WEBVTT - The Death of Blockbuster 0:00:04.120 --> 0:00:07.160 Get in touch with technology with tech Stuff from how 0:00:07.200 --> 0:00:13.600 stuff works dot com. Hey there, and welcome to tech Stuff. 0:00:13.600 --> 0:00:16.319 I'm your host, Johnathan Strickling. I'm an executive producer at 0:00:16.320 --> 0:00:19.400 how Stuff Works in I love all Things tech. And 0:00:19.480 --> 0:00:23.360 this is our second part of our episodes about Blockbuster. 0:00:23.520 --> 0:00:25.920 The first one was the Birth of Blockbuster. If you've 0:00:25.960 --> 0:00:28.600 not heard that, go listen to that episode first, because 0:00:28.640 --> 0:00:32.800 this is the death of Blockbuster. Spoiler alert. We left 0:00:32.840 --> 0:00:35.800 off at the tail end of nineteen three. In the 0:00:35.840 --> 0:00:39.200 last episode. Blockbuster had grown from a modest video rental 0:00:39.240 --> 0:00:42.760 operation in the mid nineteen eighties into the dominant company 0:00:42.880 --> 0:00:46.400 in the home video rental industry a decade later, but 0:00:46.520 --> 0:00:50.560 a slowing market and some questionable accounting strategies had put 0:00:50.560 --> 0:00:53.279 the brakes on the meteoric growth the company had been 0:00:53.360 --> 0:00:58.920 enjoying in the late nineteen eighties. In September nineteen Wayne Wazingo, 0:00:59.040 --> 0:01:03.440 head of Blockbuster, announced a planned merger agreement between Blockbuster 0:01:03.800 --> 0:01:07.440 and the media company Viacom. The proposed merger would be 0:01:07.480 --> 0:01:11.640 a four point seven billion dollar deal, but there was 0:01:11.680 --> 0:01:16.320 a problem. Viacom was already engaged in another big acquisition 0:01:16.360 --> 0:01:19.399 effort at that time. The company was in a little 0:01:19.400 --> 0:01:22.399 bit of a bidding war with QVC in order to 0:01:22.440 --> 0:01:26.880 try and purchase Paramount Communications. Viacom's talks with Blockbuster were 0:01:26.959 --> 0:01:30.200 kind of put on hold while that battle was raging. Ultimately, 0:01:30.319 --> 0:01:34.080 Viacom won the bidding war and it bought Paramount, with 0:01:34.160 --> 0:01:38.679 Blockbuster investing in Viacom to help fund that acquisition. But 0:01:38.880 --> 0:01:42.759 both Viacom and Blockbuster were suffering in the stock market 0:01:42.959 --> 0:01:46.840 after this bidding war. The value of both companies took 0:01:46.840 --> 0:01:49.520 a hit. By the time Viacom was finally ready to 0:01:49.560 --> 0:01:54.520 move forward with the Blockbuster acquisition, in that four point 0:01:54.600 --> 0:01:57.880 seven billion dollar proposed deal had ballooned up to eight 0:01:57.920 --> 0:02:02.600 point four billion with Zinga said CIA shortly after the 0:02:02.640 --> 0:02:05.840 deal was over, and then pursued his hobby of buying 0:02:05.960 --> 0:02:11.040 Florida professional sports teams. Seriously. He was an owner of 0:02:11.080 --> 0:02:14.920 the Miami Dolphins, the Florida Panthers, and the Florida Marlins. 0:02:14.960 --> 0:02:17.320 He actually was the guy who brought the Marlins and 0:02:17.360 --> 0:02:20.680 the Panthers teams into existence. He would go on to 0:02:21.000 --> 0:02:24.200 found a little company called Auto Nation that kind of 0:02:24.240 --> 0:02:27.120 followed the Blockbuster model, but you know, with car sales 0:02:27.120 --> 0:02:31.200 instead of video rentals and Huazinga was a billionaire. He 0:02:31.400 --> 0:02:35.120 passed away earlier this year, on March two thousand eighteen. 0:02:35.480 --> 0:02:38.880 All right back to Blockbuster, the company that whizzing A left, 0:02:39.720 --> 0:02:43.440 Viacom's Blockbuster was well, it was a mess. The company 0:02:43.560 --> 0:02:47.919 was already starting to teeter after the incredibly aggressive expansion 0:02:48.000 --> 0:02:51.920 strategy that was Zinga had initiated, and Viacom was having 0:02:52.000 --> 0:02:54.639 problems finding someone who could take the helm and be 0:02:54.760 --> 0:02:57.519 an effective leader of the company. Now this is not 0:02:57.760 --> 0:03:02.080 necessarily to cast shade on the CEOs who would inhabit 0:03:02.240 --> 0:03:05.280 the position of head of Blockbuster from the fall of 0:03:05.360 --> 0:03:09.760 nineteen into the spring of n but rather put into 0:03:09.800 --> 0:03:12.760 perspective the kind of trouble the company was in. It 0:03:12.960 --> 0:03:17.000 was getting really tough out there in the market. Blockbuster 0:03:17.120 --> 0:03:21.519 had grown super fast through opening lots of stores and 0:03:21.840 --> 0:03:26.880 tons of acquisitions. The video rental industry just wasn't as 0:03:27.080 --> 0:03:31.280 lucrative in nine as it had been in the mid eighties. 