This report shall be a case study on change management and it shall focus on one particular company. However, rather than focus on a gleaming example of change management done right or a company that emerged stronger when it came to the practice of change management, this report shall instead focus on a company that did it too wrong and too late. Indeed, Blockbuster Video used to have a commanding share of the video rental market. However, they failed to read the proverbial tea leaves when it came to the paradigm shift to streaming and the use of kiosks like Redbox and this ultimately led to them being acquired and eventually folded in terms of a physical store presence due to Netflix, Amazon Instant Video and Redbox (among others) clearly supplanting them to the point where Blockbuster was rendered obsolete. While Blockbuster had ample opportunity to take advantage of the streaming revolution, they botched the chance more than once and they paid for that mistake with their existence as a viable firm.
Analysis
The initial situation that was facing Blockbuster was the emergence of streaming video as an alternative or even a replacement (depending on the person) to the conventional ways that video was rented and consumed in the past. Indeed, it was true for quite a while that a movie would come out in the theaters and then it would eventually come out on video. Rather than having to commit to buying the movie, sight unseen or not, for a decent amount of money, people would instead rent the movie from firms like Blockbuster for a fraction of the cost. Whether it be to check out the movie before buying it or to just have something fun to watch for the night, it was seen by many as a good intermediary between buying the movie and just skipping it altogether, let alone other less viable or obvious options like getting HBO or other premium channels, pay per view, or other items. This all started with the VHS tapes of yesteryear and there was then a transition when Blu-Ray came out. Blockbuster was made even richer when Blu-Ray and video games emerged as things that could be rented. Blockbuster was obviously not the only game in town as Kroger and other stores and shops did the same thing. However, Blockbuster was surely the most dominant.
However, things started to change not long after the internet came to prevalence in the 1990’s. While viewing video over the internet was not remotely viable in the early days of the commonly used world wide web in the 1990’s. However, that started to change over the 2000’s time period during the same of George W. Bush and the earlier Barack Obama years. Dial-up internet gave way to more and more people getting broadband. At first, it was music files that were traded and downloaded in great numbers, both legally and illegally, through venues and arenas like Usenet, Napster and the earliest manifestations of the iTunes and Amazon stores. It got to the point, though, there viewing a video over the internet was something that could be done fairly well and efficiently. This is when Amazon Instant Video and Netflix started to emerge and this should have given Blockbuster a lot of pause. However, it would seem that they did not see the writing on the wall (Graser).
The singular moment that proves all of the above was explained in a 2015 story by the Business Insider. Indeed, Blockbuster was given the chance to acquire a firm that would have placed them in the streaming echelon in a firm way, and with an established player in that market. That player was none other than Netflix. In 2000, Blockbuster had the chance to buy Netflix in its entirety for a mere $50 million. Reed Hastings approached then-CEO John Atioco and offered to sell the company for that price. The rationale given for not pulling the trigger on that transaction was that it was a “niche” business and would not be worth the money paid. Of course, we all know now what a foolhardy and silly decision that was given the value of Netflix and Amazon (among others) and just how much content is done online in one form or another. It is to the point that Netflix, by itself, is worth nearly as much as CBS. That figure is at about $32.9 billion. They also had 50 million subscribers in forty countries, also as of 2015. Even music has shifted to streaming and firms like Apple don’t even make the iPod Classic anymore. Music and video have both extended into a streaming form rather than requiring people to lug around DVD’s, music CD’s or a big hard drive. Coupled with the expansion of data bandwidth and the associated plans with carriers, people are basically able to play and listen to what they want without having to worry about local space requirements. It is clear that many people saw this coming but John Antioco clearly did not (Satell).
Indeed, that is a huge part of what makes or breaks proper change management. Change for change’s sake is a faulty proposition. Also, change for the wrong reasons or without the proper due diligence is also a miscue that can make or break a company and the “break” part is what happened with Blockbuster. To be sure, change management as a practice and idea exists on a spectrum. There is a balance to be struck between change too soon (or in the wrong way) and changing too late. There are those that see what is to come and those that drag their feet and try to stand pat with what they are doing right now. Blockbuster was on the latter side of both of those spectrums. There are indeed niche entities in the video and music spectrum. Just a few of those would be Tivo DVR’s (versus streaming or cable company DVR’s) and those that make use of the program known as Plex, which allows for local file copies of movies or music to be streamed and played without having to worry about internet bandwidth or switching out discs. This is a break from streaming in that bandwidth is, of course, one of the needed pieces to the puzzle (Nesvig).
