaker 1: the low performance. They just felt that it wasn't worth
Speaker 1: keeping it around, so they sell it off for a
Speaker 1: hundred fifteen million. Blockbuster meanwhile closes some stores, a lot
Speaker 1: of them in international markets, and Viacom was starting to
Speaker 1: get a little concern because Viacom had been relying on
Speaker 1: Blockbuster to provide cash flow to help pay off debt
Speaker 1: and fund acquisitions. But now Viacom found itself having having
Speaker 1: to fund money to Blockbuster, so it was no longer
Speaker 1: getting money from Blockbuster. Now it was having to kind
Speaker 1: of help keep Blockbuster afloat. That was not very attractive
Speaker 1: to via Calm executives. In August, Viacom held an i
Speaker 1: p O of a percentage of its stock and this
Speaker 1: was all a cash raising strategy. They thought, well, we'll
Speaker 1: raise some quick cash. We'll sell off about eight of
Speaker 1: the stock we have, and then we will will make
Speaker 1: money that way. And they thought that the shares were
Speaker 1: going to trade somewhere between sixteen and eighteen dollars. In reality,
Speaker 1: they traded at fifteen dollars, so they didn't make nearly
Speaker 1: as much money as they had hoped. Also, in another
Speaker 1: giant one that I've actually covered in previous tech stuff
Speaker 1: episodes got into Blockbusters grill in the big way. That
Speaker 1: company was Amazon. So now we have Jeff Bezos and
Speaker 1: Read Hastings both chomping at the bit to carve into
Speaker 1: the same market that Blockbuster was really after. Amazon was
Speaker 1: not interested in renting videos unlike Netflix, but it did
Speaker 1: expand beyond selling books to include other items like DVDs
Speaker 1: and sold them for a very low price. So now
Speaker 1: you could see a lot of find a lot of
Speaker 1: those same titles over at Amazon for a price that
Speaker 1: was not that different from the rental fee that you
Speaker 1: would incur, especially when you put it on top of
Speaker 1: a membership fee at a Blockbuster, so that really ate
Speaker 1: into their their business as well. Andiogo didn't did see
Speaker 1: that home delivery and streaming services would poise either a
Speaker 1: great opportunity for Blockbuster or a threat to the company,
Speaker 1: and he tried to take steps to build out Blockbusters
Speaker 1: capabilities to enter into those fields, but he he had
Speaker 1: some resistance from Viacom. He also just had the problem
Speaker 1: of the fact that he was presiding over a company
Speaker 1: that still was was kind of teetering from that massive
Speaker 1: loss of talent in he led Blockbuster to form a
Speaker 1: three year partnership with America Online, the online service provider.
Speaker 1: Blockbuster would become a premier home video provider for a
Speaker 1: o l's entertainment channel, and a o L would make
Speaker 1: a thirty million dollar investment in Blockbuster and Antiocho began
Speaker 1: to explore options for broadband content and delivery, but internet
Speaker 1: speeds in those days were not what they are today,
Speaker 1: so streaming video was largely seen as being too ambitious
Speaker 1: for what passed as the standard and internet speeds at
Speaker 1: that time. In two thousand, we have that meeting I
Speaker 1: mentioned earlier between Read Hastings and some of Antiocho's people.
Speaker 1: So the head of Netflix and some of the folks
Speaker 1: over at Blockbuster. So what was going on. Well, Read
Speaker 1: Hastings was willing to sell Netflix to Blockbuster for the
Speaker 1: princely sum of fifty million dollars, but Blockbuster says no deal.