0:03:31.880 --> 0:03:35.760 Videotape prices had started to come down considerably, which led 0:03:35.800 --> 0:03:39.120 to a lot of home theater enthusiasts going away for 0:03:39.240 --> 0:03:42.600 rentals and just buying movies outright for their home libraries. 0:03:42.640 --> 0:03:45.200 I mean, why would you spend five dollars to rent 0:03:45.240 --> 0:03:47.600 a movie for three nights when you can own one 0:03:47.680 --> 0:03:50.600 forever for a bit more, sometimes quite a bit more. 0:03:50.720 --> 0:03:52.720 But people were starting to say I'm just gonna buy 0:03:52.880 --> 0:03:56.520 movies instead of rent them. In addition to decreased consumer demand, 0:03:56.960 --> 0:04:00.960 Blockbuster was being leaned on heavily by Viacom during this period. 0:04:01.240 --> 0:04:04.600 So Viacom's the parent company and it had incurred a 0:04:04.720 --> 0:04:07.120 huge amount of debt while it was trying to make 0:04:07.200 --> 0:04:11.640 that acquisition of Paramount, and executives still wanted to buy 0:04:12.080 --> 0:04:16.880 more companies. Viacom wasn't done acquiring companies, and Blockbuster was 0:04:17.320 --> 0:04:21.840 really a productive revenue generator, so Blockbuster became a way 0:04:22.040 --> 0:04:27.600 of fueling those acquisition efforts. Stephen Barrard became the CEO 0:04:27.880 --> 0:04:32.600 after Whizinga left in September nine. Initially, he tried to 0:04:32.640 --> 0:04:36.680 follow wizing as philosophy. He pushed for more expansion, but 0:04:36.920 --> 0:04:38.920 he also ended up getting caught up in a little 0:04:38.920 --> 0:04:42.400 bit of a scandal. In February, he was investigated for 0:04:42.520 --> 0:04:47.240 possible perjury. The matter concerned a lawsuit between former Blockbuster 0:04:47.480 --> 0:04:51.440 vice chairman Scott Beck and the company. The District Attorney 0:04:51.800 --> 0:04:55.120 uh just concluded that there just wasn't sufficient evidence to 0:04:55.240 --> 0:04:57.920 support the accusation of perjury, and so they did not 0:04:58.080 --> 0:05:01.680 pursue charges against Berard. But it still was kind of 0:05:02.240 --> 0:05:06.279 not great pr for Blockbuster, even though ultimately the district 0:05:06.320 --> 0:05:09.560 attorney said, no, I can't find enough here to warrant 0:05:10.000 --> 0:05:15.239 going any further. Burrard would actually resign in March nineteen 0:05:15.360 --> 0:05:18.800 ninety six. So he had been at a CEO of 0:05:18.839 --> 0:05:21.560 Blockbuster for about a year and a half and he 0:05:21.760 --> 0:05:23.600 left the company. Where did he go, Well, he went 0:05:23.680 --> 0:05:27.040 to go join his buddy Huazinga and his new venture 0:05:27.120 --> 0:05:30.400 of Auto Nation, and then he actually followed along with 0:05:30.720 --> 0:05:34.120 some of Wazinga's other ventures. They would go from one 0:05:34.200 --> 0:05:36.480 company to the next, and he did pretty darn well 0:05:36.560 --> 0:05:40.240 for himself. Replacing Burrard as CEO would be a guy 0:05:40.360 --> 0:05:44.640 named Bill Fields. He had formerly been with Walmart. Fields 0:05:44.720 --> 0:05:47.800 of strategy was to push for Blockbuster to become an 0:05:48.200 --> 0:05:52.000 entertainment variety store. He started pushing for Blockbuster to open 0:05:52.080 --> 0:05:56.320 more stores in smaller markets like rural communities. He saw 0:05:56.440 --> 0:05:59.279 how Walmart had been a huge success by moving into 0:05:59.320 --> 0:06:01.520 these rural unit these and you thought Blockbuster could do 0:06:01.600 --> 0:06:04.920 the same thing. He also began laying off a bunch 0:06:05.120 --> 0:06:09.240 of middle management out of corporate headquarters. He he slashed 0:06:09.520 --> 0:06:13.120 lots of jobs while he was CEO, and that was 0:06:13.240 --> 0:06:17.280 to both streamline operations and to reduce costs. He began 0:06:17.360 --> 0:06:20.400 to push for Blockbuster to get more into video sales, 0:06:20.600 --> 0:06:23.520 not just rentals, and he wanted to take on his 0:06:23.640 --> 0:06:27.240 former employer Walmart in that regard. Walmart was the dominant 0:06:28.080 --> 0:06:32.480 UH merchant for videotaped sales at this stage. And he 0:06:32.560 --> 0:06:36.480 also wanted Blockbuster to offer other products and services, including 0:06:36.480 --> 0:06:39.800 the possibility of signing customers up for Internet service with 0:06:40.040 --> 0:06:43.440 partnered providers who worked with Blockbuster, or for offering up 0:06:43.480 --> 0:06:46.479 a PC upgrade service, so you would bring your computer 0:06:46.680 --> 0:06:51.400 in and a PC upgrade business would end up souping 0:06:51.520 --> 0:06:55.000 up your your system. Fields also had really big plans 0:06:55.080 --> 0:06:59.840 to customize the store experience for different regions. He actually said, 0:07:00.080 --> 0:07:02.640 and this is a quote, New York City will have 0:07:03.040 --> 0:07:09.720 much more sophisticated products than winder Georgia. Ouch dude, as 0:07:09.760 --> 0:07:17.080 someone who comes from rural Georgia, ouch New Yorker sophisticated 0:07:17.240 --> 0:07:23.040 products in Blockbuster headquarters would relocate again. Now you might 0:07:23.120 --> 0:07:26.160 remember in the first episode I talked about how Blockbuster 0:07:26.720 --> 0:07:29.920 started in Dallas, Texas and then moved from Dallas, Texas 0:07:29.960 --> 0:07:33.480 to Fort Lauderdale, Florida, because that's where Wazinga wanted to 0:07:33.520 --> 0:07:36.680 set up shop but now waszing his out. So Bill 0:07:36.800 --> 0:07:40.600 Fields decides to relocate the headquarters again. Now where are 0:07:40.640 --> 0:07:43.400 they going to move back to Dallas, Texas where it 0:07:43.480 --> 0:07:46.600 all started. However, one person would not go along with 0:07:46.720 --> 0:07:50.800 the company to this new headquarters, and that was drumroll, please, 0:07:51.920 --> 0:07:58.440 Bill Fields, the CEO, quit his job just thirteen months 0:07:59.040 --> 0:08:02.920 in that position. Here was this powerhouse of retail with 0:08:03.120 --> 0:08:05.440 huge plans for a Blockbuster, who now was going to 0:08:05.600 --> 0:08:08.560 step back. Why was he leaving? He said he wanted 0:08:08.600 --> 0:08:12.520 to get back to quote general retailing end quote. Now 0:08:12.600 --> 0:08:16.080 that caused major concerns in the company. So for one thing, 0:08:16.960 --> 0:08:20.440 Fields had hired a whole bunch of former Walmart executives 0:08:20.480 --> 0:08:24.000 to join him at Blockbuster. So the first fear is 0:08:24.080 --> 0:08:26.600 that while the Fields is leaving, are all of his 0:08:26.720 --> 0:08:29.600 hires going to leave too? Because that frequently happens if 0:08:29.640 --> 0:08:32.240 you have an executive come in, that executive ends up 0:08:32.320 --> 0:08:35.280 hiring his or her buddies or people that they know 0:08:35.559 --> 0:08:40.080 from a former company, and then that executive leaves. Frequently 0:08:40.120 --> 0:08:41.599 the other people will leave to They'll say, well, the 0:08:41.640 --> 0:08:43.559 whole reason why I came in here was because this 0:08:43.720 --> 0:08:46.400 person convinced me to, and now that they're gone, there's 0:08:46.440 --> 0:08:48.199 no reason for me to stay. So that was a 0:08:48.240 --> 0:08:51.720 big fear for another fear. According to The Sun Sentinel, 0:08:52.160 --> 0:08:56.280 thirty three of the forty top executives who are listed 0:08:56.320 --> 0:08:59.840 in blockbusters annual report that was filed in spring night 0:09:01.480 --> 0:09:05.840 had left the company by spring of n so nearly 0:09:06.040 --> 0:09:09.880 all of the top executives of the company had changed 0:09:10.520 --> 0:09:15.520 out of Blockbuster in just three years. Meanwhile, company financial 0:09:15.600 --> 0:09:18.800 reports were not in great shape either. The cash flow 0:09:19.200 --> 0:09:23.839 was down significantly. Viacom's share price had fallen twelve percent. 