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Who Killed BlockBuster – Netflix or RedBox?

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It looks like Blockbuster video is headed toward bankruptcy. It’s still a little early to tell whether or not they will end up filing for bankruptcy protection, but either way, things are certainly shaky.

It doesn’t seem like it was that long ago that Blockbuster Video was the number one place to get a movie. They expanded like a wildfire and put thousands of mom and pop video stores out of business. Then the video rental market changed and the home video market soured. Blockbuster’s main national competitor, Hollywood Video, recently went back to bankruptcy court for the second time in 3 years. They plan on closing 1/3 of all remaining stores (they have already closed over 2,400 stores in the last few years). More on Hollywood Video at MSNBC.

Now it looks like Blockbuster might be next in line. What happened?

Netflix changed how we watch movies

It seemed like the Blockbuster had the perfect business model. They offered the best selection of any movie chain and bought up or forced out thousands of smaller family owned video rental stores who couldn’t compete in terms of movie selection, availability, or even price.

But then Netflix came along and offered consumers DVDs through the mail – unlimited and without late fees (late fees were once a HUGE portion of Blockbuster’s profits). The free Netflix trial offer lead to thousands of full time customers who fell in love with the quality and convenience Netflix offers. Check out this Netflix review for a full list of services and features they offer – you’ll see that it is a very good deal – unlimited DVD rentals (one at a time) with no late fees and access to streaming videos for about the price of 2 rentals from a Blockbuster Video store.

BlockBuster offers BlockBuster Total Access, but even though it is popular, they never advertised it as heavily as Netflix did and it never caught on quite the same way.

Netflix added to their popularity by adding streaming videos and integrated technology to their subscription model. Faster internet connections and better technology aided this development and furthered the gap between Netflix and Blockbuster.

Compare Netflix and Blockbuster. See this full Netflix and Blockbuster comparison for more information about how the two movie services stack up.

Along comes Redbox

Then RedBox entered the scene with $1 a day movie rentals from a vending machine. Instead of maintaining a storefront business with employees and other overhead, RedBox kept to a minimum and placed their vending machines in thousands of popular places including grocery stores, fast food restaurants, airports and other convenient locations. Who wouldn’t pay $1 to watch a movie during a long layover?

RedBox got a huge jump on the DVD vending machine business, leaving Blockbuster struggling to find a way to compete in that space while not eating into their retail store space.

Blockbuster adds vending machines, streaming movies, mobile movies – too little too late?

Blockbuster got caught off guard and was slow to change their business model, which lead to $1 billion in debt as they struggled to find their niche in the video rental market. They now offer many of the same features as Netflix and RedBox, including offering at home DVD rentals, streaming videos, and DVD kiosks where people can rent movies from convenient locations. Blockbuster actually beat Netflix to the mobile movie market and now offer streaming movies on some of the latest models of mobile phones. But it is too little, too late?

Netflix has such a huge lead on Blockbuster when it comes to the at home DVD rental game, has a wider selection of movies, better streaming technology, and more ways to integrate their plan with various forms of technology (video gaming systems, DVD and Blu-Ray players with built in Netflix tuners, etc.). And RedBox has a huge jump on the DVD vending machine business.

Where does this leave Blockbuster?


Published or updated December 29, 2011.
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{ 28 comments… read them below or add one }

1 Smarter Spend

I predicted Blockbuster would go bankrupt early in 2009 and again this year.. I just don’t see a point in their company anymore. They charge ridiculous prices, have been outmarketed both online and off-line, and their stores are almost always empty.

Redbox was the last blow to Blockbuster. Before, it could at least compete in the offline world, but now, even people that don’t buy online won’t visit Blockbuster.

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2 Kyle C.

Blockbuster still has a small advantage that Redbox hasn’t been able to secure. They have the backing of all of the major studios. Last week when The Blind Side hit the streets you couldn’t find it in any of the local Redbox’s but the Blockbuster Express machine up the road had it.

I don’t think it is enough to sustain Blockbuster and given the large amount overhead they maintain with their storefront locations I see them going the way of the Dodo in the near future. It just goes to show what can happen to a solid company that fails to keep up to speed on emerging trends.

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3 Ryan

Great point – and probably the best thing Blockbuster has going for them right now.

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4 TheDebtHawk.com

I don’t see how Blockbuster was caught off guard by this. This change in the industry has been happening ever since video on demand became popular. The management of Blockbuster should be embarrassed.

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5 Money Beagle

For me, Blockbuster’s customer service chased me away and cost them thousands of dollars of revenue. I accidentally returned the wrong movie to their store. The movie I returned was one I had previously purchased from them in their Pre-Viewed section. They never called me, kept charging me late fees on the movie I accidentally kept, and then wouldn’t return my movie when I realized my mistake and went in (they alleged they couldn’t ‘find’ it). That was in 2003. I had been spending probably 10 bucks a week on rentals before then, and they lost that business in an instant, plus I’ve told this story 100 times. I think that Blockbuster felt that they could do anything, and that it was there way or no other way. Unfortunately for them, there were other ways.

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6 Blair MacGregor

Well clearly Netflix changed the rules of the movie-rental game; established rules that had been in place for years & years simply evaporated, almost overnight.