Speaker 1: Apparently they thought Netflix was kind of a small time
Speaker 1: player in a niche market. They had seen that Netflix
Speaker 1: was struggling to really make money, but it was early
Speaker 1: days for Netflix. But let's flash forward today just for
Speaker 1: a quick second. Blockbuster is all but gone. It's it's
Speaker 1: really it exists kind of in name only. At this point. Netflix, however,
Speaker 1: has a market cap of a hundred fifty one point
Speaker 1: five eight billion dollars. But then again, hindsight is still
Speaker 1: double yikes. So instead of this Netflix deal, Blockbuster decides
Speaker 1: to sign a twenty year video on demand exclusive deal
Speaker 1: with a broadband services company. That broadband services company belonged
Speaker 1: to a company called Enron. Now you might have heard
Speaker 1: that name because en Ron employees got up to some
Speaker 1: pretty serious shenanigans, and by employees, I mean executives, and
Speaker 1: by shenanigans, I mean really illegal activity. Blockbuster ended up
Speaker 1: scuttling the deal just nine months after the ink had dried,
Speaker 1: so didn't go in Netflix, they did go within Ron ouch. Also,
Speaker 1: in two thousand, nearly eight hundred million dollars that Blockbuster
Speaker 1: takes in that year would come from late fees, So
Speaker 1: late fees would account for nearly sixteen per cent of
Speaker 1: the revenue of the company, and as services like Netflix
Speaker 1: would offer up rentals without late fees, Blockbuster would see
Speaker 1: a steady decline in rental revenues. In two thousand one,
Speaker 1: they would end up changing their minds about rental fees
Speaker 1: and late fees rather, and that becomes a whole mess
Speaker 1: I'll talk about in just a second. Blockbuster had also
Speaker 1: committed to that DVD format back in really started to
Speaker 1: convert to all DVDs and stores by two thousand two,
Speaker 1: and two years later in two thousand four, they finally
Speaker 1: launched an online DVD rental programs similar to what Netflix
Speaker 1: had been doing in two thousand four. But two thousand
Speaker 1: four was also when another company called coin Star introduced
Speaker 1: a new type of video rental service, red box red
Speaker 1: box DVD kiosks, which put DVD rentals in high traffic
Speaker 1: areas like like grocery stores and places like Walmart, that
Speaker 1: kind of thing. You'd see a red box there, you
Speaker 1: could just go up and put some money in and
Speaker 1: rent yourself a film. It got a lot of impulse
Speaker 1: renters that way. Blockbuster would not create a similar strategy
Speaker 1: until two thoight. So in both cases, both with video
Speaker 1: DVD over the mail and by doing this kiosk approach,
Speaker 1: Blockbuster fell way behind the industry leaders and was suffering
Speaker 1: because of that. Now, the end of two thousand four
Speaker 1: saw the involvement of someone whose actions, ultimately, I would argue,
Speaker 1: would lead to the demise of the company and all
Speaker 1: because he was trying really hard to turn things around.
Speaker 1: More on that in just a second, but first let's
Speaker 1: take another quick break to thank our sponsors. The person
Speaker 1: I alluded to before the break is investor Carl icon
Speaker 1: This is a name that pops up a lot in
Speaker 1: technology just and business in general. Carl icon Is is
Speaker 1: famous for his aggressive investment strategies and getting involved in
Speaker 1: corporate governance, largely through proxy fights. He buys up a
Speaker 1: whole bunch of stock shares of stock, and then gets
Speaker 1: a bunch of other shareholders together and then challenges the
Speaker 1: board of directors of various companies. This is the way
Speaker 1: it went with Blockbuster. So icon spent about eighty four
Speaker 1: million dollars to buy nearly ten million shares of Blockbuster,
Speaker 1: which amounted to about five point eight percent ownership of
Speaker 1: the whole company, and he pushed for Blockbuster to make
Speaker 1: a move to make a hostile takeover of Hollywood Video,
Speaker 1: which by the way, he also owned shares of. At
Speaker 1: that time, and Hollywood Video was still the arch rival
Speaker 1: for Blockbuster in the traditional video rental space, although obviously
