Blockbuster blew $8 billion. We’re still paying for it

A complete corporate disaster. Blockbuster stuffed up so badly that the world started walking down a path away from one-off payments and towards subscriptions. And the best part is, Blockbuster's demise was baked in from the start. It just grew so fast the problems were hard to see... for a few years. 0:00 Intro 9:10 The VCR 19:09 The War 24:42 Hello Rental Industry 28:15 Welcome To BlockBuster 36:00 Huizenga 40:27 Viacom Era 44:51 Injured By DVD 48:59 Enter The Wolf 50:43 The Collapse Hosted on Acast. See acast.com/privacy for more information.

• 0:00Speaker 00

  This one is dripping with hubris. I mean, everyone in it is basically oblivious to how screwed they are until it's too late. It's kind of what makes Blockbuster the perfect business downfall story. And it's weird because there's really no shortage of smart people in this story. I mean, the main guy started three Fortune 500 businesses, three of them. Another one was a key person in the success of Walmart and another one was a genius who resurrected Taco Bell in the early 1990s. I mean, they're all good at their jobs, but they failed miserably when it came to Blockbuster. And they stuffed up so badly that the entire entertainment world changed.

• 0:45Speaker 00

  It's arguably even bigger than that. I reckon the downfall of Blockbuster helps inform a big part of our economy now. It punctuates the switch from one-off payments towards subscriptions. Blockbuster, it stuffed up so badly that Netflix and others were able to convince the world that ongoing payments are better, which of course they're not really. But here we are paying $18 or more a month for a handful of streaming services that we often just forget to cancel. In this episode, we'll talk about Blockbuster, which is a spectacular corporate stuff up. But we'll also talk about the bigger picture that it now fits into.

• 1:30Speaker 00

  Convenience and the way that's presented to us. And then how businesses charge for it. This is massive, world altering stuff. But before we kick off, two truths and a lie, Blockbuster edition. I'll give you three facts. Two of them are real, one of them is a lie. See which one you think is the lie now and then see if you figure out differently as we go. Number one, the first licensed video cassettes were sold by studios at about $100 each. Two, Mr. Rogers of Mr. Rogers Neighborhood fame was instrumental in saving the VCR from being banned in America. And three, the last Blockbuster in the world closed in 2018. Rob, thoughts?

• 2:17Speaker 01

  It's a hard one. They're all pretty plausible.

• 2:19Speaker 00

  Hmm.

• 2:20Speaker 01

  Like, I wouldn't be surprised that VTRs cost that much money at the beginning. It's new technology. I'm going to go with number three because it's part of the feels like Blockbuster hung on a little bit later than that.

• 2:29Speaker 00

  Twenty eighteen. Okay, interesting, interesting. All right, I like it. I think you've thought through that. This is Who Wants to be a Millionaire? You didn't need to phone a friend or anything. That's, that's straight up. I like it. Okay. Rob's going with number three. But keep that in the back of your head. We're going to come back to them at the end.

• 2:46Speaker 00

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• 4:05Speaker 00

  The thing is, stories like this are never just one thing. I mean, Blockbuster is also an incredible story about growth. I mean, if you want to make a business that completely dominates for a few years without necessarily being the best at anything, then Blockbuster is your perfect lesson. I mean, did you know that between nineteen eighty seven and nineteen ninety four, Blockbuster opened three thousand video rental shops, more than one a day for seven years. The only other businesses on that level in terms of store growth ever, Subway, McDonald's and Starbucks, Rob, that is going at a full gallop, like three thousand, like, you know what I mean? That's massive.

• 4:47Speaker 01

  They're everywhere.

• 4:48Speaker 00

  They are everywhere. It's kind of hard and it's gonna be a challenge in this episode for anyone younger to understand just how everywhere they were.

• 4:56Speaker 01

  Yeah, every corner.

• 4:58Speaker 00

  Every bloody corner.

• 4:59Speaker 01

  I'd say, you think about how much people watch now, people were still watching as much then, but it was just different.

• 5:03Speaker 00

  It was different. I'm so excited actually to get into this story because it's, it's cooked, it's bonkers and it's so forgotten about. It was kind of this massive thing that went completely parabolic for fifteen years and then it just started dying and now it's dead, you know, like it's a real, it's a real moment in time, particularly for people our age.

