At its peak, Blockbuster had over 50 million members worldwide. Nowadays, it’s nothing more than a punchline referenced alongside Kodak during cliché marketing presentations titled: ‘Innovate or die!’
A number of factors contributed to Blockbuster going under. But the main reason it went out of business in 2013 was its failure to adapt to a changing retail environment where streaming movies made renting physical DVDs feel caveman-like. Of course, things could have been very different.
In 2001, Reed Hastings, the founder of a then fledgling company called Netflix, made a business proposal to Blockbuster CEO John Antioco in Dallas. His pitch? Netflix could run Blockbuster’s online business in exchange for in-store promotion. Hastings wanted just $50m to sell Netflix. He was laughed out the room. Netflix, of course, has grown into a $28bn business, which now wins Oscars and has 100 million global subscribers.
A position of strength
When Byrn Owen became UK CMO of Blockbuster back in April 2008, he inherited a brand in good health. Even if the US business was in rapid decline, the UK arm remained strong.
“We had nearly 650 stores, our turnover was around £300m, we had 3.5 million members and we were making a healthy profit,” he tells Marketing Week. “Yes, the financial crash was just unfolding but it didn’t do any real damage to Blockbuster as rentals were seen as a cheap alternative to buying DVDs; if anything it played to our advantage. I thought I had joined a very healthy business. We had a ready-made audience and there was no real fear that would change.”
But it would. And fast. Around two years into the role rental sales began to dry up. Blockbuster intelligently started an online rentals business, where people could order movies online and then receive DVDs in the mail. But this would only ever hit 40,000 customers at its peak and lacked any serious investment.
Rather than build up this online business and prepare for the rise of streaming, Blockbuster did exactly the opposite. “I am sure 99 out of 100 people involved in Blockbuster would have told you the future was in digital downloads and online ordering, but the chief executive had a retail background and his priority was to save the high street business at all costs. Perhaps we would have benefitted from a different perspective.”
This message from the top meant Blockbuster would desperately launch branded food lines such as popcorn and ice creams, sell hardware such as DVD players and build up its video game rentals business with more gaming dedicated stores. Subsequently, Owen’s marketing strategy was built around price and product.
“There was a lot we could have done from a brand perspective because I had a £12m annual budget for traditional advertising. We were also a top three spender on radio,” he recalls. “I guess our message got a lot more aggressive to arrest the decline, but it was primarily sales-driven and based around price.”
The board, which were heavily retail-focused, saw embracing online as a threat to Blockbuster’s future as they thought it would cannibalise the high street sales
Bryn Owen, ex-Blockbuster CMO
The archives show Blockbuster was preparing to launch a streaming service in 2012. I ask Owen why Blockbuster didn’t instead pump all of its marketing budget into promoting the online side of the business; a “poor decision” he lists as one of his biggest regrets. However, when Owen starts speaking about the internal squabbles at Blockbuster, it’s easy to understand why this never happened.
“We had an online division, but it was completely separate from the retail side of the business. It was almost treated as something inferior. The board, which were heavily retail-focused, saw embracing online as a threat to Blockbuster’s future as they thought it would cannibalise the high street sales. We had 600 retail sites to save so streaming just wasn’t a priority.”
Blockbuster also had a large amount of data at its disposal. With around 3.5 million members in the UK, it had personal data about their purchasing behaviour that could have been used to improve personalisation and drive sales. If Owen could change one thing it would have been to have used this data more effectively and to have tried to push as many of these members into Blockbuster’s 40,000-strong online rentals delivery business as possible.
He explains: “Rentals by post should have been a stepping stone. Once you move a large portion of those members to ‘by post’, it is then an easier progression to push them towards streaming and digital downloads.”
Shell-shocked by disruption
The benefit of hindsight is a wonderful thing. If being brutally honest, Owen concedes Blockbuster was simply shell-shocked due to the retail market’s rapid rate of change.
He explains: “People ask me if Blockbuster was complacent because we were the biggest name on the high street; I prefer the word shocked. Remember Lovefilm had absolutely nothing and then got to one million customers in a flash just before Amazon bought it for £200m in 2011.
“Nowadays, it is common place to see a brand like Uber disrupt an industry but back then it just didn’t happen like that. It took a long time to build a brand so we were not prepared when things suddenly shifted. We were reacting to a completely new sensation.”
In many ways Owen didn’t stand a chance. The American business neglected its UK arm, leaving it to its own devices. There was nothing close to a joined-up approach when it came to brand strategy.
After filing for bankruptcy in 2010, Blockbuster’s remaining 1,700 stores were acquired by satellite television provider the Dish Network. However, it was a similar picture; Dish only cared about the US business and Europe was left hanging.
Surprisingly, Owen looks back at the Blockbuster experience fondly having learned a great deal as a marketer. His biggest lesson?
“On a simplistic level, it’s that if a business is in decline you need to look at what the alternative is. Instead of putting all your resource into an ailing business strategy, sometimes it is better to accept it won’t be the same anymore and hit reset. Even if you’re going to take a big financial hit, making a fundamental change could be more lucrative in the future.”
Owen left Blockbuster a few months before it went into administration to become marketing director of London City Airport. He currently resides as group marketing director at Rapid Fulfilment Services. Yet, it’s clear Blockbuster is a business he still has a lot of affection for. This is something I share. For me and an entire generation of millennials, Blockbuster was our portal to a world of escapism and movies we’d otherwise miss out on seeing. With such brand affection for Blockbuster still around, is there any chance of a comeback?
“I’m really surprised nobody has done anything with the brand, it’s a damn shame as millions of people still have a lot of affection for Blockbuster,” he responds. “And why not do something with its database? It had so much insight into millions of consumers and that was a valuable asset. If they really want to bring back Woolworths, then I wouldn’t rule out someone bringing back the Blockbuster brand too, albeit with a completely different business model.”
For brands such as Game and HMV that still deal primarily within physical media, Owen warns: “Game and HMV have not evolved, they’ve just scaled things back and become more niche players in the aftermath of their financial troubles. That isn’t a long-term strategy, it’s just about staying afloat. What the experience at Blockbuster taught me is that tomorrow is never promised. You have to evolve or things will catch up with you sooner or later.”