#12: The fall of Blockbuster

Hi, I'm Jeppe and welcome to my weekly newsletter on Corporate Venturing, released every Tuesday. My aim is to provide a comprehensive perspective on the latest developments in the field and its related topics, drawing from the insights of top management, venture capitalists, founders, LPs, and family offices. I aim to offer valuable information and thought-provoking content that will aid in understanding the importance of Corporate Venturing in business strategy.

Last week on April 14th 2023 it's 25 years ago since Netflix was launched. Marc Randolph posted on LinkedIn the story about the famous Blockbuster Netflix meeting that happend in the year 2000.

Since Blockbuster is seen as one of the significant failours in Corporate / Startup collaboration I thought it would be interesting to follow-up on some of the learnings from Blockbuster.

In this meeting Netflix co-founder Reed Hastings proposed a partnership with Blockbuster, the dominant player in the video rental market at the time. Blockbuster had the following KPIs at the time.

• 9,000 stores,
• 84,000 employees globally,
• 65 million registered customers
• $800 million revenue in late fees,
• 40% market share in the US, and
• +$3bn valuation.

Hastings suggested that Netflix could manage Blockbuster's brand online while Blockbuster would promote Netflix in its stores.

The pitch was simple. We would join forces with Blockbuster. We would run the online business. They would run the stores. We would jointly develop a blended model. And everyone would live happily ever after. And it was going great. They were leaning in. They asked good questions. Until they asked the most important question of all: “How much?” Now, we had rehearsed this. We figured we were $50 million in the hole... so let’s go with that! Reed leaned forward confidently and told them: “Fifty Million Dollars.” There was perfect silence. Their words were “we’ll consider it,” but we could tell they were fighting to suppress laughter. After that, the meeting went downhill fast

It is clear that Blockbuster was not ready to embrace the changes in consumer behavior that were coming, and this was one of the critical mistakes that led to their bankruptcy in 2010.

From a Corporate Venturing perspective they did the following mistakes:

1. Failure to adapt: Blockbuster failed to recognize the changing market conditions in the entertainment industry, particularly the rise of digital streaming. Instead of investing in new technologies and business models, the company remained committed to its traditional brick-and-mortar store model and late fee revenue stream.
2. Complacency: Blockbuster was the dominant player in the home video rental market, and this may have led the company to become complacent in its success. The company failed to anticipate the threat posed by emerging competitors, such as Netflix.
3. Inflexible decision-making: Blockbuster had a hierarchical decision-making structure that made it difficult for the company to pivot quickly in response to changing market conditions. The company was slow to embrace new technologies or business models that did not originate within the company.
4. Culture: Blockbuster had a culture that was focused on profitability rather than innovation. The company was more concerned with maintaining its existing revenue streams than exploring new technologies or business models. Netflix's smaller size and business model meant their costs were significantly lower, they had less legacy to shake off - so their ability to change was far greater.
5. Poor leadership: Blockbuster's leadership failed to recognize the potential of digital streaming and make the necessary investments in new technology. The company was slow to adapt to changing market conditions and failed to innovate in response to new competitors.

I hope you enjoyed this week's newsletter. In the upcoming edition, I will be exploring the topic of "Advantages and disadvantages of being a startup founder". If you have any suggestions or contributions that you would like to share with me, please do not hesitate to reach out. I would be delighted to hear from you.

/Jeppe?