It was a lethal combination of technology, fatter pipes and morons who THOUGHT they understood this business but didn’t have a clue. That’s right. MORONS. Why do I say this? In August of 2008 when interviewed about the success NetFlix was having, Blockbuster CEO Jim Keyes was “baffled by his competitor’s success”. And what was even more confusing to Mr. Keyes was the emphasis on catalog size. “Why would anyone want to watch anything other than new releases”, he wondered. He goes on to say : “I don’t care how many movies are available to me. As my personal taste as a customer, I want to watch the new stuff so whether we have 10,000 movies or 200 movies doesn’t matter if I don’t want to see any of the movies that we have . . . our assortment is heavily weighted toward newer releases and mainstream staple titles.” This guy clearly just does not get it. He’s not a film person and why in the world any responsible and half-way intelligent person responsible for turning around a business like Blockbuster hire someone like this is beyond me. FAIL.
Blockbuster used to be the 900 lb. gorilla in this space. It was dominant. And they did nothing to extend that dominance into the 21st century. Content to rest on this 80’s-90’s business model of retail foot traffic, Blockbuster basically put its head into the sand and held its breath. For a company with the kind of cash flow it had and market power and brand awareness they simply mismanaged their business into the ground, all the time telling shareholders that their business was doing great.
And then there was the Circuit City possible acquisition for $ 1.35 billion. I guess someone figured that expanding the brick-and-mortar business was a way to increase Blockbusters business. Why you want to expand the brick-and-mortar business when over the last 18 months, Blockbuster closed 412 stores (including Gamestation stores), presumably because they were operating at a loss or weren’t terribly profitable. FAIL. But it gets even better.
In August of 2007, they acquired ‘Movielink’ for $20 million dollars. Then one year later rolled out to the general public in ‘beta’ a service for ‘downloading’ of movies online. It included 5,000 titles. The downloading prices started at $8; and rental fees started at $2. It didn’t matter that it took nearly as long to download one movie as it did to get the same one in the mail from Netflix. Nor did it matter that once you spent the $8.00 and a day to get the film, it was laced with DRM making it unwatchable anywhere else but the device you received it on and unwatchable after 24 hours. Very consumer friendly indeed. If you were an executive in the business, you knew that Movielink was already dead long before Blockbuster bought it. CinemaNow and Movielink were both dead. You had to be living under a rock to believe that Movielink with its ‘PC windows’ download client manager with DRM was the future of the online movie business. How management at Blockbuster managed to convince their board of director to use $20 million dollars of the companies funds to buy Movielink is nothing but pure stupidity and mismanagement of funds. If I were a shareholder, I would have sued them. FAIL once again.
DISCLAIMER: (I started iWatchNow.com in late November of 2003 with a partner)
Fast forward to 2006, we had started an online film and TV distribution service called iWatchNow.com. My partner knew how to sling code something wicked and I knew where and how to get the content. We were one of the very early entrants in this area, next to CinemaNow and MovieLink. Neither iTunes, Hulu, Amazon, Reeltime, Veoh, Joost, Babelgum, etc., were there yet in 2003 when we were around. But they were coming big time. We acquired over 3,000 movies and TV shows. Everything from Jack Nicholson’s ‘Little Shop of Horrors’ (the Roger Corman public domain (PD) classic) to non-public domain goodies like ‘Tunnel Vision’ with Bill Murray, Gilda Radner and the original Saturday Night Live crew. It was eclectic, fun and as irreverent as we could make it showing rarely seen and hard to find content. We gave away some content for free with advertising. Other programming cost $ .99 cents per rental/24 hrs to stream.
But there were 4 things that we felt were important; to stream instead of download, to not use a client to stream but use the browser, to make the search on the site for content lightning fast and purchases easy with as few clicks as possible. We didn’t focus on ‘new’ releases because we knew that in a short time, EVERYONE would be showing them. The advances were too big from each studio for our little company, so we focused on the ‘long tail’ and convenience.
We thought that we had created a pretty good framework for a start-up online company and launched in January 2006. Then in March I decided to call Blockbuster and invite them in to our offices to see our system for the expressed purpose of selling it to them so they could jump start their online business. So, two executives showed up at our offices; Dean Wilson and Richard Jenrud. They looked under the hood, saw the library, kicked the tires and then left. We never heard back from them. Then we heard they paid $20m for a failing ‘Movielink’ service. What I am saying here is that Blockbuster probably had not only our service to look at but many others in the fledgling marketplace, yet they chose a dinosaur to spend $20m and buy Movielink. What in the world were they thinking?