BlockBuster Vs Netflix
Becoming super successful in businesses don’t ever come easily. It comes with its hurdles of failures and setbacks, wars with competitors, government and even customers. How many react can be the sole difference between death and survival.
I somehow stumbled on some podcast shows while also reading some books. The shows do justice to how the biggest brands were able to surf the ocean of uncertainty, engage in fierce competition and overtake the big players.
This write up was inspired by @businesswars
So, In the spirit of influencing business decisions through successful and failed companies, I’ve decided I’ll be posting write-ups about the @businesswars shows with additional researched contents to get you inspired as much as the show does.
The purpose is so as we can relate, share ideas, and make useful, some gained strategies and knowledge used by some of the well known iconic businessmen to survive their businesses.
The Death of Blockbuster
The name Netflix sure sounds familiar to you but, Blockbuster? Well, I’m not sure. one thing I’m sure of is blockbuster was at a time, an unrivaled giant.
Netflix, founded on August 29, 1997, exists today as an on-demand streaming service providers watched by millions of subscribers all over the world. Netflix didn’t start as a video streaming provider, they’ve pivoted all along, competing with industrial giants, spilling economic blood and leaving companies for dead. Back, Netflix started more as a glorify imitation of Blockbuster. Blockbuster? Well, if you grow up in Lagos in the pre-millennia and early millennia age, you’ll surely know what Blockbuster does. Blockbuster is a video rental company with thousands of shops around the united state of America. Customer visits blockbuster shops, review list of available movie, pay, watch and then return. Just like with the traditional video rental business in Nigeria, customers pay fine on late returns.
Reed and Marc Randolf kickstarted Netflix back in 1997 after Reed claims he was charged $40 on a late fee. Hasting is a Standford university computer science major. a deft programmer with a mind for business.
Reed and his team went a step further ahead of blockbuster by creating an online presence where the customer could order for DVD while it gets delivered to them. This was the difference for customers as they could easily search NetFlix available list of movies and make choices which are delivered to them.
This strategy happens to be a major one for Netflix to poke away thousands of blockbuster customer and turn them to Netflix evangelist.
While the strategy works wonder, credit has to be given to Reed for not just building a website for DVD ordering. Reed hasting deployed his years of computer science knowledge into building a complex, business-sensitive algorithm that predicts the choice of movies for every customer, customizes each customer page based on movie watched and predict to Netflix how to manage distribution with the lowest possible resources. Data from Netflix website serves as decision-maker for different Netflix store on how distributions can be made faster without compromising customers need. This simply is the reason most Netflix customer are so loyal and a bit addictive.
Blockbuster, led by John Antioco, A business prodigy, make annual revenue of $6b but, all wasn’t rosy. Viacom a major investor in blockbuster claims a $5 per share dividend. With the Netflix threat, Antioco knows he needs all cash on the table to push Netflix to the brink. in 2004, The chain between Viacom and blockbuster was finally broken. Unfortunately, leaving blockbuster with a $1.2b debt. With this state, it becomes unclear how to fight back the fledging Netflix already gliding.
Antioco knows he needs to move faster and transition blockbuster online, buy close competitors, Hollywood video right before further nemesis caught up.
to do all these, he needs the money and he needs them fast to undo the technological advantage that has taken Reed and his team to the pinnacle of success. So, he seeks after Carl Icahn, one of the great American businessmen and investor. Carl Icahn is known for buying undervalued companies, raising cash and inviting other investors to improve share price and then exit through private equity.
Antioco idea of buying Holywood video and a strategic plan for blockbuster online was able to convince Carl Icahn to invest 150 million worth of blockbuster stock and 60 million in the faith sealed Holywood deal. Unfortunately, Antioco was out-bidded by another company leaving Antioco to graceful step aside given the economic state of the company. As expected, this got Carl Icahn excessively furious and devastated. He demands a sit on the board and threatens to throw Antioco off the company.
While Antioco and Icahn engage in internal fury in Blockbuster, Reed and Netflix shares soar. Reed boasts and publicly taunt blockbuster of their technological superiority.
While Reed is known to be a public crow who seizes every opportunity to downsize competition, Antioco, and his team prefers to play low. Their game is about to catch Netflix unaware and in a corner.
In 2004, while Netflix was announcing yearly earning statistics to a group of wall street journalists over a tapped conference call where he describes blockbuster competition against Netflix as Amazon against a minor. Antioco was waiting for just the right time to launch blockbuster new Netflix nemesis, Blockbuster online.
