Blockbuster Goes Bust – Outfoxed by Redbox, Licked by Netflix

Sorry, I couldn’t resist the Variety-style headline. Blockbuster going bust is the stuff of which Variety is made.

Anyway, this morning Blockbuster filed for Chapter 11 bankruptcy and restructuring. I don’t mean to be snarky, but can anyone be surprised?

I’m viewing the story this morning through two lenses. One is that of DVD renter with kids. The other is that of a project management failure.

As a renter, I watched our patterns change. We should be their ideal target — disposable income, two kids who are allowed to watch videos but little TV and with no movie channels, two adults who like movies well outside the top 20 hits and who prefer to watch them at home rather than the multiplex. We don’t have a Netflix subscription because we tend to rent based on what we want to see right now coupled with schedules too chaotic to plan movie nights in advance.

Yet we stopped going to Blockbuster except in rare instances. We could rent movies at the local grocery store for half the price or less, and with greater convenience. When we’re at our island cabin, we have access to an award-winning library with an out-of-the-ordinary DVD selection (and no Blockbuster). When we went on a road trip, we did the Redbox thing, where we could rent a movie in Salt Lake City and drop it the next night in Winnemucca.

And each time we went into a Blockbuster location, the store seemed emptier than the time before.

Even my 14-year-old daughter asked a few weeks ago, “How do they stay in business?”

As a project manager, I watched them hit a series of classic business-as-project failure points.

  • Vision: From their website, “…provide our customers with the most convenient access to media entertainment delivered through multiple channels…. Offer customers a value-prices entertainment experience…  broad product depth…  with local neighborhood convenience.” Usual corporate-speak gobbledygook aside, there are competing priorities. Multiple channels plus neighborhood convenience? Entertainment experience? Throw value pricing in there, too.1 And how do they plan to make money out of this hodge-podge? This muddled vision (officially the corporate mission statement) provides no clear guidance against which various corporate managers can test their ideas and initiatives. Drop prices? It’s in there. Raise them to cover our depth? It’s in there. Compete with Netflix? It’s in there. Have brick-and-mortar high-monthly-nut locations? It’s in there. Make money? Oops, that’s not in there.
  • Change management: As the industry changed, first by Netflix and then by Redbox, Blockbuster lagged behind. It didn’t respond to the Netflix threat until Netflix was firmly established and Blockbuster had to play catch-up. It didn’t respond to Safeway and the library. It didn’t respond to Redbox at all.2 Change management is not just a tool to deflect distracting maybe-we-should’s, but it’s also a way to handle legitimate we-need-to’s that were missed at the start or that are responses to a changing business environment.
  • “Done”: The literal “Done” at a Blockbuster location was surprisingly painful. Lots of movies on the shelves, check. Alphabetized sort of, check. Blue-Ray, DVD, games, check. Check out, no check. That’s a customer’s final experience, the one that’s remembered because it’s the most recent: the way you go out the door. No matter how many times I’d been to a location, it was still a significant rigmarole to complete the final step. Not a big deal… other than it made me recall Blockbuster as a less than pleasant experience. Inefficiency and frustration stick like glue to customers. Checking out a Redbox movie is a breeze… and doesn’t require a salesperson. I can check out my own gas, my own groceries, even my own movies (Redbox)… but not my own movies at Blockbuster. Places like Starbucks and Nordstrom use that final interaction to seal the customer/vendor bond; at “value prices” Blockbuster, it was just a faceless transaction with a store worker rather than a corporate representative.

The Failure of Change Management

I could go on, but ultimately it’s the failure of change management that stands out.

They didn’t respond to their competition, to the changing business environment. That’s the most important thing I learned about building an effective business strategy, to see it in an evolving context of competition and ensure that we’re ready to change ourselves as the environment changes, maybe even getting out and leading the change.

The environment changed, first with DVD-by-mail and then with DVD-for-a-buck. Blockbuster responded late, or not at all.

And why should they have responded? They had a business model that worked. Netflix-style would cut into their profits, negate their investment in leased or owned real estate.

Bringing It All Back Home

Let me restate that paragraph in a different context, one we’re all familiar with (changes highlighted):

And why should they have responded? They had a business model that worked. Alternative Fee Arrangements would cut into their profits, negate their investment in pay structures based on hourly billing.

And that’s the biggest lesson the legal industry can draw here, I think. The competitive landscape changed, and Blockbuster was too slow to recognize the change. When the rate of change was low, when Netflix and later Redbox were just starting out, it seemed easy to catch up if and when the need arose. But the rate of change is not a constant, but an increasingly steep curve — and when Blockbuster finally woke up and realized they were behind that curve, catching up became extremely difficult, and maybe impossible.

In Hemingway’s The Sun Also Rises, a character is asked how he went bankrupt. He relpies, “Slowly. Then all at once.”

That’s how businesses fail. Slowly. Then all at once.

Unlike Satchel Paige, you have to look back — because something is gaining on you. Will it catch you, or will it falter?

Look at it this way. If it does catch you, it will zoom on by.

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1Actual value pricing is clearly something they dropped along the way. In fact, they were demand priced, not value priced, with hot new releases costing more. That’s fine… but it contradicts their stated goals.

2Redbox outflanked them in two areas, price ($1/movie/night) and flexibility (rent in one location, drop in another). Maybe Blockbuster now allows that flexibility — I haven’t checked lately — but it used to be a no-no, and that inconvenience stuck with us.

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