0:09:23.920 --> 0:09:29.240 Remember Viacom was the parent company, and the industrial average 0:09:29.320 --> 0:09:31.880 for the stock market was actually on the rise, so 0:09:32.760 --> 0:09:35.920 in general, companies were doing great on the stock market, 0:09:36.000 --> 0:09:39.120 and even when that was happening, Viacom's share was dropping 0:09:39.160 --> 0:09:42.240 twelve So Viacom announced it would sell off some of 0:09:42.280 --> 0:09:45.240 its stock and Blockbuster in order to pay towards Viacom's 0:09:45.280 --> 0:09:49.880 twelve billion dollars in debt. The move left many corporate 0:09:49.960 --> 0:09:54.160 employees confused at the relocation to Dallas because it was 0:09:54.240 --> 0:09:58.000 Bill Fields who had led that move to relocate the 0:09:58.080 --> 0:10:01.439 company from Fort Lauderdale back Dallas, Texas, and now he 0:10:01.640 --> 0:10:06.160 was leaving Blockbuster, but Blockbuster was still going to relocate. Now, 0:10:06.240 --> 0:10:09.160 not everyone can just pick up and move right. You 0:10:09.200 --> 0:10:11.719 can't just pick up your entire life and move to 0:10:11.800 --> 0:10:14.320 an entirely new state. Not a lot of people are 0:10:14.360 --> 0:10:17.000 able to do that. In fact, less than thirty percent 0:10:17.200 --> 0:10:22.000 of all corporate employees at Blockbuster headquarters chose to move 0:10:22.160 --> 0:10:26.520 with the company. That represents an enormous loss in knowledge 0:10:26.880 --> 0:10:31.400 and talent. It's a huge setback. People who have dedicated 0:10:31.480 --> 0:10:34.920 their time and efforts and their skill to that company 0:10:35.120 --> 0:10:39.000 were gone, and there was a huge void left. Meanwhile, 0:10:39.600 --> 0:10:43.680 the employees who decided not to go with the move, 0:10:43.760 --> 0:10:47.839 we're wondering, why the heck is the company relocating when 0:10:47.880 --> 0:10:50.880 the guy who made that decision wasn't even going to 0:10:51.120 --> 0:10:57.679 go there. It seemed counterintuitive. Jessica rief Cohen, who as 0:10:57.679 --> 0:11:01.640 an analyst for Merrill Lynch, estimated that Blockbusters value had 0:11:01.720 --> 0:11:05.800 dropped forty percent since it had merged with Viacom, and 0:11:05.920 --> 0:11:09.320 because Bill Fields was leaving, she estimated it was going 0:11:09.360 --> 0:11:12.280 to take at least a year or maybe a year 0:11:12.320 --> 0:11:15.440 and a half to turn things around, and that's assuming 0:11:15.640 --> 0:11:18.559 that Blockbuster could find the right leader to do it. 0:11:19.160 --> 0:11:22.199 There are also stories about Sumner Redstone, who was the 0:11:22.240 --> 0:11:26.319 head of Viacom, and his managerial approach, which, according to 0:11:26.480 --> 0:11:29.480 some people was a little bit on the authoritarian side. 0:11:29.960 --> 0:11:33.600 He was clearly unhappy with Blockbusters performance in the market, 0:11:34.000 --> 0:11:37.959 and it didn't help that while Blockbusters seemed to be floundering, 0:11:38.400 --> 0:11:42.960 Hollywood Video, its largest rival in the video rental industry, 0:11:43.480 --> 0:11:48.160 was reporting a modest sales gain. So Blockbusters doing really 0:11:48.240 --> 0:11:52.719 badly and it's the biggest fish in the pond. And 0:11:52.800 --> 0:11:55.200 then the next biggest fish is not doing badly at all, 0:11:55.400 --> 0:11:58.559 or doesn't It seems to be doing pretty well. So 0:11:58.720 --> 0:12:01.719 who was going to come in to Blockbuster to try 0:12:01.760 --> 0:12:04.719 and turn things around. Well, I'll tell you in just 0:12:04.880 --> 0:12:07.360 a moment, but first let's take a quick break and 0:12:07.480 --> 0:12:17.960 thank our sponsor. The next leader for Blockbuster who had 0:12:18.040 --> 0:12:21.720 the unenviable job of trying to write a listing ship 0:12:22.000 --> 0:12:26.079 was John Antiocho, and boy, his story is one that 0:12:26.160 --> 0:12:28.880 has been hashed over a lot in the business world. 