The Death and Afterlife of a DVD Rental Giant, Blockbuster

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Blockbuster ExpressSince 2009, NCR Corp. has rolled out about 9,000 Blockbuster Express DVD rental kiosks around the country. While this is only a fraction of Redbox’s 30,000 rental kiosks, Blockbuster Express has made significant headway positioning itself as a competitor to Redbox’s DVD rental kiosk market dominance.

The Duluth-based NCR Corp. (National Cash Registers) came to a license deal with Blockbuster to use the name to manufacture and install kiosks around the country in 2009. Blockbuster Express has recently made significant headway striking deals with Chevron’s ExtraMile convenience stores and Food Lion grocery stores. ExtraMile’s Don Tovar cited Blockbuster Express’ ability to get new releases before Redbox, ability to allow content downloads to USBs and other media in the future, and Kiosk density as significant advantages. Blockbuster Express appears to be Blockbuster’s last breath, but how did this giant get to this point?

Blockbuster used to be synonymous with DVD and VHS video rental; however, even with the company’s prime market position, the video giant declared bankruptcy last year and was finally acquired by Dish Network earlier this year. While many believe that Blockbuster’s fall was due to their slow expansion from in-store DVD rental to other video distribution models, this only partly explains the company’s decline.

Blockbuster’s problems began in the mid- to late-1990s when Viacom owned them. In 1996, Blockbuster moved their headquarters from Florida to Texas. In the process, they had to hire 500 to 600 new employees for the new headquarters, losing a significant portion of their senior staff. Another problem with Blockbuster was their continued physical growth, causing an oversaturation of the DVD rental market. By 2000, they had built and purchased enough stores to have one store per 50,000 people in the US. Already by 1997, Blockbuster had posted a loss of $318.2 million.

Beyond their internal problems, the turn of the century brought increased competition. Netflix launched its website and adhering to the traditional pay-per-rental model, sending out single DVDs in 1998. They only began to gain serious traction in 2000 when it dropped this structure for a DVD subscription model. Also, Redbox became a major force in the video rental world when Coinstar bought 47 percent of the company in 2005. Blockbuster only began online services in 2004 and Blockbuster Express did not begin until 2009 when it partnered with NCR.

One of the reasons for Blockbuster’s slow and ineffective adoption of new DVD rental models was corporate infighting. A cursory read over of the history of the company from 2005 plays out more like a Mexican telenovela or an episode of the Apprentice. In 2005, corporate raider, Carl Icahn, entered the mix, buying 10 million shares of Blockbuster. Icahn is known for gutting companies and selling the corpse for large profits or cutting the fat and selling a new lean company (depends on whose side you are on).

While Blockbuster was late with Total Access (their unlimited online movie rental program), they were early enough to be competitive. I remember agonizing over Netflix or Blockbuster Online in 1994 and I even gave Total Access a brief try; however, Icahn ran out John Antioco, the spearhead of Total Access, in a corporate proxy fight and Antioco’s successor, Jim Keyes, killed Total Access. The new management continued along the old retail store model, consolidating stores; however, all the efforts were to no avail as models of the future (Netflix, Redbox, YouTube, Hulu) conquered the video rental world, leading to Blockbuster’s bankruptcy.

While Blockbuster had its financial problems, Icahn has conceded that his declared “worst investment ever” may have survived if Blockbuster Online’s Total Access had continued. Today, Blockbuster’s new owners, Dish Network, are in a court battle with NCR over the license deal. They want NCR to stop using the Blockbuster name for their kiosks; however, this move would surely kill any forward momentum Blockbuster has gained. Do you believe Blockbuster has a chance at a rebirth? Or have they burned too many people with exorbitant late fees and failed promises?

About Arthur Pignotti

Before joining CD-Info in 2010, Pignotti worked as a video editor, a multimedia designer, and a multimedia development manager at US Digital Media for 6 years. He has two BAs in journalism and history from Arizona State University and will be receiving an MA in history from Arizona State next year.
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