• 5:22Speaker 01

  Yeah. It's a, it's a proper roller coaster. It goes up, it comes down and then you end at the bottom.

• 5:27Speaker 00

  That's right. I mean, the thing to know about Blockbuster really is that it was all about growth. That was the main strategy and it was so busy growing, it didn't see all these other things that it was getting wrong. In fact, Blockbuster's demise was really baked into it from the very start and now most young people don't even know what Blockbuster was.

• 5:50Speaker 01

  No, no idea.

• 5:52Speaker 00

  Rob, how old are you?

• 5:53Speaker 01

  I'm thirty five.

• 5:54Speaker 00

  Thirty five, okay, so we're similar vintage here, which means that we know what a video rental shop was like. And so if I asked you, what sort of videos were you going to directly when you were, you know, twelve on a Friday night, what would be the answer?

• 6:09Speaker 01

  Well, I was probably going to sections that I wasn't allowed to be in to start with and then mum or dad would have to drag me out and go, no, no, here, have, here's The Lion King. I, I remember being drawn to like big bold text and although I can't recall ever watching it, The Full Monty had huge yellow font that said The Full Monty and I would see it every time I was in there and go, what is this movie? What's it about? And mum and dad would go, no, you won't like that, here's something else.

• 6:33Speaker 00

  Yeah.

• 6:34Speaker 01

  But every time I'd walk in, I'd see it there in the video store.

• 6:36Speaker 00

  Well, that's interesting lesson learned early about the power of, you know, large font. I was kind of the same, actually. Since you mentioned it, The Castle had massive font. It was one of my favourite movies as a kid. But for me, it was unquestionably, you know, The Mighty Ducks and Cool Runnings on repeat every single Friday night.

• 6:53Speaker 01

  Classics.

• 6:54Speaker 00

  They were weeklies.

• 6:55Speaker 01

  Yeah.

• 6:55Speaker 00

  You know.

• 6:56Speaker 01

  Weeklies are important.

• 6:57Speaker 00

  Videotapes. This is the thing, people don't remember. But so for me, it was definitely the same thing every Friday. Friday night, my family order pizza and we waited across the road at the Video Easy, which by the way, that's basically the same thing as Blockbuster Hay.

• 7:11Speaker 01

  Basically the same thing. Um, I have a feeling we may have gone to the same Video Easy as kids as well.

• 7:16Speaker 00

  I think we did.

• 7:17Speaker 01

  And you, I mean, it wasn't just movies there. You could also rent games there, as some people forget. And some of the things that I'm interested in now, later in life, due to the fact that, you know, I rented FIFA 98 on Nintendo 64. And where did I do it? At Video Easy.

• 7:32Speaker 00

  Yeah, I remember that. Video Easy EZY.

• 7:35Speaker 01

  Yeah.

• 7:35Speaker 00

  It was the same thing as Blockbuster. We just didn't have a Blockbuster in our suburb.

• 7:39Speaker 01

  No.

• 7:39Speaker 00

  So effectively, think of it as the same thing. The weirdest part about all this is that people under the age of 25 just cannot get their heads around it. Have you ever found yourself trying to be nostalgic about this with someone who's a bit younger than you and they're just like, I don't get it?

• 7:52Speaker 01

  Yeah, not at all. Yeah, some, some of my partner's cousins who are that age, and my partner used to work at a Blockbuster and she always talks about how cool it was because it's essentially a library of, of movies and you could walk around and go, what's this thing? What's this thing? Things you, you didn't know about when they got released in the cinema and then suddenly they have this new life in physical form. And kids of today look at you like you're crazy.

• 8:12Speaker 00

  And they had recommendations for you. You'd talk to the person, be like, hey, what's this like? And the idea was that they would have seen it and they're like, ah, it's pretty good, you know?

• 8:19Speaker 01

  And yeah, you know, to, to stereotype was usually a long-haired sweaty man who'd go, hey, you should check this out. It's really good. And you're like.

• 8:27Speaker 00

  A cinephile.

• 8:28Speaker 01

  Yeah, trust me. This guy knows. He's here all day.

• 8:31Speaker 00

  Yeah, that's right. Yeah, I remember that guy. It was massive. It's kind of hard to explain how massive it was. And, and the one who owned this world was Blockbuster, of course. There's really nothing to show for that entire thing now. I mean, the video easy that I was talking about, that's an Asian grocer now. You know, it's not even the bones. You wouldn't know it was there, but God, it was huge.

