What actually killed Blockbuster (it wasn't Netflix)
Tyler takes a trip down memory lane through video rental stores, sparked by a random Nova Scotia reunion and his kid watching a video store simulator game on YouTube. He walks through the whole Friday night rental ritual, the smell, the ps2 sleepovers, the late fee arguments, and then breaks down what actually killed Blockbuster, and it's not what most people think. Turns out the most hated part of the business, those late fees, was quietly propping up a huge chunk of the company's revenue, and pulling that thread unravels a story about corporate infighting, a failed mail order gamble, and a rival chain most people forget existed. If you care about how companies handle customer relationships and what happens when short term decisions wreck something people actually loved, this one's for you.
Shout out to Friends Who Pretend, the actual play podcast from Nick and James: https://podcasts.apple.com/us/podcast/friends-who-pretend/id1743693947
at the time of recording this right now it's about 97 degrees outside so I've got the door open To my little closet studio here with the fan running. So if you hear a fan in the background, that's why I Got my pop tart. I Got my zero sugar Dr. Pepper Let's get into this week. Shall we? When was the last time you left your house just to figure out what you were gonna watch Don't mean opening an app on your phone or your TV. I don't mean scrolling through a menu While you're eating leftovers, I mean actually Getting in
the car driving across town walking into a physical building and picking a movie up off the shelf Doesn't happen anymore, right? I'm not trying to be a smartass here. I'm genuinely asking because I was doing the math on myself the other day. And for me, it's been shit, something like probably probably 16 years. Yeah, about 16 years. Hey, everybody. Welcome to the show. I'm Tyler. Thanks for hanging out today. Today, we're going to talk about video stores, blockbuster Hollywood video, the sacred ritual. of the friday night
run and more importantly what actually killed that industry because spoiler alert the story you think you know it's not really what happened quick heads up before we dive in any further as always every opinion here is entirely my own it's not my employers it's not anybody else's just me so Two completely random things put this episode into motion this week first My wife and I we went up to Halifax Nova Scotia recently and While we were there I ran into my brother from another mother my best friend from back
in Tampa Growing up when did I meet him eighth grade? Haven't seen this guy in years like three four years so you know we're standing there in Nova Scotia laughing about hot dog buns and talking about you know my my other friend's dad you know some inside stuff and remembering just how much you know the three of us myself Nick who I seen in Nova Scotia and our other friend James the three of us used to annoy the uh the absolute hell out of my my parents and and their their parents then you know i get back home and i walk
into you know the the living room here my oldest zack sitting there on the couch watching uh what's the guy's name jack septiceye i don't know he was doing a video where he's playing a a simulator game about running a video rental store And I don't know something clicked the brainwires crossed. I don't question how my mind works. Just just roll with it. All right now Look, I I know I'm I'm gonna romanticize all of this a little bit. I get it the video store was also a place where You drove 15 minutes in the rain only to discover
that every single copy of the movie you wanted was already checked out All of them. Empty. Just empty shelves staring back at you. I miss it anyway. I really do. Is that a, I don't know, a rational coherent position? Probably not. And yeah, I won't pretend that it is. Because man, Friday nights back then, you knew what Friday night was going to be. Somebody hit the fast food drive -thru, maybe a Little Caesars. Somebody went to the rental store and going to the store, that wasn't an errand. That was the event. The
negotiation started the second you got in that car and the door shut. In my house, the rule was you got two movies and a video game. That's how I discovered Toe Jam and Earl. Remember that game? from Sega Genesis. And so I came across that was just some random game at the store that I got that night. But back to the point, the entire right over was just everybody aggressively positioning one one movie for the adults, one for the kids. The game is mine. Meanwhile, my sisters are making their arguments. And I'm in the backseat quietly keeping score like, you know. Like I've been doing since I don't know
