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January 9, 2006

Blockbuster Video, 1985-2006

Filed under: business — Alfonso Surroca @ 10:12 pm

Wayne Huizenga founded Blockbuster Video, whose first storeopened its doors on October 19, 1985, and sold it to Viacom in 1994. That'swhere the beginning of the end started for Blockbuster. Through itsmismanagement and eventual disavowal, Viacom managed to run Hollywood's once-darling Blockbuster into theground. In just one decade.

Blockbuster Video originally had a lucrative profit-sharingdeal with Hollywood,wherein Blockbuster would rent out new movies before they were available forsale to the public in exchange for a 40% cut. This was when the motion pictureindustry was just beginning to realize that there was more money in renting orselling movies than selling movie tickets. When Blockbuster was offered thechance to carry over this deal to DVD rentals, Blockbuster's managementdeclined. It was 1998, cheap DVD movies proliferated like crack, and consumerslearned to buy instead of rent. It was also the year Netflix began offeringmail-order rentals.

Over the next few years, Blockbuster found itself relying onrevenues from its late fees, and the industry moving away from the practice of charginglate fees to offering flat-rate monthly rentals and its old profit-sharing dealvanished with the decline of VHS tapes. Netflix, once just another dot-com, wasnow at the forefront of the new rental paradigm, and stealing away Blockbuster’scustomers by the hundreds of thousands (and eventually, millions).

In 2004, Viacom sold off its ownership of Blockbuster,spinning it off once more into its own company. It was already too late forBlockbuster Video, and Viacom was simply jumping the sinking ship they’dplugged a gaping hole in years earlier. Forced to eliminate its late fees and spenda fortune launching a weak online service to head off Netflix, Blockbuster wasbleeding red: It was now losing almost $1 billion annually. For comparison, MovieGallery/Hollywood Video made $2.5 billion in revenue in 2004.

Nowadays, even the movie theaters are running on thin ice,as they are less and less a source of revenue for the motion picture industry(only about 14% of Hollywood’srevenue comes from ticket sales these days). The future is watching first-runmovies on your television, via the Internet, and Netflix is poised (andpromises) to offer Internet downloads when the time comes; Blockbuster is not. Iftheir stock sinks any further (and there’s no reason for it not to), Blockbuster Video likely won’teven remain solvent past this year.

Step inside your local Blockbuster now, for it may be thelast time you get the opportunity to. Of course, I don’t know a single person (customeror employee) with especially fond memories of Blockbuster. Its business-modelwas anti-consumer, its management short-sighted, and its competition just theopposite. Is anyone surprised Blockbuster Video’s days are numbered?

Resources:

Epstein, Edward Jay. "Hollywood's New Zombie: The Last Days ofBlockbuster." Slate 09 Jan 2006. 09 Jan 2006 <http://www.slate.com/id/2133995>

Epstein, Edward Jay. "Downloading for Dollars: TheFuture of Hollywood has Arrived." Slate 28 Nov 2005. 09 Jan 2006<http://www.slate.com/id/2131124/>.

"Netflix." Wikipedia. 09 Jan. 2006<http://en.wikipedia.org/wiki/Netflix>.

"Blockbuster Video." Wikipedia. 09 Jan. 2006<http://en.wikipedia.org/wiki/Blockbuster_Video>.

"Hollywood Video."Wikipedia. 09 Jan. 2006 <http://en.wikipedia.org/wiki/Hollywood_Video>.

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