Prior to this day, Antioco has empowered Shane Evangelist, general manager of blockbuster online, to do anything possible to build a better clone of Netflix for Blockbuster. Antioco gave Shane $25m to do anything to catch up with Netflix. Shane was just 28 years old with little tech knowledge to match Reed hasting. But, what Shane lacks in knowledge, he has in drive and determination. He could motivate people to do anything he asks and this is the reason he was given the freedom to flow with the whopping $25m in the first place.
When blockbuster released blockbuster online, Netflix sale plummeted in the wall street while Reed was declaring Netflix quarterly earning. Amused by this illusion, he seeks why share drops rather than increasing when positive news of earnings was being aired. Well, not for long, he finds out the dreadful news of blockbuster online. He picks his laptop, hitting some keys and finally lands on the page. Reed was left flabbergasted by what he sees. This is not just a fight against Blockbuster, this is a fight against ourselves. Blockbuster has completely replicated the Netflix website, layouts and everything the eye could see with the only difference being the theme.
Although Blockbuster online was a major milestone for Antioco and Shane Evangelist, doing what took Reed and his team 7 years to build for just months would later come with its own head of horror. Shortly after launch, website crashes on mass traffic and users were infuriated. Shane wanted a new way to get user loyalty and resolve to mass digital marketing, creating showboat advertisement which ultimately improves sales by 750k new subscriber, doubling its userbase. but, the euphoria was short-lived after receiving a letter from Reed of Netflix thanking the blockbuster team for helping them grow 118% in that quarter. Shit! that was more like shooting an arrow to a bird in the air only to get hit on landing.
Well, that was mean. The only fair thing is Blockbuster is now in the same race as Netflix and what Netflix doesn’t realize is that blockbuster has only just short a gun which narrowly missed its target, they have a Bazooka waiting to unleash. Soon after the launch of blockbuster online, Antioco and his team release a program called Total Access. Total access let blockbuster customers return booked DVDs from the blockbuster online to one of its 7000 shops across America and get a free DVD again. wow! This is the Bazooka and it hit Netflix hard, really hard. Netflix loses customer every day as the incentive and convenient was too pleasant to ignore. Thanks to Total Access, Blockbuster was adding 25K subscriber every day while Netflix shares drop and customer retention hit its nadir.
In theory, Total Access might be the knockout blockbuster needs to outwit Netflix but in reality, what seems like a glowing strategy was backed by a blood-sucking demon. Blockbuster was losing $2 for each customer that uses Total Access. What Antioco and his team at Blockbuster believe is this: If, only if they could bear the lost, they’ll go toe on toe with Netflix until it loses all its customer and file for bankruptcy. On the other hand, Investors and board at Blockbuster rage with reports of loses over loses. Carl Icahn begins plotting an exit door for Antioco believing there should be another way to fight Netflix without being a casualty of imminent death. Antioco tries to put the board in sync explaining with their 25k daily growth and a userbase of 4M, Blockbuster only need 2M more to break even. He endures the board to be patient while the inflicted pain on Netflix makes it wither and die.
At the other end, Reed admits Netflix and Blockbuster need to put an end to the hemorrhage threatening to kill both companies. He knows no matter how blockbuster online tries, they can’t just be Netflix. So, he called a private meeting with Antioco and proposed to buy Blockbuster online 4M subscriber for $200 per subscriber. As expected, Antioco rejected knowing Blockbuster will soon burst Netflix and start to thrive again.
While the public Netflix Blockbuster saga rages on, internal burst between Antioco and Carl Icahn becomes intense. Antioco finally resigns as CEO and huge Shane Evangelist to press on hitting the 6m userbase to break even.
Carl Icahn and the board appoints Jim Keyes, a corporate executive with an Anti-Antioco strategy.
In the bit to reduce the bleeding, he summons Shane Evangelist and orders a slash in the $450m marketing budget of total access and blockbuster online. This literally implies axing the part of blockbuster that poses the biggest threat to Netflix and rolling back the company to the old days of video rental. Shane Evangelist, the general manager of blockbuster online resigns after a while and in 2010, Blockbuster was file for chapter 11 bankruptcy protection.
Netflix is everywhere today but as of 2018, just one of the once 7000 blockbuster stores still survives in the united state.
Lots of industry experts attribute the decline of Blockbuster to poor leadership and decisions.