1996 Oh Actually, no, well, yeah, probably my youngest sister wasn't born till 97. So yeah back to the point it was It was an experience. All right, you picked up the box. You turned it over you read the back with video games You were strictly going off the cover art Which is how I ended up renting some genuinely terrible garbage But it's also how I discovered a third of my favorite games of all time. And then do you remember the smell that specific carpet and popcorn butter smell of these video stores? Everyone
who ever set foot in a blockbuster knows exactly what I am talking about and literally nobody could describe it. Plus there was always a human involved there wasn't algorithms and AI trying to figure out what you wanted and usually guessing wrong But I mean you had some 19 year old kid Behind the counter who had I mean to his credit He probably seen every single title in that building and if you gave him even half of an opening he look at you like you were Holding and go hey man skip that try this instead Nobody was using algorithms that kid just really liked movies
and like sharing that fact that he liked movies And that's usually how you found the best stuff anyways, right? Then you get over to the counter And it's mom it's it's the moment of truth time either you're clean or you owe four bucks from three weeks ago that You completely forgot about And you can't argue it because it's right there on that stupid CRT monitor and your mom is standing right next to you. Candy price like, you know, straight up felony at the register. Got to pay that late fee. I still got a Blockbuster card somewhere from the last one that closed around
here. But the version of this whole, whole saga, this whole experience that lives written free in my head. This is from a few years later, actually. The Hollywood video out in town and country back in Tampa. Me and my buddy Nick and my buddy James. We'd hit up the store, snag a couple PS2 games, head back over to James' apartment, and boom, that was the weekend. That's what we were doing up until probably Sunday afternoon. I'm pretty sure, I'm pretty sure that's where I seen The Matrix for the first time, at James' apartment. At least that's what I remember. That's what's in my head. So I'm going to stick to that. We
take turns playing GTA 3. GTA Vice City later. There was an unwritten rule. You play until you died. You get too many stars, the cops finally run you down and you pass the controller over to the next guy. Everyone just understood that assignment. I don't remember too many arguments over that, which for three teenage boys is a kind of a miracle in itself. In the entire time we are absolutely destroying James's dad's, you know, pantry. I know we drank all of the dude's
soda. Eating all of his hot dog buns Nick and I talked about this the other day eating all of his hot dog buns not the hot dogs mind you just the buns and I was trying to remember why we would do that and Nick said we were slapping spam on their Spam sandwiches fry up some spam or whatever else we could find in the cabinets Just creating some Frankenstein food out of ingredients that were never meant to probably meet each other But you know, that's what we did James's dad, Mr. Anderson, if you're somehow ever listening to this podcast, I'm sorry, man. That dude put up with an unbelievable, you know, an unbelievable amount of nonsense from us. And I don't think
any of us ever properly said thank you for putting up with us back in the day. That was the hangout spot. By the way, those two are still doing this stuff. Nick and James. host a podcast called Friends Who Pretend. They basically play through movies and TV shows as a tabletop RPG. And the pitch is essentially, what if we remade this movie, but way worse? Half role playing, half improv, and the dice decides what happens. It was the exact same energy as three kids passing that PS2 controller around. Every time someone died back in the day Just with way better microphones
now, so check that out. I'll put a link to the show in the episode notes seriously Go check them out and give them a listen anyway back then you'd end up home and You know the night was set. Yeah, you were on the carpet You had your pizza and you were going to watch both of those movies because you paid for them and you were You know, because you had to bring them back by Sunday. You only get them for like three days or something. The last part, it does matter way more than I realized back then, because, you know, I didn't know. A leak fee. How much is that? You actually finish things not. Also, you know, not necessarily because they were good.
They could. Those movies or games could have been absolute dumpster fires, but because you paid Your money and the clock was ticking So Let's get into a little history here because I did a little research on this Blockbuster the blue and yellow brand started back in 1985 Had one single little store in dallas, texas by 2004 They had over 9 000 stores in like almost 85 ,000 employees worldwide. That's not just a company, that's a small city that happens to rent movies and video games. Now, jump back to the year 2000.