0:12:29.000 --> 0:12:32.360 He's been raped over the coals multiple times, largely because 0:12:32.440 --> 0:12:35.959 in hindsight there appeared to be some enormous missed opportunities 0:12:36.040 --> 0:12:38.839 that might have saved Blockbuster. But the truth is a 0:12:38.920 --> 0:12:41.760 little more complicated than that, and I don't think that 0:12:41.800 --> 0:12:45.720 Antiocho should shoulder all the blame. He has some responsibility, 0:12:45.800 --> 0:12:49.800 but I really don't think that ultimately it was his 0:12:50.000 --> 0:12:54.880 leadership that doomed Blockbuster. Antiocho had spent twenty years working 0:12:55.160 --> 0:12:58.040 at seven eleven. He was someone originally who would move 0:12:58.080 --> 0:13:01.440 in to help failing stores recover, and ultimately he would 0:13:01.480 --> 0:13:04.120 get promoted to a vice president position at that company. 0:13:04.360 --> 0:13:06.839 He would later work for Pearl Vision, he worked for 0:13:06.960 --> 0:13:09.599 Circle caver A while he worked for Taco Bell for 0:13:09.720 --> 0:13:12.439 a while, and that's when Sumner Redstone reached out to 0:13:12.520 --> 0:13:15.080 him and said, would you like the role of CEO 0:13:15.200 --> 0:13:18.640 a Blockbuster? And Antiocho thought, well, here's an opportunity to 0:13:18.800 --> 0:13:22.800 try and really turn this company around. He walked into 0:13:23.040 --> 0:13:26.640 a seriously bad situation. The company's talent had been gutted. 0:13:27.240 --> 0:13:30.160 Store operations were suffering. As a result, stores were not 0:13:30.360 --> 0:13:33.280 getting the latest titles on their street date. That meant 0:13:33.320 --> 0:13:35.000 that you could go to a store and buy a 0:13:35.120 --> 0:13:37.880 video on its release date, but you couldn't find it 0:13:37.960 --> 0:13:41.000 in a blockbuster. That was not great either. One of 0:13:41.040 --> 0:13:43.640 Antioca's first big moves was to go to the movie 0:13:43.679 --> 0:13:47.280 industry and renegotiate the way things worked with them. So 0:13:48.040 --> 0:13:50.080 the way it had been working was that video rental 0:13:50.120 --> 0:13:53.719 companies would pay higher prices for copies of movies. So 0:13:54.080 --> 0:13:59.160 a cassette of a movie might cost sixty dollars. You know, 0:13:59.280 --> 0:14:01.000 you could go out buy it at a store for 0:14:01.120 --> 0:14:03.720 much less, but the video rental copies would be sixty 0:14:03.800 --> 0:14:07.480 five bucks. When you're buying hundreds or thousands of cassettes 0:14:07.600 --> 0:14:09.760 in order to build on an inventory, that adds up 0:14:09.840 --> 0:14:11.959 super fast. And I meant that the store would need 0:14:12.000 --> 0:14:16.920 to rent out a little around thirty times per title 0:14:17.040 --> 0:14:19.520 in order to earn back the investment made on that purchase. 0:14:19.640 --> 0:14:22.240 So you buy a movie for sixty five dollars, you 0:14:22.320 --> 0:14:24.560 need to you need to rent out that movie thirty 0:14:24.640 --> 0:14:27.120 times in order to make your investment back, and then 0:14:27.240 --> 0:14:30.320 from that point forward it's profit. And Tioko said, hey, 0:14:30.400 --> 0:14:32.560 I got I got an idea. Let's try something else. 0:14:33.000 --> 0:14:37.960 How about we buy your movies at a much lower 0:14:38.080 --> 0:14:41.960 rate like between one to four dollars per cassette. But 0:14:42.080 --> 0:14:46.280 in return, you will get a percentage of rental revenues, 0:14:46.360 --> 0:14:49.840 Like so we'll keep sixty percent of the rental revenues, 0:14:50.080 --> 0:14:52.800 you keep the other for the rental revenues. You get 0:14:52.840 --> 0:14:57.240 a smaller upfront fee for those movies, but there's a 0:14:57.400 --> 0:15:00.680 long tail revenue stream that will keep going for as 0:15:00.800 --> 0:15:05.480 long as the movie is being rented, And the more 0:15:06.000 --> 0:15:09.520 times the titles rented, the more money everybody makes. The 0:15:09.600 --> 0:15:12.360 movie studios came around to this idea. The movie the 0:15:12.440 --> 0:15:15.240 move also meant that a blockbuster could acquire a lot 0:15:15.320 --> 0:15:18.080 more cassettes this way, which was really important for new 0:15:18.200 --> 0:15:22.240 popular titles. So now what blockbuster would do is for 0:15:22.400 --> 0:15:24.520 the brand new titles when they would come out, they 0:15:24.560 --> 0:15:28.560 would purchase a huge number of those. They would flood 0:15:28.720 --> 0:15:31.520 their inventory with the newest titles. I remember walking into 0:15:31.640 --> 0:15:35.000 blockbusters around this era and looking at the wall and 0:15:35.120 --> 0:15:38.040 you would just see a a like half of a 0:15:38.160 --> 0:15:41.240 shelf taken up by a new title. So you might 0:15:41.320 --> 0:15:44.040 see a popular movie and it may even take up 0:15:44.080 --> 0:15:47.160 a full shelf depending upon the popularity. And it was 0:15:47.240 --> 0:15:52.680 largely because this renegotiation made this financially feasible, Blockbuster could 0:15:52.720 --> 0:15:55.160 almost guarantee that a new title was going to be 0:15:55.200 --> 0:15:57.360 in stock when you came by to rent it. That 0:15:57.520 --> 0:16:00.960 removed a big risk in this idea that you would 0:16:01.000 --> 0:16:03.200 show up to the video rental store only to find 0:16:03.240 --> 0:16:05.200 out the movie you wanted to rent was already out. 0:16:05.680 --> 0:16:08.760 Antiocho also chose to move Blockbuster out of some of 0:16:08.840 --> 0:16:11.960 the businesses it had just started to get into, including 0:16:12.000 --> 0:16:15.960 that PC upgrading business that Bill Fields really was pushing for. 0:16:16.280 --> 0:16:19.240 Antiocho felt that the company really needed to refocus on 0:16:19.320 --> 0:16:23.560 its core business of video rentals, and that diversifying really 0:16:23.640 --> 0:16:26.680 meant spreading the company out too thin, particularly in the 0:16:26.760 --> 0:16:29.480 wake of losing so many employees. They didn't have the 0:16:29.600 --> 0:16:33.720 experts expertise to keep all these other businesses afloat. But 0:16:33.880 --> 0:16:37.600 two things emerged there would be huge setbacks for Blockbuster, 0:16:37.960 --> 0:16:42.040 at least in the long run. One was the DVD format, 0:16:42.320 --> 0:16:46.200 which launched in the mid nineteen nineties. Movie studios were 0:16:46.200 --> 0:16:49.480 selling DVDs at twenty bucks or less per title, and 0:16:49.600 --> 0:16:52.120 that created a high adoption rate for movies, and that 0:16:52.320 --> 0:16:56.160 undercut rentals, Especially when you have a customer who says, well, 0:16:56.240 --> 0:16:59.600 I could rent this movie on VHS and watch a 0:16:59.680 --> 0:17:03.120 magnet the film transfer. Or I could buy a DVD, 0:17:03.560 --> 0:17:08.600 an optical transfer that's at a higher resolution, better quality picture, 0:17:08.720 --> 0:17:13.080 better quality sound, and I can own it for less 0:17:13.080 --> 0:17:16.000 than twenty bucks. So we started to see a big 0:17:16.119 --> 0:17:19.040 dip in the video rental industry as a whole once 0:17:19.119 --> 0:17:21.520 DVDs came out like this. The other big thing that 0:17:21.640 --> 0:17:25.000 emerged in though at the time when it emerged it 0:17:25.119 --> 0:17:27.159 wasn't a big thing. It would just become an enormous 0:17:27.240 --> 0:17:32.000 thing was a company called Netflix. I have to do 0:17:32.080 --> 0:17:35.600 a full episode about Netflix as it has become such 0:17:35.640 --> 0:17:38.560 a major player in entertainment now that it produces so 0:17:38.680 --> 0:17:43.040 much original content. But back in read Hastings and Mark 0:17:43.160 --> 0:17:46.919 Randolph co found this brand new company, and their business 0:17:46.960 --> 0:17:51.159 plan originally was to act as merely an online DVD 0:17:51.320 --> 0:17:53.359 rental company. They still do this, by the way, but 0:17:53.480 --> 0:17:57.040 this was their only business when they first started. So 0:17:57.160 --> 0:17:59.680 the way it works is you would create a membership profile, 0:18:00.040 --> 0:18:03.440 you would subscribe, you select a plan, whatever that subscription 0:18:03.520 --> 0:18:07.320 plan is. They introduced different subscription plans about a year 0:18:07.400 --> 0:18:11.040 after they started really getting into business. You would log 0:18:11.119 --> 0:18:14.399 into Netflix's system, you would choose which titles you wanted. 