A late fee of $40 for a rented VHS tape triggered Reed Hasting to start Netflix and caused Blockbuster ruin just in couple of years

Once Blockbuster had a chance to buy Netflix with a very reasonable deal ($50 million) but it refused the offer. If Blockbuster accepted the offer, they could have saved themself from getting defeated by Netflix. Blockbuster laughed at Netflix’s deal at that time. In the year 2010 conditions has completely changed. Blockbuster went for bankruptcy and Netflix made a huge annual net income of $161 million.

What is Blockbuster?

Blockbuster, officially Blockbuster LLC is an American-based provider of home movie and video game rental services. Primarily the services were offered at video rental shops, but later alternatives included DVD-by-mail, streaming, video on demand, and cinema theater. Due to tough competition from Netflix, the company was defunct after September 23, 2010.

Netflix ruined Blockbuster just in couple of years.

In the year 1997: A late fee of $40 inspired Reed Hasting to start Netflix

Reed Hastings, the co-founder of Netflix, disremembered to return a rented VHS tape of the movie called “Apollo 13”. For that he was charged with $40 as late fee. This made Hastings to take a revolutionized decision.  He along with Marc Randolf, who also happened to be co-workers, decided to transform the movie-rental business and started Netflix. Eliminating the late fee was their major key feature.

In the year 1998: Opened DVD rental business which was completely new that time

Netflix formally opened its DVD rental business this year with just 30 employees. At that time period, still customers were used to renting VHS tapes of Blockbuster. That time DVD players were not so popular and very less people owned those because it was an expensive purchase. Though, Netflix founders were completely willing to take the risk. They envisioned the future for their company. Their plan worked good. The website received a lot of traffic. As a part of their strategy, Netflix partnered with Toshiba, HP, and Sony and offered DVD rentals to new DVD player buyers for free.

In the year 1999: Netflix launched subscription-based services for the first time

Netflix joined hands with Groupe Arnault, a France-based company by Bernard Arnault. It was hugely benefited by that alliance. With the help of $30 millionas an investment by Groupe Arnault, Netflix launched subscription-based service. The idea of renting as many DVDs as customers want for just $16 a month was really loved by the target audience. (Initially allowed customers to hold 4 DVDs in their possession at a stipulated time). There was no late fee for not returning a DVD in a given period.

In the year 2000: Netflix offered it business just for $50 million to Blockbuster

Despite its growing popularity, Netflix was still earning a stingy $5 million in revenue. In the interim Blockbuster, (Netflix’s biggest competitor) was killing it and making a huge$4.5 billionis is when Netflix knocked on Blockbuster’s door and asked for some help but Blockbuster kicked them out in a rather rude way. Surprisingly, this year Netflix was desire for external assistance because it experienced$58 million in losses..

Year 2001 — DVD players Became Popular

Reed Hastings managed to keep Netflix flooded while he hoped for DVD players to go mainstream. And it finally happened and DVD players were now cheap and people started buying them. But DVD players were useless without the right DVDs. No worries yet Netflix was there to fill this gap by offering suitable DVD rentals.

In the year 2003: This time Netflix experienced hug profits

Usually, good things come to those who wait. After years of hardships and brutal rejections, 2003 turned out to be the first lucrative year for Netflix. The company also crossed the 1 million subscribers mark this year.

In the year 2004: Tough co petition started between Netflix vs. Blockbuster

Blockbuster understood that the old VHS rental model might not be their best bet, and the company started its online DVD by mail service, which was alike to Netflix. The situation was just like ‘the big boy was in direct DVD rental competition with the little guy’, but that didn’t stop Netflix’s progress.

In the year 2005: Year Netflix’s Revenue Increased while Blockbuster’s Revenue Decreased

Netflix was gradually growing its profits as well as its popularity. This was the time during which they sent 1 million DVDs daily. It has been observed that customers advanced to ordering for DVDs in online instead of visiting the stores directly. A compared to 1998, when Netflix opened its operations, 2005 was totally a new era. Still Blockbuster depends on their brick-and-mortar film rental model which becoming obsolete. Blockbuster experienced revenue loss and also popularity gradually.

In the year 2007: Netflix kept rising high and a new concept of On-Demand Vidoe Streaming Service

Netflix sent its billionth DVD this year. The company now also started offering an on-demand video streaming service. But they hadn’t obtained the copyrights to bestselling movies or TV shows yet, so the videos available on Netflix’s on-demand service were, for the lack of a better word, generic. During this time, Blockbuster’s profits were declining further and Netflix’s profits were rising.

                                    Sandi Harding, the owner of the single remaining Blockbuster store in the world.  Source

In the Year 2008: More popular videos were added to its service

Netflix comprehended that it needed to provide more popular videos for its on-demand video streaming service to succeed. So, the company signed a deal with Starz to bring more than a couple thousand movies and shows onboard.

Blockbuster’s profits declined further.

In the Year 2010: Netflix captured major market share and Blockbuster Went Bankrupt

By this time, Netflix had signed deals with the entertainment industry giants, such as Disney, Lionsgate, MGM, Paramount, and Sony. Netflix became awfully popular in North America and gripped a 20% share of peak-hour traffic. 

Conclusion

Long-sightedness and adaptability are crucial for surviving and thriving as a business. Blockbuster’s decisionmakers’ failure to embrace new opportunities and treating their competitors with arrogance led to their destruction.

Remember, your customers will pay for what’s best for them. No matter how popular your business is, your customers will go to your competitors at the drop of a hat if they’re offered better products or services.Netflix ruined Blockbuster just in couple of years.