In 2000 alone, Blockbuster pulled in around $800 million. Just in late fees. $800 million in late fees. Remember, you don't get your stuff back on time, you have to pay those fees. That was roughly 16 % of their total revenue. Yeah, let it sink in for a second. 16 % of their entire business model was built on their customers forgetting to return their stuff. A dollar a day you forget to return Shrek on time, you get charged. The single most hated thing about the company was literally the main pillar holding that place
together. So what happens? Well, in 2005, Blockbuster finally listened to the complaints and they killed off the late fees. And they immediately started hemorrhaging, bleeding out. In the second quarter of 2005, right after dropping those late fees, They posted a loss of $57 .2 million. Late fee revenue dropped by nearly $138 million in a single friggin quarter. They removed the most hated part of the business and the whole house of cards folded over. It showed everyone what the business actually was. Now, here's the part. That gets
me because I actually used this service back in the day, for a little while. Right up at the end. My wife and I signed up for that. Do you remember Blockbuster Total Access? It was kind of brilliant. You got DVDs in the mail, just like Netflix. But, and this was the killer feature, this is why we went with it, you could take that DVD by mail into a physical blockbuster store and trade it in on the spot for a movie off the shelf That to me was just flat -out better than Netflix. I'm sorry. It just was You had the convenience of The the mail ordering plus the instant gratification
of the store Netflix They didn't have anything that could beat it. They didn't have any brick -and -mortar stores Blockbuster launched Total Access in 2006, and for a minute there, they were actually pulling in more new subscribers than Netflix. So how the hell did it fail? They killed it themselves. Every time a customer swapped a movie in store, it cost the company about two bucks instead of fixing The logistics corporate descended into a massive petty war over the CEO's bonus. The CEO at the time, John Anico, was pushed
out by 07. Famous activist investor Carl Egan brought in a guy who out of all places used to run 7 -Eleven and the new guy immediately pulled the plug on total access to protect short term margins. The same new CEO literally said in 08 that Netflix and Redbox quote weren't even on his radar. Great call, dude. You got it. You hit it right on the head. And then There's the
side of the story people always forget Hollywood video there was other video rental stores out there. It wasn't just the blue and yellow guys These guys were founded in 88 out of Portland by a guy named Mark waddles They had a game crazy attached to the back of their stores, which if you were a 14 year old kid in the late 90s That was the only reason you cared about which store you went to. Blockbuster, they tried to copy it with something called Game Rush, but Hollywood's version was ten times better and we knew it. So in December 2004, Blockbuster tries to execute
a hostile takeover of the rival Hollywood video. The FTC steps in. threatens anti -trust action and Blockbuster backs off. Ooh, don't want any part of that. To protect itself from Blockbuster, Hollywood decides to merge with Movie Gallery, a smaller chain of stores out of, what is it, Dothan, Alabama. The little guy wins, right? Well, no. Movie Gallery pays around $850 million for Hollywood. takes on hundreds of millions of dollars in Hollywood's existing debt. And the weight of that transaction eats them alive.
