I chose Jack’s article about the downfall of the one-time video rental giant Blockbuster, due largely to my own personal experiences with them throughout the years. Having rented many Blockbuster movies during the 80s and 90s, I can safely say that I was extorted (robbed) of countless late fees for failing to return those movies in what Blockbuster deemed a timely fashion. It wasn’t just the late fees however, but also the added frustration of speeding across town (catching every red light of course) in order to return movies before the store closed for the day. Therefore, when I read Jack’s source article revealing Blockbuster’s financial woes, my curiosity was naturally piqued.
Jack starts out by suggesting that Blockbuster’s demise can be attributed to both technology and convenience, and I absolutely agree with him for several good reasons. First, it’s a well-known fact that technology usually leads to new and better products and services; the ones consumers want and are willing to pay for. Secondly, ignoring technology not only causes stagnation, but also affords your competitors the opportunity to steal your customers (the ones desiring a better product) away from you; after all, who doesn’t want a better product or service? As for convenience, very few—if any—consumers are going to drive across town for a product or service if they can purchase a comparable product (substitute) just around the corner, or better yet, from the convenience of their own living room.
After reading his source article titled “Blockbuster Reports Fourth Quarter and Fiscal-Year 2009 Financial Results” I couldn’t help wondering how this once mighty video mogul ended up in such dire straits. After all, Blockbuster not only owned the lion’s share of the video rental market, its name was synonymous with renting movie videos—everyone had heard of Blockbuster, even those who didn’t rent movies had heard of Blockbuster. Blockbuster, because of its extensive advertising and relatively few rivals, had managed to create a powerful brand name, one so powerful in fact, that it—at least initially—helped generate enormous profits. However, this impressive stream of profits would come to an end, because this same name that generated such huge profits, would eventually lead to its demise. How did this happen?
Earlier, I mentioned my own frustrations regarding Blockbuster’s charging of late fees, and as it turns out, others shared my frustrations as well—many, many others. So many others in fact, that its name was now associated with exorbitant late fees and unreasonable return times. As Jack noted in his article, Blockbuster made the monumental error of not purchasing Netflix for $50 million when it had the chance in 2003, and as a result of that error, it now finds itself on the losing side of a classic case of dominant strategy, because no matter what it does now, it appears that Netflix and Redbox own the dominant strategy.
If only Blockbuster had taken the time to read the writing on the walls and pursued those innovative technologies necessary to provide its loyal customers with the convenience they desired, they'd probably be much better off. However, not taking these necessary actions has resulted in a massive leftward shift of its demand curve, one which has led to the closing of hundreds of its stores nationally in a desperate attempt to reduce fixed costs and maximize profits, or more accurately, minimize its losses.
