I bet you didn’t know that up until March 2018, Blockbusters (yes, the failed video rental chain) had seven remaining stores open. Four in Alaska, two in Oregon and one in the North Pole. This may seem bizarre but some locations have remained important in remote areas, where high-speed Internet isn’t widespread. I say ‘up until March 2018’ because I’m saddened to report that during March the liquidation sale started of the North Pole store and the closure was announced via their Facebook page.
It’s one hell of a change in fortunes for Blockbuster, and despite the story being relatively well known, I believe it’s a great example to learn from and avoid at all costs. This is something I go into in detail within my new book ‘Powered By Change’, but here’s an outline in advance of getting into how to avoid your very own ‘Blockbuster Moment’.
In 2004 the American DVD-rental chain Blockbuster consisted of nearly 60,000 employees in more than 9,000 stores globally. Millions of people daily would visit a Blockbuster store and rent a movie. One of the primary sources of revenue was late return penalties, made possible due to the requirement of physically returning the movie back into a store. But the rise of the World Wide Web meant that people had already started to adjust the way they bought and experienced entertainment, and with the launch of iTunes in 2001 the transformation in the way that people acquired music really took hold. In the DVD-rental market, it was clear that online formats would not hold the same opportunity for late return penalties. However, despite this very clear wind of change, Blockbuster maintained its wall with all its might.
Then the story gets really interesting. In 2001, Reed Hastings, founder of Netflix, flew to Dallas to propose a partnership to Blockbuster chief executive and his team. What Hastings proposed was that Netflix would run the online version of Blockbuster and in return, Blockbuster would promote Netflix in-store. The board was receptive to the idea until a member of the executive team, pointed out that the proposed changes would probably cost Blockbuster $200m in the loss of charging late fees for physical rentals and another $200m in the branding costs of launching Blockbuster online. Ultimately, the Blockbuster board decided to reject the opportunity and reportedly laughed Hastings out of the office. Hastings returned to Netflix, which continued to develop a service that avoided retail locations, lowered operating costs, and offered its customers far greater variety and choice. Instead of charging to rent videos, it offered rolling subscriptions, which made annoying late fees unnecessary. Customers could watch a video for as long as they wanted or “return” it and get a new one.
At this stage, Blockbuster did what many organizations do, and considered all of these changes that were starting to trickle through the market to be a low threat. They felt that people would take a long time to adjust to a totally new way of renting movies and continued to bet on their existing model due to its historic success. Now, as we know, there are six stores left. Game over.
The learnings I believe we need to gain from this, to avoid a similar fate, are as follows:
- It’s highly likely that a business or business model that could disrupt you, already exists. Try and seek that out. Don’t, under any circumstances, feel that you are unbeatable and that past successes are somehow a predictor of future success.
- If you see something as a low threat, that should immediately raise a red flag. Examine the lowest threats more than the highest threats. Disruption doesn’t live in the open, it’s under the floorboards, it’s in the dust clouds.
- Take a long-term view as to the cost of change. Ultimately the benefit has to outweigh the cost of change, and also the cost of not changing. It is the latter that many companies fail to incorporate.
- Rather than wait to be disrupted, be the disruptor yourself. Why do you think Amazon created Kindle and damaged physical book sales? Or Apple created the iPad and damaged laptop sales? The best way to predict the future is to create it.
Hopefully these will add clarity in how to avoid your own ‘Blockbuster Moment’. In the meantime, whilst it’s still online, do check out the North Pole Blockbuster page. The most tragic thing for me is that you can see in the comments that people really did value the store – it was a main source of entertainment. Sadly, they care more about the survival of Blockbuster than the senior executives did 17 years ago. Such a shame.
Jonathan MacDonald is an international speaker on managing perpetual change and founder of the Thought Expansion Network (www.ten.io). His new book, Powered By Change, can be ordered here www.poweredbychange.com