(Blog)

Wayne Huizenga founded Blockbuster Video, whose first store opened its doors on October 19, 1985, and sold it to Viacom in 1994. That’s where the beginning of the end started for Blockbuster. Through its mismanagement and eventual decoupling, Viacom managed to run Hollywood’s once-darling Blockbuster into the ground in one decade.

Blockbuster Video originally had a lucrative profit-sharing deal with Hollywood, wherein Blockbuster would rent out new movies before they were available for sale to the public in exchange for a 40% cut. This was when the motion picture industry was just beginning to realize that there was more money in renting or selling movies than selling movie tickets. When Blockbuster was offered the chance to carry over this deal to DVD rentals, Blockbuster’s management declined. It was 1998, cheap DVD movies proliferated like crack, and consumers learned to buy instead of rent. It was also the year Netflix began offering mail-order rentals.

Over the next few years, Blockbuster found itself relying on revenues from its late fees, and the industry moving away from the practice of charging late fees to offering flat-rate monthly rentals and its old profit-sharing deal vanished with the decline of VHS tapes. Netflix, once just another dot-com, was now at the forefront of the new rental paradigm, and stealing away Blockbuster’s customers 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 for Blockbuster Video, and Viacom was simply jumping off the sinking ship they’d caused to sink. Forced to eliminate its late fees and spend a fortune launching a weak online service to compete with Netflix, Blockbuster was bleeding fast: 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’s revenue comes from ticket sales these days). The future is watching first-run movies on your television, via the Internet, and Netflix is poised (and promises) to offer Internet downloads when the technology is ready; Blockbuster is not. If their stock sinks any further (and there’s no reason for it not to), Blockbuster Video likely won’t even remain solvent past this year.

Step inside your local Blockbuster now, for it may be the last time you get the opportunity to. Of course, I don’t know a single person (customer or employee) with especially fond memories of Blockbuster. Its business-model was anti-consumer, its management short-sighted, and its competition just the opposite. 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>.