Review: Blockbuster’s demise had many culprits

Review: Blockbuster’s demise had many culprits

The Blockbuster movie rental store is open for business in the Denver suburb of Broomfield, Colorado April 6, 2011. REUTERS/Rick Wilking

In early 2000 Reed Hastings and his partner traveled to Blockbuster’s headquarters in Dallas. The Netflix (NFLX.O) founder tried to pitch the video rental behemoth on a deal to buy his fledging DVD-by-mail startup for $50 million. Blockbuster declined. Two decades later Netflix, now a streaming-video giant worth $243 billion, is broadcasting a documentary about the fall of its one-time desired suitor. The schadenfreude is cinematic. Yet while Netflix played a role in killing Blockbuster, its demise has many culprits.

“The Last Blockbuster” examines how the once-mighty corporate juggernaut went belly up through the eyes of its charming hero, Sandi Harding. She is the gatekeeper of the last Blockbuster store of the film’s title in Bend, Oregon. While the documentary includes lots of crunchy financial details it never gets bogged down in them. Meanwhile a cast of oddball characters and B-list actors including “Clerks” director Kevin Smith and Ione Sky, the object of John Cusack’s boom box serenade in the 1989 rom-com “Say Anything,” round out the story with their reflections on life before on-demand television.

Harding, who started working at Blockbuster in 2004 when the chain had about 9,000 stores and 60,000 employees, is known as the “Blockbuster mom” because she has employed so many of Bend’s teenagers. She pours her energy into keeping the video rental dream alive. It’s a store frozen in time: the cheerful yellow and blue schematic, bright lights, displays of candy and popcorn, computer systems that run on floppy discs, and racks and racks of DVDs. Her devotion to the business is so fierce that she knits hats in Blockbuster colors to sell to customers who flock from all over the world in search of a bit of nostalgia.

The documentary intersperses Harding’s efforts to retain the rights to the Blockbuster name – currently owned by Charlie Ergen’s Dish Network (DISH.O) – with details of the company’s history. The video rental empire was founded in the mid-1980s by a Texas-based oil and gas software engineer who developed an ingenious database to keep track of movie titles, allowing him to offer consumers a bigger selection. The concept of a clean family-friendly video rental destination was a smash hit. At one point Blockbuster was opening a new store every 17 hours.

The company caught the attention of mogul Sumner Redstone, who was locked in an epic takeover fight with rival Barry Diller over movie studio Paramount. In a surprise move Redstone’s Viacom and Blockbuster in 1994 agreed to an $8.4 billion merger. Blockbuster become the media company’s piggy bank, as Redstone drew on its cash flows to sweeten his bid for Paramount. Though Redstone got the studio, the rationale for owning a chain of stores was a flop.

Several disastrous corporate decisions added to the cash drain. To better compete with scrappy newcomer Netflix, Blockbuster decided to spend $400 million to eliminate late fees on rentals and build an online presence. Its inventory of DVDs declined because customers no longer had an incentive to return movies. Eventually, Viacom spun off Blockbuster after loading it up with nearly $1 billion in debt. The stock fell. Activist investor Carl Icahn launched a distracting proxy fight.

When Netflix launched its streaming service in 2007, the rental chain’s revenue of $5 billion was still more than 4 times that of its upstart rival. But as former Blockbuster executive Tom Casey explains, the financial crisis marked the beginning of the end. The company’s rental business faced fierce competition from retailers like Walmart (WMT.N) and Target (TGT.N), which were selling ever-cheaper DVDs. With capital markets frozen at the beginning of 2009, Blockbuster’s $780 million of debt proved fatal. It filed for bankruptcy a year later.

Netflix’s ascendancy pushed Blockbuster towards the grave. But as “The Last Blockbuster” shows, it took corporate raiders, a series of bad decisions and a global financial panic to nail the lid on its coffin.

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– “The Last Blockbuster” started streaming on Netflix March 15.

– For previous columns by the author, Reuters customers can click on

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