0:18:14.720 --> 0:18:17.920 They would ship those titles to your mailbox and it 0:18:17.960 --> 0:18:20.320 would come along with a return envelope. So as soon 0:18:20.359 --> 0:18:22.359 as you were done watching, you slipped the disk in 0:18:22.400 --> 0:18:24.800 the return envelope, throw that back in the mail and 0:18:24.880 --> 0:18:28.240 you're done. The company began renting DVDs in that way 0:18:28.320 --> 0:18:31.520 in and the following year. That's when it would offer 0:18:31.640 --> 0:18:35.639 up the unlimited DVD rental plan for a monthly membership fee, 0:18:36.040 --> 0:18:39.359 And in two thousand Hastings would meet with some of 0:18:39.400 --> 0:18:43.399 Antiocho's people over at Blockbuster. But more on that in 0:18:43.520 --> 0:18:47.480 just a second. Blockbuster, however, did not jump on the 0:18:47.600 --> 0:18:50.480 DVD bandwagon right away. In fact, it held back for 0:18:50.600 --> 0:18:54.400 several years, so DVDs debut in the mid nineties. Blockbuster 0:18:54.600 --> 0:18:59.399 committed to start carrying DVDs in ninete, but it did 0:18:59.480 --> 0:19:02.560 so in a pretty slow adoption rate, and it would 0:19:02.640 --> 0:19:07.160 not really commit fully to DVDs until two thousand two, 0:19:07.760 --> 0:19:11.920 all right back to the late nineties with Blockbuster. In 0:19:12.040 --> 0:19:16.320 ninety Viacoms sold off Blockbuster Music for a hundred fifteen 0:19:16.400 --> 0:19:20.000 million dollars because the music business just wasn't working out 0:19:20.040 --> 0:19:23.280 for a Blockbuster and Viacom executives had grown impatient with 0:19:23.440 --> 0:19:26.160 the low performance. They just felt that it wasn't worth 0:19:26.320 --> 0:19:27.800 keeping it around, so they sell it off for a 0:19:27.920 --> 0:19:32.199 hundred fifteen million. Blockbuster meanwhile closes some stores, a lot 0:19:32.240 --> 0:19:35.840 of them in international markets, and Viacom was starting to 0:19:36.080 --> 0:19:40.480 get a little concern because Viacom had been relying on 0:19:40.560 --> 0:19:44.000 Blockbuster to provide cash flow to help pay off debt 0:19:44.119 --> 0:19:48.880 and fund acquisitions. But now Viacom found itself having having 0:19:48.960 --> 0:19:52.880 to fund money to Blockbuster, so it was no longer 0:19:53.080 --> 0:19:55.239 getting money from Blockbuster. Now it was having to kind 0:19:55.240 --> 0:19:59.600 of help keep Blockbuster afloat. That was not very attractive 0:19:59.640 --> 0:20:03.639 to via Calm executives. In August, Viacom held an i 0:20:03.720 --> 0:20:07.879 p O of a percentage of its stock and this 0:20:08.040 --> 0:20:10.640 was all a cash raising strategy. They thought, well, we'll 0:20:10.720 --> 0:20:13.520 raise some quick cash. We'll sell off about eight of 0:20:13.600 --> 0:20:16.399 the stock we have, and then we will will make 0:20:16.480 --> 0:20:18.679 money that way. And they thought that the shares were 0:20:18.680 --> 0:20:22.520 going to trade somewhere between sixteen and eighteen dollars. In reality, 0:20:22.560 --> 0:20:26.080 they traded at fifteen dollars, so they didn't make nearly 0:20:26.119 --> 0:20:30.040 as much money as they had hoped. Also, in another 0:20:30.119 --> 0:20:32.639 giant one that I've actually covered in previous tech stuff 0:20:32.640 --> 0:20:36.080 episodes got into Blockbusters grill in the big way. That 0:20:36.240 --> 0:20:39.480 company was Amazon. So now we have Jeff Bezos and 0:20:39.720 --> 0:20:42.400 Read Hastings both chomping at the bit to carve into 0:20:42.440 --> 0:20:46.520 the same market that Blockbuster was really after. Amazon was 0:20:46.600 --> 0:20:50.879 not interested in renting videos unlike Netflix, but it did 0:20:50.960 --> 0:20:55.439 expand beyond selling books to include other items like DVDs 0:20:55.480 --> 0:20:58.680 and sold them for a very low price. So now 0:20:59.640 --> 0:21:01.159 you could see a lot of find a lot of 0:21:01.200 --> 0:21:04.200 those same titles over at Amazon for a price that 0:21:04.359 --> 0:21:06.359 was not that different from the rental fee that you 0:21:06.400 --> 0:21:08.760 would incur, especially when you put it on top of 0:21:08.840 --> 0:21:12.040 a membership fee at a Blockbuster, so that really ate 0:21:12.119 --> 0:21:16.160 into their their business as well. Andiogo didn't did see 0:21:16.240 --> 0:21:20.600 that home delivery and streaming services would poise either a 0:21:20.680 --> 0:21:23.760 great opportunity for Blockbuster or a threat to the company, 0:21:24.520 --> 0:21:28.560 and he tried to take steps to build out Blockbusters 0:21:29.359 --> 0:21:34.800 capabilities to enter into those fields, but he he had 0:21:34.880 --> 0:21:38.520 some resistance from Viacom. He also just had the problem 0:21:38.640 --> 0:21:41.280 of the fact that he was presiding over a company 0:21:41.359 --> 0:21:44.720 that still was was kind of teetering from that massive 0:21:44.800 --> 0:21:49.359 loss of talent in he led Blockbuster to form a 0:21:49.520 --> 0:21:53.600 three year partnership with America Online, the online service provider. 