Movie gallery goes bankrupt in October of 2007. They file for bankruptcy again in February of 2010, liquidate the business and close their doors for good that August. 2 ,500 stores gone, 19 ,000 people out of work. Movie gallery... they didn't lose the streaming movie gallery won a corporate bidding war in the trophy that they got from it a little head on the wall kind of thing that's what killed them blockbuster filed for chapter 11 bankruptcy a month later in september of 2010 and then dish network bumped the corpse April 2011 bankruptcy auction dish buys what's left for about 320 million they I
don't know publicly promised they were going to keep the 1500 stores open and say 15 ,000 jobs Cut to November 2013 dishes announced that they're gonna shut it all down in the last 300 corporate stores were closed and the last remaining 2800 employees were let go Blockbuster Shot itself in the foot Repeatedly and with incredible incredible enthusiasm too. I might add but dish network bought what was left so When I look back on all of this a few big takeaways stick with me out of this number one The thing everybody hated
was a structural thing. They knew customers hated the late fees, but they kept them because they worked. And when they finally took them away, the financial floor collapsed. Any time a company is making massive profits off you making the mistake, that's not a bug. That's a feature they will defend right up until the day it destroys them. as it did. Number two, debt did most of the actual killing. Netflix gets all the historical credit for wiping out video stores, but movie gallery was lugging around almost a billion dollars in debt because two rival chains got into a dick
measuring contest over who got to acquire whom. Blockbuster was equally choked by corporate debt from its split with Viacom. When the market shifted toward digital, neither company Could really move on that not because they didn't understand the internet, but because they were leveraged to the absolute ceiling and number three we didn't Actually escape those fees now, did we? D a lot take I don't know D o D e l o i t t e Del o eat. I don't whatever just put out a study showing that the average U .S. household is now dropping
about $69 a month on streaming subscriptions. On top of that, around 68 % of subscribers are now locked into ad -supported tiers, up from 54 % just last year. That's going to bug me. How the hell do you pronounce it? Is it D -A -L -A -T -E? Watch this. I'm going to do... We're going to do a little Google here while I'm actually recording. Doy lot. Oh, I was way off. Hang on. How do you say this? I didn't hear anything. Oh, I got to change my audio settings. Hang on. We're doing this live. We're doing it live. Virtual. All right. Deloitte. Deloitte. There we go. All
right. I was way off. Deloitte. They're the ones that put the study up. So. We pay you know It's almost like cable at this point. We pay a massive monthly fee whether we're using that service or not and Then we sit there and we watch the ads anyways We used to you know pay two bucks one time for a physical plastic tape or a disk and We got mad about a dollar a day late fee when we messed up now obviously inflation and everything else I get it look you know I'm not saying The old days were objectively better. Rewinding tapes was annoying. Driving across town only to find out someone already rented the last copy of Gladiator. That was pretty stupid.
But we traded a model that had clear boundaries for a model that has zero edges. And I don't think Looking back, hindsight's always 20 -20, I don't think we got the better end of that trade. The people who made out like bandits on the deal were definitely not us, and they definitely weren't the 84 ,000 retail workers who lost their livelihoods. Which brings me to the actual reason I made this episode. I kind of want to open a video store.
As dumb as that sounds, I'm dead serious though. Movies, video games, maybe a slushy machine that is slightly broken at times like McDonald's and their ice cream machine. A giant, I don't know, new release wall you walk up to. If there is any disc to actually put on that later, but... It may be a shelf right up front for obscure, you know, those those uh terrible movies nobody else wants to rent but that I like and Whoever else works there might like and recommend, you know I Would no doubt lose money immediately I've accepted this but man I would love to I
Don't know lose money in a building that smells like vintage carpet and buttery popcorn You could do some video games, you know, like I'm thinking we could, uh, because nobody has a VCR anymore, or even a dedicated DVD player for that matter. We could rent the hardware, buy up all the VCRs and DVD players off of eBay. We could rent the machine in, in, you know, have a bunch of old movies through, I don't know, seventies, eighties, nineties, all the way up through the day, rent out games. I don't know how any of this would work. I'm just, I'm thinking out loud. But that's gonna do it. I've already went too long in this episode. That's the show for the week If you want to follow along with the podcast make sure you hit subscribe wherever you're listening right now You can find all other projects over at Tyler
Woodward .me and hey If you feel like buying me a cup of coffee just to support the show you can do that at Tyler Woodward .me as well Alright, so I had this whole elaborate ending kind of written out about nostalgic the nostalgic smell of old carpet. Honestly, it was kind of beautiful, or at least it looked like that on paper. But then I read it out loud and it sounded like a bad commercial, so I cut it. Now I've got nothing. That's all me. Anyway, be kind, rewind. I'm keeping that. That's the ending. I'll catch you guys next week.