Even with Blockbuster stumbling out of the gate and realizing a tad too late that streaming was not a niche proposition and that it would, at least up to now, be the wave of the future, they did try to compensate for their miscue after they made it. Before getting into its late entry to the streaming echelon and its failed attempt at change management, a little history should be offered. The history to be offered will start around the time that the prior-mentioned World Wide Web came to prominence. Indeed, that happened in the mid-1990’s and Blockbuster was the undisputed king of video rentals in 1992, just a few years prior. In 1994, Viacom purchased Blockbuster. Viacom was and remains the owner of the aforementioned CBS. As such, it was clear that the media company was trying to expand and diversify its media power. Anyhow, the aforementioned Reed Hasting decides to create Netflix, at least in part, because of a $40 late fee for a single video being returned late, to Blockbuster no less. In 1999, Blockbuster was taken public by CBS/Viacom. Something negative started to emerge in 2000, the year that they balked at buying Netflix. Indeed, they very much became a bank in terms of how they got a lot of their revenues. In 2000 alone, they took in $800 million in late fees. Those late fees alone accounted for about sixteen percent of their revenue. Two years later, Netflix themselves went public. Just after that, Blockbuster was still growing but they hit their apex, never again to be surpassed, in 2004. There was dissention in the ranks as investor activist Carl Icahn was angry (along with others) and Antioco decided to thrown in the towel and leave. Just three years later, Blockbuster file chapter 11 and had to use that to wipe out roughly a billion in debt. In light of that bankruptcy, the assets of the firm were snapped up by Dish Network. They were able to get the assets for a mere $234 million and they immediately closed 1,700 stores right after the sale completed. In 2012, even more stores were closed. In 2013, the last of the stores were closed down (Phillips & Ferdman).
As for the change management that occurred from 2000 to the present, it has already been established that Blockbuster had a chance to buy Netflix and said no. Once Netflix came into its own after that denial, Blockbuster did indeed float or try a few things to try and survive. One option came mostly when Dish Network became involved and that was a branded service online that was supposed to rival Vudu (Wal-Mart), Netflix and Amazon. Of course, that never really materialized. Something else that was floated was using the Blockbuster stores as a platform to sell cell phones given the rampant growth and success of the smartphone market that is currently dominated by Apple (iPhone), Google (Android) and Microsoft. However, that never even got off the ground (Phillips & Ferdman).
As should be clear by now, the decision not to purchase Netflix or offer an alternative that gave the same promise was what led to the demise of Blockbuster. They did try to compensate and evolve after their bad decision in 2000. However, they dawdled and the changes they offered and tried were either the wrong ones or they came entirely too late. One could say that the same paradigm shift is underway with retail. Indeed, Amazon started as an online store and is starting to shift to a brick and mortar store as well. While Wal-Mart and a few other chains (mostly grocery stores) are still doing well, other chains like Best Buy (who basically has a monopoly when it comes to dedicated electronic stores), K-Mart/Sears, JC Penney and Kohl’s are all either waffling, falling or near death. Wal-Mart, as compared to Blockbuster, has reacted in a very good way. They know that grocery stores and hard goods stores will never fall away completely. Even video rentals are not entirely gone given that there are regional store changes (e.g. Family Video) and rental kiosks (e.g. Redbox). What has become clear is that there was not enough market space for Blockbuster to keep operating as they did. Coming back to Wal-Mart, they reacted the right way. They know that online integration and improvements are happening despite their involvement or lack thereof. This is why they are doing online ordering, why they have an online portal, why they have invested in Vudu, why they are offering curbside grocery pickup and many other things. Target and others have made similar or tangential efforts. On the other hand, Best Buy is really the only national electronics store out there (unless one counts the Electronics departments in general goods stores like Wal-Mart) and they are suffering greatly from “showrooming”, whereby people will check out a good at the store but will instead buy it on an online site like Amazon (Nesvig).