0:21:54.080 --> 0:21:57.119 Blockbuster would become a premier home video provider for a 0:21:57.240 --> 0:21:59.959 o l's entertainment channel, and a o L would make 0:22:00.119 --> 0:22:04.040 a thirty million dollar investment in Blockbuster and Antiocho began 0:22:04.119 --> 0:22:09.280 to explore options for broadband content and delivery, but internet 0:22:09.320 --> 0:22:11.480 speeds in those days were not what they are today, 0:22:11.560 --> 0:22:14.520 so streaming video was largely seen as being too ambitious 0:22:14.600 --> 0:22:17.560 for what passed as the standard and internet speeds at 0:22:17.600 --> 0:22:20.760 that time. In two thousand, we have that meeting I 0:22:20.840 --> 0:22:24.440 mentioned earlier between Read Hastings and some of Antiocho's people. 0:22:24.720 --> 0:22:27.680 So the head of Netflix and some of the folks 0:22:27.720 --> 0:22:30.800 over at Blockbuster. So what was going on. Well, Read 0:22:30.840 --> 0:22:34.840 Hastings was willing to sell Netflix to Blockbuster for the 0:22:35.080 --> 0:22:41.080 princely sum of fifty million dollars, but Blockbuster says no deal. 0:22:41.680 --> 0:22:44.440 Apparently they thought Netflix was kind of a small time 0:22:44.480 --> 0:22:46.840 player in a niche market. They had seen that Netflix 0:22:46.920 --> 0:22:50.840 was struggling to really make money, but it was early 0:22:50.920 --> 0:22:54.960 days for Netflix. But let's flash forward today just for 0:22:55.040 --> 0:22:58.640 a quick second. Blockbuster is all but gone. It's it's 0:22:59.000 --> 0:23:03.960 really it exists kind of in name only. At this point. Netflix, however, 0:23:04.080 --> 0:23:06.680 has a market cap of a hundred fifty one point 0:23:06.800 --> 0:23:13.360 five eight billion dollars. But then again, hindsight is still 0:23:14.560 --> 0:23:19.560 double yikes. So instead of this Netflix deal, Blockbuster decides 0:23:19.600 --> 0:23:23.160 to sign a twenty year video on demand exclusive deal 0:23:23.400 --> 0:23:28.280 with a broadband services company. That broadband services company belonged 0:23:28.320 --> 0:23:32.640 to a company called Enron. Now you might have heard 0:23:32.720 --> 0:23:36.840 that name because en Ron employees got up to some 0:23:36.920 --> 0:23:40.840 pretty serious shenanigans, and by employees, I mean executives, and 0:23:40.880 --> 0:23:45.159 by shenanigans, I mean really illegal activity. Blockbuster ended up 0:23:45.240 --> 0:23:49.560 scuttling the deal just nine months after the ink had dried, 0:23:50.400 --> 0:23:55.600 so didn't go in Netflix, they did go within Ron ouch. Also, 0:23:55.680 --> 0:23:59.199 in two thousand, nearly eight hundred million dollars that Blockbuster 0:23:59.560 --> 0:24:03.040 takes in that year would come from late fees, So 0:24:03.200 --> 0:24:06.000 late fees would account for nearly sixteen per cent of 0:24:06.119 --> 0:24:09.400 the revenue of the company, and as services like Netflix 0:24:09.440 --> 0:24:12.440 would offer up rentals without late fees, Blockbuster would see 0:24:12.440 --> 0:24:15.600 a steady decline in rental revenues. In two thousand one, 0:24:15.680 --> 0:24:19.159 they would end up changing their minds about rental fees 0:24:19.400 --> 0:24:22.600 and late fees rather, and that becomes a whole mess 0:24:22.600 --> 0:24:25.600 I'll talk about in just a second. Blockbuster had also 0:24:25.680 --> 0:24:29.280 committed to that DVD format back in really started to 0:24:29.320 --> 0:24:32.560 convert to all DVDs and stores by two thousand two, 0:24:33.200 --> 0:24:35.960 and two years later in two thousand four, they finally 0:24:36.080 --> 0:24:39.680 launched an online DVD rental programs similar to what Netflix 0:24:39.720 --> 0:24:42.119