Speaker 1: Netflix was a rising star that was taking more and
Speaker 1: more of their business. The first offer that Blockbuster would
Speaker 1: make would be a seven million dollar deal which valued
Speaker 1: Hollywood Video shares at ten dollars cents a share. So
Speaker 1: essentially the idea was that let's go out to Hollywood
Speaker 1: Video shareholders and say we'll buy up your shares for
Speaker 1: ten dollars five cents per share, and if you agree,
Speaker 1: then that's awesome. Everyone's happy, and then we end up
Speaker 1: with a majority shareholding of the company and we can
Speaker 1: force the board of directors to do what we wanted
Speaker 1: to do and do a hostel takeover. But that deal
Speaker 1: didn't get enough traction. Eventually the amount the offer crept
Speaker 1: up to a billion dollars, but ultimately Hollywood Video shareholders
Speaker 1: would accept a totally different offer extended by a company
Speaker 1: called Movie Gallery. In early two thousand five, Icon, not
Speaker 1: to be deterred this Hollywood Video takeover didn't work out,
Speaker 1: he decides to get more involved in Blockbusters operations, much
Speaker 1: to the constern nation of Antiago. In two thousand five,
Speaker 1: Icon would be able to launch a proxy fight and
Speaker 1: have himself and two of his buddies elected to Blockbusters
Speaker 1: Board of directors. Uh he was able to get fourth
Speaker 1: seat a little bit later after one of the other
Speaker 1: board of directors resigned or retired really, and then Icon says, Hayntiocho,
Speaker 1: your salary is way too high. You made more than
Speaker 1: fifty million dollars in two thousand four, and the company
Speaker 1: you're leading ain't doing so hot. I am paraphrasing, by
Speaker 1: the way. Icon also didn't like that Blockbuster had eliminated
Speaker 1: late fees in response to competitors, because late fees had
Speaker 1: accounted for a good deal of revenue in the past,
Speaker 1: and he also felt that the company had spent too
Speaker 1: much money to launch its own online store. So essentially,
Speaker 1: Icon was taking exception to all the more recent moves
Speaker 1: that the company had made and wanted to turn back times. Somehow,
Speaker 1: this kept on going throughout two thousand four, two thousand five,
Speaker 1: and two thousand six, all while Blockbuster was struggling to
Speaker 1: hold its place. The board kept wanting to reinstate late
Speaker 1: fees to focus more on the old revenue models that
Speaker 1: Blockbuster had relied upon previously, and Antiocho and his executive
Speaker 1: staff argued strenuously against those moves. In two thousand five,
Speaker 1: Blockbuster became the focal point for several investigations from forty
Speaker 1: eight different states in response to its no late fees
Speaker 1: marketing campaign. They alleged that the company was misrepresenting the
Speaker 1: policy to customers, and Blockbuster would ultimately settle that case
Speaker 1: for six dollars. So what actually happened, Well, the advertised
Speaker 1: policy was that Blockbuster was instituting a no late fees approach,
Speaker 1: which sounds like, hey, you can run a movie and
Speaker 1: it doesn't matter how long you hold onto it. You'll
Speaker 1: never get charged a late fee and you can just
Speaker 1: return it whenever. That's not actually how it worked in actuality.
Speaker 1: If a customer were to hold onto a rental beyond
Speaker 1: seven days past its due date, so a week after
Speaker 1: it was due, if you still had that title, Blockbuster
Speaker 1: would put a charge on your credit card for the
Speaker 1: full sales price of that rental. So let's say you're
Speaker 1: renting a video game that has a retail price of
Speaker 1: forty dollars and you rent it it's Dube on a Tuesday.
Speaker 1: The following tuesday, you still have it, you get charged
Speaker 1: that forty bucks. Now, you could get reimbursed for that
Speaker 1: if you returned the title within thirty days, but you
Speaker 1: would still get charged a restocking fee. And people said,
Speaker 1: I don't know. That sounds a lot like late fees
Speaker 1: to me. You're you're wording it in a different way,
Speaker 1: but it still seems like I'm getting penalized for returning
Speaker 1: this late. And that's kind of what the court said.
