Back in 2005, Blockbuster Video was a juggernaut of a company, and a small upstart called Netflix was rapidly growing into its space. That was also the year I tried Netflix, then enthusiastically went back to Blockbuster because they had the better deal.
Netflix proved to have a more solid foundation than Blockbuster thought. Less than three years later I canceled “Blockbuster Total Access” and switched to Netflix. I wrote back in 2008, “I think a lot of other people are doing the same.” Blockbuster couldn’t keep offering a better deal than Netflix while continuing to make money. So what happened?
Here is a post-mortem timeline for Blockbuster that I wrote back in January 2008:
- 2005 – We signed on with Blockbuster online. 1 DVD at a time unlimited rentals by mail for the same price as Netflix (I think $8.95/month). But Blockbuster also gave out two coupons toward free in-store rentals per month. So we chose Blockbuster.
- November 2006 – Blockbuster introduces Total Access, where for no extra charge we get unlimited in-store exchanges. Netflix is no match for this deal, nor do they have the resources to do anything about it. I tell anyone who asks to go with Blockbuster.
- December 2006 – Blockbuster sweetens the deal by giving out one free game rental per month to Total Access members. Awesome! I have no idea why anyone would want to go with Netflix.
- March 2007 – Blockbuster’s stock price hits a high of $7.30 per share, double what it was five months before, as investors revel in how sweet Blockbuster is compared to Netflix.
- May 2007 – Blockbuster reports significant losses, as they find out that Total Access is costing them millions of dollars. Netflix smiles.
- August 2007 – The beginning of the end. Blockbuster raises prices, limits free in-store rentals, and takes away free game rentals. I start browsing the Netflix website on my spare time.
- November 2007 – Blockbuster continues to bleed through Total Access as they announce another several million dollars in losses.
- December 2007 – Blockbuster’s stock loses almost 60% of its value in 9 months, hitting a low of $2.99 per share. We sign up for the Netflix free trial. Blockbuster announces that they will increase their prices again by quite a bit (my plan went up 20% in price). Furthermore Blockbuster announces that they will no longer compete with Netflix so that they can concentrate on their stores. That was the death knell. We decided to keep Netflix and cancel Blockbuster. Netflix wins. Blockbuster loses. At least with the higher prices, Blockbuster can increase margins and prolong the life of their company (as in, having a long, painful death instead of dying swiftly in battle).
The moral of this story: it’s worse to give customers something and take it away from them than to just not give it to them in the first place.
Blockbuster is still around in 2016, despite exaggerated rumors to the contrary. But it is dying the “long, painful death” I predicted in 2008.
- 2008 – Blockbuster attempted to buy Circuit City, but later withdrew their offer when investor Carl Icahn asked them to look into Circuit City’s financials first. Circuit City went bankrupt in 2009.
- 2010 – Blockbuster declares bankruptcy.
- 2011 – Dish Network purchases Blockbuster. Most of the stores are shuttered.
- 2014 – The last corporate-owned Blockbuster stores are shut down. About 50 franchise-owned stores remained open.
- 2015 – Dish Network retired the Blockbuster brand name and referred customers to Sling TV.
- 2016 – 19 Blockbuster stores remain open in the United States.
- 2017 – 12 Blockbuster stores in the United States and 27 in Australia remain open (source)