3 Blockbuster Killers

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Reports today indicate that Blockbuster Video is on the brink of bankruptcy. 10 or 15 years ago, it was probably unthinkable that Blockbuster would run into the kind of trouble it has in recent years. It was dominant in its market: the most significant of the national video rental chains. And for most consumers, renting a movie is a much more sensible alternative to buying a video, DVD or now Blu-ray. Its business appeared to have a bright future.

Blockbuster's story is one of a company with a business model that became obsolete. It tried to adapt to a changing world, but failed. I would cite three major reasons for its ultimate demise.

Netflix

I think Netflix deserves some credit for dethroning Blockbuster as the movie rental king. Its business model merged technology, convenience and good customer service. If you enjoyed using a website to choose movies, hated driving to the video store, and got annoyed with late fees, then Netflix was for you. And the more movies you watched, the more Netflix paid off. So that stole a big moneymaking segment of customers from Blockbuster. Of course, Netflix also didn't have Blockbuster's expensive retail location overhead costs.

Eventually, Blockbuster entered the online rent-by-mail market. It even offered the added bonus of being able to bring back your rentals to a store location to get a new movie faster. But Netflix remained more successful. I'm not entirely sure why, but it's probably because it simply entered the market first. Personally, I didn't bother switching to Blockbuster for two reasons. First, I already had a queue of 200+ movies that I didn't feel like recreating on a new website. Second, there was no Blockbuster near where I lived in Manhattan at the time anyway.

Movies On-Demand

Perhaps the most fatal blow to Blockbuster came from the rise of on-demand viewing. What's easier: pressing a few buttons on your remote control to watch a move or driving a few miles to pick one out, hoping the movie you want to watch is in stock? It's a no-brainer. Although on-demand viewing began quite a few years ago, only recently has it really become an extremely convenient way for the average American to consume movies.

Indeed, these days consumers have even more ways to view movies on-demand. You can do it through most cable, broadband and satellite TV services. New televisions and Blu-ray players also often come with additional Internet-based on-demand services built in. Some even include free-streaming for Netflix subscribers -- just so the company could twist the knife a little, hurting Blockbuster in both areas where it was most vulnerable.

Digital Piracy

Finally, I don't begin to doubt that digital movie piracy played a role. Even though authorities have begun cracking down on some of this in recent years, there's little doubt that Blockbuster and others lost millions of dollars in potential rentals when movies were illegally downloaded.

All of these causes of Blockbusters troubles have something in common: technology. Without the Internet, Netflix wouldn't have been created and digital piracy wouldn't have been an issue. Without advances in cable, satellite and broadband, on-demand services wouldn't have emerged as a desirable source for movie viewing. Blockbuster could have sought to capitalize on these technologies earlier. If it had developed a mail-rental system before Netflix or been the first to create an Internet-based on-demand module available in new TVs and Blu-rays, things may have been different. Blockbuster's fate was mostly sealed by its failure to embrace technology quickly enough.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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