• 8:51Speaker 01

  Do they still sell popcorn there?

• 8:52Speaker 00

  Probably.

• 8:53Speaker 01

  You probably. They might still have.

• 8:55Speaker 00

  They might have to.

• 8:56Speaker 01

  They might have popcorn there.

• 8:57Speaker 00

  But, but the thing about Blockbuster really is that in a way, it's, it's a passenger in a much bigger story. And that story is about Hollywood and how Hollywood makes money. So act one in this tragedy is titled the VCR because it's kind of hard not to start there. And my God, VCR are three very important letters I have learned. You might be listening to this and saying, I actually don't know what a VCR is. I was born after 2000, so you need to explain it to me. And fair enough, no shame. Really quickly, VCR stands for video cassette recorder. And it was about the size of, I've been struggling with this, about the size of maybe three pizza boxes on top of each other.

• 9:39Speaker 00

  Rob, or like two reams of paper, the printer paper?

• 9:43Speaker 01

  Yeah, about that. They started, they started pretty big, but I feel like later in life they were getting a lot smaller.

• 9:48Speaker 00

  I think so too. And I've been really, cause it's a real, it's a, we don't have even that sort of technology that you buy. And it's like a, a thing, a box, you know, a physical thing that you put under your TV. So it's kind of hard to create a reference point, but that's about how big it was, I reckon. I think you're right. It sat under your TV and it basically let you do two things. Play pre-recorded movies or, or TV shows on plastic cassette tapes. And it could also record stuff from your TV onto those tapes to watch later. Now the tapes themselves called VHS, I mean, they're about the size of, they're about the size of a thick paperback book, I reckon. Let's use this. If you're watching that, I reckon is about the size of a VHS cassette. Were you in agreement?

• 10:32Speaker 01

  Yep, that's pretty good.

• 10:33Speaker 00

  I reckon, I reckon. Thank you, Kellogg's Book. We'll come to you next week.

• 10:38Speaker 00

  Sorry, not next week. We'll come to you later. We'll come to you. We'll come to you later. Those tapes, they were spooled with magnetic tape inside. You'd slot one in the machine and it would whirr and click and the movie would start playing through your TV. It's all very analog and Rob, I'm feeling pretty old because I remember this tactile thing very well. Do you remember the sounds that it would make?

• 11:00Speaker 01

  There'd be a big whirring noise and you'd have to wind it up.

• 11:03Speaker 00

  You had to rewind them. I should say that. Particularly, it was a courtesy thing. You had to rewind it.

• 11:10Speaker 01

  And it was often the case that at your Video Easy or your Blockbusters, there would be a sign saying, please do this. Otherwise, poor man behind the desk would have to do it all.

• 11:20Speaker 00

  Possibly even a fine in some cases.

• 11:22Speaker 01

  Possibly even a fine. The fines, the fines system, I think is a whole nother episode.

• 11:25Speaker 00

  The whole thing, we're gonna get, we're gonna get so, so far into the fines thing here.

• 11:30Speaker 01

  The, but like, my family at home, mum and dad, knowing that they would be the ones who have to do it, were really reluctant to get a nightly. Three days or a weekly was what we could do. They go, get as many of those as you want. But they didn't want to have to get up early on a Saturday morning, rewind it and then head back to the video store. That was a big deal.

• 11:48Speaker 00

  That was a big deal. I remember that too. It was the weeklies. The parents were like, have at it, get as many weeklies as you want. They're pretty cheap and, you know, I can forget about it for a while. But the other thing about these tapes is that because it was like a physical strip of magnetic tape, they would wear out in certain parts. I mean, being an adolescent boy at the time, you know what I'm about to be talking about, right?

• 12:09Speaker 01

  I do, I do. And having an older sister who was allowed to get the MA 15 pluses and me being a pervy 13 year old, I would be like, what's this thing they're watching? I'm gonna check this out when everyone goes to bed.

• 12:18Speaker 00

  Yeah, for anyone too young to know, if you pause and rewind and pause and rewind in the same spot over and over again, the tape will wear out and it'll end up being really crackly and crap on the screen. And that happened a lot in, I don't know.

• 12:31Speaker 01

  And then you can't see the boobs.

• 12:32Speaker 00

  Denise Richards, can't see the boobs.

• 12:33Speaker 01

  That's it.