Speaker 1: And so Blockbuster ended up settling without admitting wrongdoing for
Speaker 1: six d fifty thousand dollars. And in two thousand six,
Speaker 1: the board told Antiocha that they were going to cut
Speaker 1: him a much smaller bonus check than what he was
Speaker 1: due according to his contract, and so Antiocha said, see
Speaker 1: in court, and eventually Antiocho and Icon came to an
Speaker 1: agreement that Antiocho would step down as CEO in July
Speaker 1: two thousand seven, and in return, he would get his
Speaker 1: bonus and a big exit package. And he was happy
Speaker 1: to take that offer. He was like, you know what,
Speaker 1: I feel like I've done what I needed to do
Speaker 1: as best I could and my hands were tied and
Speaker 1: I don't need this aggravation. I'm out of here. Two
Speaker 1: thousand seven also saw a meeting between Antiocho and and
Speaker 1: Read Hastings again, uh well really for the first time. Before.
Speaker 1: Hastings had met with some of Antiocho's people, but now.
Speaker 1: They met at the Sundance Film Festival. This was obviously
Speaker 1: before Antiocho actually stepped down. The CEO Hastings was giving
Speaker 1: an offer. This time, Hastings was coming forward and saying, hey,
Speaker 1: I will take your online business off your hands. I
Speaker 1: will buy Blockbusters online business. Antiocho thought that it would
Speaker 1: make way more sense to have a merger between the
Speaker 1: two companies, and ultimately the deal went nowhere. The new
Speaker 1: CEO from Blockbuster was someone else who came from seven eleven.
Speaker 1: His name is James Keys. Keys led the company and
Speaker 1: changed its identity from Blockbuster Video to Blockbuster Media. He
Speaker 1: found various ways to cut costs pretty dramatically, and he
Speaker 1: began changing up the product lines and services. But Blockbuster
Speaker 1: it was too far gone. It wouldn't have mattered if
Speaker 1: keys As efforts were really great or not great at all.
Speaker 1: The company was pretty much beyond help. It had seen
Speaker 1: its business go to competitors like Netflix and red Box,
Speaker 1: had a large amount of debt that it was not
Speaker 1: able to pay off. A lot of that was owed
Speaker 1: to Viacom, and Keys tried his best. He led a
Speaker 1: failed attempt to purchase another big company. This was a
Speaker 1: weird decision. In two thousand and eight, he was trying
Speaker 1: to acquire Circuit City. That was a one billion dollar deal,
Speaker 1: but it fell through and Circuit City would actually go
Speaker 1: bankrupt the following year. Now, I did episodes about Circuit
Speaker 1: City earlier, so you can learn more about that if
Speaker 1: you go through the archives. But plenty of analysts looked
Speaker 1: at keys Is move when he said I want to
Speaker 1: acquire Circuit City, and they thought that just don't make
Speaker 1: no sense. I mean, a struggling company rarely improves once
Speaker 1: they acquire a different struggling company that's in another industry.
Speaker 1: Rarely do you see two struggling companies banned together and
Speaker 1: make a real go at it. It's it's that's a
Speaker 1: Cinderella story. By two thousand nine, there were whispers that
Speaker 1: blocked Buster was headed towards bankruptcy. In March, perhaps in
Speaker 1: a move of desperation, the company reintroduced late fees, so
Speaker 1: they got rid of them and then they put them
Speaker 1: back in. And customers hate late fees, but they did
Speaker 1: represent a decent amount of revenue for Blockbuster in the past,
Speaker 1: which is why the company kind of brought him back.
Speaker 1: Before Blockbuster got rid of late fees. The company had
Speaker 1: already run into trouble once before, so I mentioned that
Speaker 1: one about the no late fees in that lawsuit. There
Speaker 1: was actually a lawsuit that happened even before that, back
Speaker 1: in two thousand one. That's because the late fees back
Speaker 1: before this change could grow to the point where they
Speaker 1: were actually more than the value of the rental, So
Speaker 1: you could end up getting charged more than what it
Speaker 1: was what it would cost for you to go out
Speaker 1: and buy a copy of the thing you were renting,
Speaker 1: and that ended up becoming a lawsuit. So this new
Speaker 1: reinstate of late fee would take a different approach. They
Speaker 1: didn't want to have that same issue. So the idea
Speaker 1: was that a late fee would be incurred. Get a
Speaker 1: dollar fee for every day you were late, up to
Speaker 1: ten days, and at that point it was capped, so
Speaker 1: up to an additional ten dollar fee on a late return.