As for Blockbuster, they clearly should have read the proverbial tea leaves and shifted (in whole or in part) to an online service. Netflix does discs as well, but they do so via the mail rather than having physical stores and they have heavily pushed the streaming option so as to get people to adopt it more and more. They are very much like Apple in this regard. Apple cancelled the iPod Classic even though there was no heir apparent at the time that had the same amount of space. The iPod Touch is close to catching up but streaming is a huge part of the business now and that will not likely change. Blockbuster’s management (Antioco in particular) seemed to resist that even though it was fairly obvious. Icahn decided to leverage his status as a firebrand investor, but that was too little too late as well. As was mentioned earlier, Blockbuster earned so much of their money (a good part of a fifth) from late fees alone. Shifting to online only access (or for the most part) would have negated the chance to reap such fees. It is proof positive that revenues garnered mostly or solely through late fees and surcharges and not the core service itself is not a good business model. On the other hand, Netflix was (and still is) able to charge a fee per month and while they cannot provide every movie from every studio, their rampant growth in subscriber count and their incremental price increases has allowed them to buy more and more rights to movies and television shows. Amazon has carved out their own niche and they (along with Vudu) are able to offer a great number of movies and shows that can be bought on a permanent basis rather than be solely streamed. The business model of both Amazon and Netflix is extremely solid. It is just concerning and odd why Blockbuster would resist shifting from a penalty-based income to one that was flat, predictable and fairly easy to maintain and foster so long as the service is reliable and there are good titles, which there are. Further, Blockbuster was perhaps resistant due to the lack of a physical presence. While there are huge upsides to having most content stream over the internet with no physical items exchanging hands and the physical part of the process being done through the mail and centralized warehouses, there was surely concern about the lack of a brick and mortar presence. As we now know, having a physical presence has its time and place and is required for many situations. However, the United States and other countries have clearly come to a point where that is overrated and simply not needed in many instances. For sure, someone wanting a gallon of milk will need to get that from a local vendor, even if they use Amazon or another internet nameplate to facilitate the delivery or purchase (Satell).
Given the above, what should have happened is that Blockbuster could have played the best of both worlds. They could do what Wal-Mart is doing quite well right now and that is shift slowly from a ground-based operation to an online-only one. Rather than have to change in a quick and uneven way, they could evolve and change over time. As demand for physical locations tapered over time, they could shift more resources online, reduce their store count and/or use kiosks and even reduce their late fees as their other revenue streams came online. Indeed, Netflix was making use of a flat fee per month and people could keep any single video as long as they wanted so long as they paid that flat fee. Blockbuster would have taken a huge hit had they tried that while being ground-based only. In the end, Antioco was half-right. He was right that Netflix was a bit of a niche player in 2000. They were founded a mere three years before that and were still very much in their infancy. However, they soared very soon thereafter (Satell).
Even if the progress with Netflix was more gradual and slower than it actually was, they still could have used the Netflix market to transition away from their shoddy and penalty-based business model to one that was more embraced and more widely used. There was indeed some reluctance when it came to Netflix. However, people were eventually won over, Indeed, paying the price of 2-3 movies (if that) for a single month and being able to view a ton of different content, even if there were some limitations, was and remains a rather great deal. On the other hand, Blockbuster was commonly and pervasively making that same cost off of a single rental if a customer dared not to return that video on time. Indeed, what took place in the infancy of Netflix and the death knell of Blockbuster was a diffusion of ideas situation. If Netflix had tried their wares out a scant 3-5 years before they did, they may have failed. However, they started at precisely the right time and they were an industry giant within, basically, a brand-new market in less than a decade. While not on the level of Amazon or Google (corporate-wide, mind you), they have done extremely well for themselves and have performed at a level that most firms could not dream of (Satell).
Conclusion
Blockbuster apparently came to the conclusion that the streaming market was not the future and that Blockbuster could and should continue with their existing efforts and/or variations of those efforts within the same paradigm. They caught their mistake not long thereafter, but the die had been cast and the new market was on its way. By then, the market was basically an oligopoly and the big players and streaming companies were already established. In other words, Blockbuster figured out the right answer, but they did it too late and they were in an industry that was dying. Beyond that, their business model was built on quicksand and the indignation about their shoddy business model of fines and charging people ridiculous amounts for what should be much cheaper ended up being their downfall and in more ways than one. Blockbuster is surely not the only firm that has made this sort of miscalculation and they will not be the last. However, they should serve as an example of what not to do when it comes to business leaders and entrepreneurs around the world. The market can indeed be pushed and prodded by the right people, but those efforts should be the right ones and should be made for the right reasons. In other words, more like Apple and Google and less like Blockbuster.
Works Cited
Graser, Marc. "Epic Fail: How Blockbuster Could Have Owned Netflix". Variety. N.p., 2014. Web. 20 Jan. 2017.
Nesvig, Ben. "What Blockbuster Can Teach Us About The Cost Of Change". Dashe.com. N.p., 2017. Web. 20 Jan. 2017.
Phillips, Matt and Roberto Ferdman. "A Brief, Illustrated History Of Blockbuster, Which Is Closing The Last Of Its US Stores". Quartz. N.p., 2017. Web. 20 Jan. 2017.
Satell, Greg. "A Look Back At Why Blockbuster Really Failed And Why It Didn't Have To". Forbes.com. N.p., 2014. Web. 20 Jan. 2017.