• 12:35Speaker 00

  Plenty of prime examples. We don't need to get into all of them, but a lot of you know exactly what I'm talking about. Obviously, the VCR was a huge invention. If you missed a TV show before that, that was kind of it. You had to wait for a rerun and there was really no way to bring a movie into your house. So put yourself for a second in your grandparents shoes. Let's say that it's the 1960s or early 1970s and it's a Friday night. And if you want to see a movie, I mean, you have to go to where they play the movies. That's the only option. You've probably looked in the newspaper to see what they're playing and at what time. And then you go down there and you buy the ticket and some snacks and you know, you go in. It's kind of not too different to how going to the movies works today, but there was no other

• 13:17Speaker 00

  choice when it came to watching a movie, no kind of, none of this convenience in your own home stuff. And because the post-war economy was flourishing in Western cultures, people had lots of money and they were going to the movies a lot. As a result, the movies were well-funded and they were getting really good about this time. Jaws, you remember Jaws? Obviously, Steven Spielberg's movie about a great white shark.

• 13:43Speaker 01

  Classic.

• 13:43Speaker 00

  Classic, Rob. Came out in 1975, had a global box office of $476 million. And if you adjust that for inflation, that's about 4.2 billion US today. Way more than the biggest box office hits of this century. And the budget, the total budget for that movie was $9 million. So the returns on a hit movie were incredible, like kind of just in the stratosphere. And so it's kind of not hard to see why they were dressing like they were in the seventies in Hollywood. I mean, wearing those massive gold chains and, you know, doing a lot of cocaine by all accounts.

• 14:25Speaker 01

  Yeah, definitely. And I think as well, what the VHS did, and in later life, the DVD, which we'll get to, is that they gave films a second go at it because there were some films that didn't do well in cinema and then they got into the video store and maybe it was because they had a cool cover or because the guy behind the counter kept recommending it. Suddenly it got this life and then people started to buy them more. And these people made a profitable film because yeah, it didn't do well in box office. But guess what? VHS and DVD, it made a lot of money.

• 14:54Speaker 00

  It's such a good point and there's a lot of people who are really big on that. Like Quentin Tarantino is big on indie films, got their start through the VHS.

• 15:01Speaker 01

  Matt Damon, Ben Affleck, they talk about it all the time.

• 15:03Speaker 00

  Totally. And it's a really good point and it kind of doesn't exist anymore. There's no, you know, it has to do well commercially from the outset. There's no real second chances, I don't think, in the same sort of way. So at this point, before VHS, it was already kind of a gold rush in Hollywood and they were throwing money around. I mean, the best example I've seen of this is probably Apocalypse Now. So good. Francis Ford Coppola basically financed the movie into a complete state of chaos, basically. It was 1976, they were filming in the Philippines. The budget blew out from 12 million to 30 million. A typhoon literally destroyed the set at one point. Marlon Brando didn't read the script and apparently decided that he only wanted to film at night.

• 15:46Speaker 00

  One day, Martin Sheen had a heart attack. Uh, the, the guy, the guy they got to provide corpses for the backgrounds of this war movie. He reportedly brought in real, real dead bodies.

• 16:01Speaker 01

  Hey, that's, that's a good crew member. He's doing his job well. I hope he got a pay rise.

• 16:07Speaker 00

  Can you, can you imagine having that conversation? Hey, man, um.

• 16:10Speaker 01

  How'd you get him to smell so bad?

• 16:12Speaker 00

  Just real quick, they're not real dead bodies, are they?

• 16:15Speaker 01

  What's that? That's, that's really realistic, that smell.

• 16:17Speaker 00

  What do you mean? You asked for dead bodies, didn't you?

• 16:20Speaker 01

  You asked for dead bodies.

• 16:23Speaker 00

  Oh, man. I mean, and then there's other stuff, like the Philippines army let, let them use their helicopters. But they had to keep on snatching them back without any notice to, to fight actual insurgents. Because they were real military helicopters. I mean, Francis Ford Coppola apparently had multiple nervous breakdowns and you can kind of see why. He later said, quote, "We were in the jungle. There were too many of us. We had access to too much money, too much equipment, and little by little, we went insane." I mean, my favorite bit's still the dead bodies.

• 16:56Speaker 01

  Have you seen the documentary Hearts of Darkness?

• 16:58Speaker 00

  No.