I think Blockbuster got caught up in its own bureaucratic weight and was simply unable to shift its business model quickly enough to meet this change in the same way that the record companies were unable to shift their model to save the record industry from falling to Apple & iTunes. Just like the traditional travel agencies were unable to adapt when Expedia, Hotels.com etc. came in and completely changed the rules of the travel industry.

This is going to continue for many years to come: Large bureaucratic organizations are being annihilated by smaller web-based companies that are quicker, provide better service & aren’t encumbered by their own weight. The Blockbuster case is just another example.

-Blair

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7 Kristen

I agree that Netflix started all of this. I’ve been a Netflix member for years and haven’t been to a traditional video store since the service came out. It’s so much more convenient. I especially like that there’s no time limit on a DVD. I can’t tell you how many times before Netflix we rented a video only to have something come up and we were unable to watch it. We either ended up returning the video without watching it, or we paid a late fee. Plus, I love foreign films, and Netflix has a much better selection than Blockbuster.
All companies, regardless of the industry they are in, who have been around for awhile need to really keep an eye on changing technology and figure out how to change with the times.

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8 Ryan

Netflix also has a broader range of documentaries and many TV series as well. Netflix definitely has the best selection, and a huge leg up on the competition when it comes to technology integration. :)

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9 Evan

Its kind of funny that The Wife who runs the opposite of a PF Blog wrote about the very same thing today:

http://afterthealter.com/random-thoughts-blockbuster-time-to-get-your-own-ideas/

Except her’s focuses on the fact that they literally haven’t come up with an idea in the past decade lol

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10 Ryan

Nice. Thanks for sharing. :)

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11 myfinancialobjectives

Everyone saw this coming. As previously stated, Blockbuster did too little too late. They should have implemented the Netflix idea as soon as it started to gain steam, and they should have pushed it hard…

I love Netflix, I don’t currently use it, but I still love it. I used it to watch the entire series of The Sopranos. I’d just get two DVD’s in the mail, then watch them at my leisure, then send them back. Took me eight months, but it was awesome!

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12 Abigail

Well, if I had to choose one, I guess it’d be Netflix. Redbox is convenient, but a lot of people just feel weird about vending machine rentals. And there’s not the breadth of movies available at a normal store. (There are rarely many titles at the machines that I’m interested in.)

That said, I think Blockbuster had a good-sized hand in its own destruction. Total Access was a brilliant idea but… They kept raising the price and kept lowering what they offered. I understand that it cost a lot to run something like that. But you either scale back on services or you charge more. Not both.

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13 Kristine

This leaves Blockbuster in the dust. Offering great value and service like Netflix keeps loyal customers. Had Blockbuster stepped up when their competition did, maybe things would have been different?

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14 Jen @ After The Alter

It amazes me how bad blockbuster really is. 3 other companies have come into the market, thought outside the box, and gave us superior products. It’s time for blockbuster to fail

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15 Robert

I’ll never forget when I ended my relationship with Blockbuster. Blockbuster corporate had sent out a phony coupon a few years back promising a free movie and popcorn. I took it to the local Blockbuster and showed it to the kid at the register. All the kid did was point me to a sign that said the coupon was no kid. After that, nothing. No consolation, no sorry, no admission of inconvenience. Even the girl who was talking to this boy started laughing. I don’t know if she was laughing at this, but I thought so. As I walked through the store, disappointed, I thought to myself, “Why should I bother to rent any movies if they don’t even appreciate my business?” I started to think this way; Blockbuster corporate intentionally sent this out so I would respond with “Gee, I’m here, let me rent a movie.” I left the store with my wife. Looking for other options, I decided to sign up for Netflix. The only reason why I went back to the Blockbuster was to 1) Look for movie ideas for possible rental from Netflix 2) Take advantage of the “Going out of business sales”. Karma is a mofo, isn’t it? LOL.

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16 freebird

I think a more appropriate title would have been ‘Blockbuster killed Blockbuster”

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17 Movie Guy

As a former Hollywood Video (actually the company is called Movie Gallery) mid-level manager, I can say with certainty that it has been a combination of both. Netflix has an excellent business model that is primed to be very profitable for several years to come and it hurt the video stores most in urban/metro areas. Redbox also has a nice business model and did more damage to video stores in smaller cities and towns. While Redbox has a smaller selection, you may be surprised to learn that on average only about 4% of rental revenue was generated from non-new releases (at least that’s how it was a year ago when I left.)
For almost 10 years, it has been popular for people to surmise that video on demand did a lot of harm to video stores, but the fact is that VOD has an incredibly small market share to this day.

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18 Nomo Blockbuster

Who cares who killed Blockbuster? The point is that Blockbuster is dead or dying.

It may not have even been Redbox or Netflix that did the killing. There is a saying that empires are not brought down from outside forces, but rather from within. The Blockbuster Empire brought this upon itself and now that it’s facing its own demise, it cannot contemplate what happened and wishes to place the blame on its customers and competition. Absolutely shameful.

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19 Money Reasons

I know this is going to sound lame, but I’ll miss BlockBuster!