Speaker 1: Not quite as as exorbitant, but customers don't like late fees,
Speaker 1: so it didn't really matter. In Blockbuster lost more than
Speaker 1: a billion dollars. The valuation for the company at that
Speaker 1: time was twenty four million bucks. Still a lot of money,
Speaker 1: but twenty four million that was a huge fall from
Speaker 1: where Blockbuster was in its peak. Netflix, by the way,
Speaker 1: at that same time, in that little company that antiocause
Speaker 1: people had scoffed at a decade earlier, was valued at
Speaker 1: thirteen billion dollars. Even though the only remaining video chain
Speaker 1: in the United States was Movie Gallery, the only other
Speaker 1: one besides Blockbuster, uh that one underwent liquidation in so
Speaker 1: movie Gallery goes away and liquid dates. That leaves Blockbuster
Speaker 1: as the only video rental store like physical store in
Speaker 1: the United States. And even then it wasn't enough to
Speaker 1: save the company. The stock price dropped so low that
Speaker 1: the New York Stock Exchange delisted the company, and out
Speaker 1: of options, Blockbuster would file for Chapter eleven bankruptcy protection.
Speaker 1: In two thousand eleven, Blockbuster would hit the auction block
Speaker 1: Dish Network would purchase the company for three hundred twenty
Speaker 1: million dollars and for two years, Dish would try to
Speaker 1: keep Blockbuster going. Initially, they said we're going to shut
Speaker 1: down all but six hundred locations, and we're going to
Speaker 1: keep those six hundred locations open. They weren't able to
Speaker 1: do that very well, and the company was past the
Speaker 1: point of no return, and in Dish would end up
Speaker 1: shutting down the remaining three hundred company operated stores. The
Speaker 1: only Blockbusters that were left in the United States after
Speaker 1: this happened were franchises. So these were independent stores that
Speaker 1: had licensed the Blockbuster name and technology, but they were
Speaker 1: not company operated. All the company operates stores were gone.
Speaker 1: Lore has it, by the way, that the last film
Speaker 1: rented from an official, company owned Blockbuster store was the
Speaker 1: movie This Is the End, and it was a Hawaiian location.
Speaker 1: I have no idea if that's actually true, but it
Speaker 1: is a pretty cool story. Here in the United States,
Speaker 1: every single Blockbuster location, both company owned and franchised, has closed,
Speaker 1: with one exception. The very last store is in Bend, Oregon.
Speaker 1: There were two stores that were in Alaska, but both
Speaker 1: of those closed earlier. So if you like, you can
Speaker 1: travel to Bend, Oregon, you can go to that Blockbuster
Speaker 1: Video and you can get yourself a membership card to
Speaker 1: rent movies there. It will cost you thirty dollars a
Speaker 1: month for membership. Now, seeing as Netflix offers a premier
Speaker 1: subscription plan for Blu ray rentals at half that price,
Speaker 1: and it's an even lower price if you're going for
Speaker 1: DVD rentals, it's got to be pretty tough to hold
Speaker 1: on to customers at that Blockbuster. So that's the story
Speaker 1: Blockbuster and its peak, it had nine thousand stores worldwide.
Speaker 1: Some of them were directly operated by the company, some
Speaker 1: of them were franchises. It made several people connected to
Speaker 1: the company extremely wealthy, producing both millionaires and billionaires. But
Speaker 1: ultimately it failed to adapt to a changing market. It
Speaker 1: resisted those changes for too long, and by the time
Speaker 1: it moved to fix those problems, it was already too late.
Speaker 1: It was playing a losing game of catchup and it
Speaker 1: was losing ground with every step. So wow, what a difference. Well,
Speaker 1: I wraps up this episode of tech Stuff. If you
Speaker 1: guys have suggestions for future episodes, Maybe there is a company,
Speaker 1: or a technology or a person in tech you would
Speaker 1: like me to cover. Maybe there's someone you would like
Speaker 1: me to have on as a guest or to interview.
Speaker 1: Let me know. Send me an email. The address is
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