• 16:59Speaker 01

  So Hearts of Darkness is the documentary about the making of Apocalypse Now. And amongst film nerds, it's often considered that it is way better than Apocalypse Now. And Apocalypse Now is great, but this is. Beautiful, and it's been referenced in countless things since then. Uh, I highly recommend.

• 17:17Speaker 00

  It's magic. I mean, this is, this is chaos. Tropic Thunder, another good movie. That's kind of seems, after reading that, seems to be what, what we're talking about.

• 17:25Speaker 01

  Yep, that's what it is. There's that season of Entourage where he shoots the Medellin film. That's again, basically based off this. Community references it. There's so many things in TV and cinemas since then that basically reference Apocalypse Now and also that documentary.

• 17:39Speaker 00

  Kind of, it's, it's so good. Like, we had Too Much Money, we were a bunch of famous people hanging out in the jungle in Philippines and we went insane. I mean, what a thing.

• 17:47Speaker 01

  I mean, I'd love to have too much money and too much equipment. That'd be great.

• 17:51Speaker 00

  So good. Uh, but here's the thing, obviously, Apocalypse Now still made a hundred and fifty million dollars at the box office. I mean, kind of bulletproof. The whole business of Hollywood was completely insane and unstoppable. And the studios were in complete control. They decided which movies would be made. They decided when to release them and how long they'd be in cinemas. They decided when and if they got a second screening and eventually got played on the TV. And they dictated the prices of all these things. And then something they weren't in control of came along and changed everything. And that something was the VCR.

• 18:31Speaker 00

  Electronics companies Sony and JVC both brought out relatively affordable home VCRs in nineteen seventy five and nineteen seventy six respectively. So right during this Apocalypse Now kind of excess of Hollywood. And the movie studios did not like this. It was like, it's kind of like throwing a brick through their window with a note saying, hey, you know, I know you're making heaps of money exactly how you want to be making it. But we're going to hand power to anyone who buys our new toy. Because people could now record whatever they wanted and play it whenever they wanted at home. And so that meant war.

• 19:09Speaker 00

  The first thing to know about videotapes is that movie studios believe that they were outright illegal and they actually had a point. The studios thought they owned the content and the IP without exception. And that means that nobody can record it or watch it or resell it without their permission, which, I mean, it kind of makes sense.

• 19:29Speaker 01

  Yeah, it does.

• 19:30Speaker 00

  It's not a crazy thought. In fact, this is kind of how things still work today. Like if, if you or I wanted to record a bunch of sport and then play it ourselves, we wouldn't be allowed to do that.

• 19:40Speaker 01

  Yeah, I mean, if you ever sit to the end of a sporting game and they go to the credits, you often see a little thing basically saying that you can't rebroadcast this, which essentially is that you could tape it yourself, go down to a pub, put on a huge screen and get everyone to watch the game again. It's like, the game's already been played.

• 19:55Speaker 00

  Yeah.

• 19:56Speaker 01

  We've already seen this, but essentially that's what this is covering.

• 19:58Speaker 00

  I mean, any of the overlay that we're going to be showing on this podcast, we've paid for that.

• 20:03Speaker 01

  Yes.

• 20:03Speaker 00

  Like that, that is a kind of a commodity. It's interesting. In fact, the version of this today is that Getty Images, The New York Times and plenty of others, they're suing AI companies for training their programs on their content, saying that it is infringement of their copyrights, which is kind of the same thing. If, you know, the idea that a movie studio owns the IP, you can't be just videotaping it whenever you want. So, I mean, there's logic there.

• 20:28Speaker 01

  Yep. I'm not a lawyer.

• 20:31Speaker 00

  I'll be married to one.

• 20:32Speaker 01

  Yeah.

• 20:33Speaker 00

  And, you know, that's, that counts for something.

• 20:35Speaker 01

  That counts for something.

• 20:37Speaker 00

  Yeah. So these battles are kind of not uncommon and the 1976 version of it was all about the VCR. So what happened was Universal and Disney got together and launched legal action against Sony, seeking to ban the VCR, which would have had immediate impacts for all makers of the tech, including companies like JVC and Philips. But the court, you know, it takes time to hand down a judgment and the actual verdict didn't come until 1981. So in those years, millions of VCRs have been sold around the USA and the world. So the horse had already bolted and the liability in all this has grown exponentially. But here's where it gets wild. The court actually found in favor of the studios.