Not necessarily for the new releases, but for scanning old classic kid/family movies that I enjoyed as child. I want my kids to experience the same enjoyment. I believe that some movies from my childhood has value even my kids could appreciate.

Oh well, I guess it’s not like they would really miss it. and I can probably find it at the library, but…

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20 Duder

Who wants to stand in line outside a gas station and wait to see that redbox doesnt have the movie you want? Who wants to stand around in the super market with 3 ornery kids while someone flips through all the movies redbox is checked out of. This company is the most unpeople friendly business ive seen and its annoying that people think theyre taking advantage of a good deal. Redbox is owned by coinstar who take 8 cents on every dollar you cash in at their machines. sound like a fair deal? Redbox is even moving forward on getting rid of their customer service call centers. Got a complaint? too bad write an email and see what happens. I’ve been renting at my local blockbuster for years and i can say a store with the right people is worth its weight to you and your community. Sure ive been late on movies but youll see that having the right attitude and talking to the right employee they are more than happy to work something out with you. Thats the other thing the people that work at blockbuster are people you know. people who drive your kids to football practice. people you grew up with in your community that blockbuster as a company supports and gives charity to. A push towards Redbox is not only a blow to companies like blockbuster but to the movie industry itself. why go see avatar for 16 bucks when i can wait 3 months and get it for a dollar? why support a company that got its footing filing lawsuits with most major movie companies like redbox did? The new trend the movie industry wants are “windows”. dvd sales are on the decline so if a movie like the blindside is held back 30 days the distributors are hoping you will be more likely to purchase it rather than rent it. blockbuster has always worked with distributors to rent and sell at the right price. which is why they are the only ones renting from warner and universal and hopefully soon fox non thier street dates. in times of a recession like weve had people need to be more conscious of who theyre giving their money too. promote jobs not computers.

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21 Nomo Blockbuster

It is very difficult to support jobs at Blockbuster when a majority of the people holding those jobs haven’t got a clue. A lot of Blockbuster employees have not seen those ‘classic kid/family movies’ and probably never will. These employees can do better elsewhere.

The distributors have Blockbuster on a very short and tight leash because the moment that Blockbuster cannot pay, the studios will restrict availability. Blockbuster is already bleeding cash so the odds are slim to none that the studios will allow it much longer. Although movies like The Blind Side and Sherlock Holmes are available to Blockbuster four weeks before the competition, the competition is so great that it will make up for the lost revenue in about four DAYS.

It’s safe to say that a majority of customers are willing to wait rather than set foot in a Blockbuster again. That is how much Blockbuster is frowned upon by society and that is how much people want it gone.

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22 Annie

I am not sorry to see Blockbuster go as I have not stepped into a store in 10 years. I was late in returning a movie and was threatened with “We will send your account to collections” after being 7 days late. I asked how much I owed (don’t remember the dollar amount), but I took it in in PENNIES. When I received their coupons, etc. I sent it back with “RETURN to SENDER”.

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23 Dane

I been renting from blockbuster for years and I never thought about joining netflix. I think for me, I generally like the idea of supporting the company because unlike many, seeing thousands of people lose their jobs because I’m too lazy to leave the house doesn’t settle well for me.

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24 Jen

This has nothing to do with laziness, this is about service, price, and variety. I used to rent video games from Blockbuster, but they became far too expensive and most games have demos now. I hardly rented movies because of price, lack of movies I wanted to see, and rental time. I signed up for Netflix in April so I can instantly stream videos to my Xbox 360, Wii, PC, or netbook. I can’t even remember the last time I went to Blockbuster to rent a movie and actually got the one I wanted. Netflix even has shows I like to watch. And with instant streaming, I can suddenly decide to watch something when there is nothing on TV or if I have company. You really should think before you make comments about others being lazy. And believe me, I understand the affects of people losing their jobs because my mother lost hers, but I don’t think that is an excuse for an out of date company to continue their same old lame way of business.

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25 Nomo Blockbuster

Hallelujah! The company is going to file bankruptcy at last! That means fewer stores, fewer annoying employees and one step closer to ultimate liquidation. It really is for the best…

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26 Tom

But, then … those ‘annoying’ employees will just come to YOUR workplace and work with you.

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27 the watcher

i have both netflix and blockbuster,and they both have falts.but the one that really has me wanting to look for a better way,is blockbuster’,thay don’t deliver
what i order,( three at a time)and the order on my que gets shifted around with out me,but they are the only one that i can even slightly get the latest releases within 2 weeks of the relaese date,netflix is at least a month late,and red box is longer.the only one that even a little on time,is pay per-view and they nicole and dime you.If blockbuster would deliver 3 at a time or whatever the deal is,and the order i ask for,i wouldn’t need netflix,or visa-versa.

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28 Nomo Blockbuster

UPDATE: Blockbuster has failed in bankruptcy proceedings and is now being put up for sale. The question is who in their right mind would bother buying Blockbuster? Summit Distribution LLC, the movie studio behind the ‘Twilight’ movies, has demanded Blockbuster pay up or liquidate, but Blockbuster hasn’t got the cash. Blockbuster really ought to put itself out of its misery and liquidate already.

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