The Decline of Blockbuster Entertainment

The Decline of Blockbuster Entertainment

How could a company that was built into a multibillion dollar empire fail less than two decades later? Blockbuster Entertainment started with one store in Dallas in 1985 and rose up to become the dominant force in the movie rental industry. They were acquired by Viacom, at the pinnacle of their success, for $8.4 billion in 1994 and were in bankruptcy by 2010. A series of blunders by upper management, highlighted by a lack of strategic vision, led to Blockbuster’s rapid decline and ultimate failure.

In 2000 Blockbuster had the opportunity to purchase rival, Netflix but failed to envision Netflix’s potential. The founder of Netflix, Reed Hastings, met with then CEO of Blockbuster, John Antioco, to discuss selling a forty-nine percent stake in Netflix to Blockbuster. The deal would have cost Blockbuster a mere $50 million in comparison to their $6 billion yearly in revenue. At the time technological and dot com stocks had taken a serious tumble and Blockbuster was skeptical of Netflix’s future. Instead of acquiring Netflix, Blockbuster signed a twenty year deal with Enron to deliver pay per view movies. Enron filed for bankruptcy one year later. In 2004 Blockbuster launched their own DVD by mail service but it was too late to catch Netflix. Netflix has continued to grow and in 2010 surpassed Blockbuster in market share.

In 2004 Viacom decided to sell their controlling interest in Blockbuster. Unable to locate any interest they decided to spin off Blockbuster through a stock swap. Blockbuster would have to pay Viacom shareholders $5 per share resulting in nearly $1 billion in debt. At the time Blockbuster management thought they could quickly pay down the debt with their $500 million a year...

... middle of paper ...

...ut it took on average three months. During the initial three month period stores were very unprofitable. Blockbuster simply could not afford to roll it out nationwide. Red Box has grown to control a forty percent share of the rental industry.

When Blockbuster finally realized they needed to modernize operations and change with an ever developing industry they were unable to because of their enormous debt and negative cash flow. Senior management failed to see how advances in technology would lead to changes in how consumers rent and purchase movies. During Blockbuster’s prime they squandered their earnings on bonuses and lavish meetings. Their arrogance led them to feel invincible and that no one could ever catch them. Blockbuster management, in the end, failed to see the need to evolve to meet their customer’s needs while other companies rushed to fill this void.