Oh, how the mighty have fallen

Blockbuster, the one-time business growth success story and king of the video industry, is heading into bankruptcy.

Although the company’s fall has steadily been in the works for years, it will become a classic text book example of how new, disruptive technologies can take down what seemed like an invincible business giant. What happened is pretty simple. While this industry leader continued to expand by opening dozens and dozens of new video stores around the country, upstarts like Netflix understood that the entire model supporting video distribution was about to change forever. Because of this, it innovated by bridging the gap by offering consumers a better distribution method (receiving DVD’s through the mail) and more importantly, it understood that the creation and distribution of content via the web would soon trump everything else. So, it signed a variety of deals to secure content partnerships where consumers could stream online video so much easier.

Then, of course, we all became customers of Amazon and Apple because their customer-centric content offerings brought that much more convenience to consumers across the globe.

Blockbuster is a victim of its own success. It failed to see these emerging trends. And, while the company also made a variety of bad decisions along the way, ultimately, it just waited too long to jump aboard this bandwagon. That lack of strategic vision, foresight (or just plain complacent attitude) made Blockbuster an extremely late entrant into a competitive field. Thus, it never could capture significant market share, all the while it continued to consistently plummet with its traditional video business.

Clayton Christenson, the renown author of Innovator’s Dilemma, professor at Harvard Business School (and a former Peppercom client), wrote a lot about how companies need to constantly look into the future to understand the power of new game changing technologies. He believed that the difference between success and failure was pretty simple. These technologies could be leveraged to reinvent or change companies’ business models to meet the coming demands of consumers. In these cases, upstarts like Google, Netflix or Amazon could actually topple their largest and most successfully long standing competitors. Or, these technologies would only serve to disrupt and ultimately kill those businesses because they became irrelevant to their customers.  

My guess is that Clayton (or some other professor) at Harvard Business School will be discussing Blockbuster in class today, as a prime case in point of how disruption worked this very week.

Comments

[michael]

I was in the home video industry (as it was called 15 years ago), and I serviced independent stores that were unsuccesfully competing against Blockbuster. The giant will be a smaller version of its former self, to be sure. And I have to say I will miss it. You have to credit that brand for mass marketing the evolution of home entertainment - watching what you want, where you want, when you want. Blockbuster democratized the movie rental experience in a way VHS manufacturers, fragmented cable operators and mom/pop video stores could not. Their seeming endless breadth and depth of titles kept consumers renting 6-9 movies a weekend,training us to consciously pay big dollars every day for a category that was practically non-existent beforehand. I'm convinced that paved the way for DVDs, flat screens, TiVo, Netflix, even modern day game consoles, and the capital needed to fund all of those ideas. It's a shame Blockbuster entered so few of those businesses. That would have put a real wrinkle into modern business history.

[Steve]

A question is whether the pace of technological change has gotten so fast that it may be almost impossible to create profitable businesses in some areas or fields. After all, it takes time--and money--to create products, obtain market penetration, build organizations, etc. If technological cycles in media and computer-related technology compress too far, there may not be time for a business to recoup its investment and turn a profit before it is obsolete.

For example, consider dedicated e-book readers like Barnes & Nobels Nook or even the Kindle--they may be obsolete before they know it, as people look to multi-tasking media/computing devices and smart phones (e.g. iphone, ipod, ipad, droid, netbook computers, etc.) for delivery of digital content.

[Ed Moed]

Insightful comment, Steve. Thanks for posting.