• 21:21Speaker 00

  Sony was found liable for the copyright infringement that all their customers were engaging in just by using their technology as it was designed to be used. Every VCR they had sold was now adding to this legal chokeslam thing that they had coming. Disney and Universal, they're obviously popping champagne and high fiving. Sony completely stunned and after the decision, the court sent the case to the district court to figure out how to handle it. They were looking at all kinds of stuff here. They were going to maybe ban VCR sales outright, compulsory licensing deals, which would have been, you know, exorbitant, straight up fines. You know, anything's on the table. It's kind of incredible to think, but Sony said, well, I mean, we're buggered if we take this lying

• 22:06Speaker 00

  down, so we might as well try to get the Supreme Court to overturn the decision.

• 22:11Speaker 00

  And they did. In 1984, by a very, very slim margin, Sony won an appeal in the Supreme Court and the whole thing was overturned. Now, Rob, do you know who Mr Rogers is?

• 22:24Speaker 01

  I know the name. I couldn't pick him out of a lineup.

• 22:27Speaker 00

  What if I said Mr Rogers' Neighborhood?

• 22:30Speaker 01

  No.

• 22:30Speaker 00

  No, it's because we're Australians. This was a massive TV show from 1968 to 2001 in the US was kids TV show and Mr Rogers, Fred Rogers was the guy. Tom Hanks actually played him in a biopic a few years ago.

• 22:43Speaker 01

  Okay.

• 22:44Speaker 00

  And I bring him up because he was actually weirdly a part of this case. Now, I don't fully understand what he was doing, being involved in all this, but he testified to a Senate Subcommittee that he thought, quote, "I just feel that any," I can't do his voice, "I just feel that anything that allows a person to be more active in the control of his or her life in a healthy way is important." Seems reasonable.

• 23:08Speaker 01

  Yep.

• 23:09Speaker 00

  That was it. It was kind of the main point. The gentle wisdom of this older guy in a cardigan, kind of telling the highest court in America that watching these things, if you want to watch them, is fine and good for you. Five justices agreed with Mr Rogers, the whole thing's thrown out and the VCR survives. So there you bloody go. Hollywood lost their battle in the end against the videocassette. But what they still had was a lot of power and they wielded it in a way that would give Blockbuster its start. I'm very aware that we haven't actually talked about Blockbuster yet. You kind of have to, you know, you have to set the table. The studios started selling videotapes, but they sold them for way too much.

• 23:52Speaker 00

  In 1977, while they were still in court trying to get these things banned, 20th Century Fox started selling titles like Sound of Music and MASH for a hundred dollars each. It's like 680 bucks today, if you adjust it for inflation, Rob. I mean, nobody's gonna buy that.

• 24:10Speaker 01

  Yeah, I don't like the Sound of Music that much.

• 24:11Speaker 00

  No, 680 bucks?

• 24:13Speaker 01

  No.

• 24:14Speaker 00

  That's way too expensive, especially given a whole family could still go to the cinema for about 15 bucks. I mean, it's kind of genius. They couldn't get the technology banned, so they ruined the economics of it instead. Smart.

• 24:28Speaker 01

  Smart.

• 24:28Speaker 00

  Smart. But there's always an unintended consequence. And while the studios were really trying to kill retail industry that they didn't want to be in, what they were doing was creating a rental industry. It became pretty clear pretty quickly that people weren't gonna buy a videotape for a hundred dollars, but they might rent one for three dollars. So that's what started happening. The first video rental businesses started popping up in the early 1980s. Once again, Hollywood wasn't happy about this. And, you know, Rob, they're coming off like weiners here.

• 25:01Speaker 01

  Are they ever happy?

• 25:02Speaker 00

  I don't, certainly not. I mean, these are guys who've just brought out The Empire Strikes Back, Raiders of the Lost Ark and E.T., and they're pissed off about the idea that people are gonna get to watch them at home, even if they're rented. I mean, come on.

• 25:18Speaker 01

  Just lack of foresight.

• 25:19Speaker 00

  Lack of foresight.

• 25:20Speaker 01

  Understanding that they could be making more money here, but instead they're, well, they're holding back.

• 25:25Speaker 00

  God, yeah, we're gonna get to that. But weinerish behaviour.

• 25:27Speaker 01

  Yeah.

• 25:28Speaker 00

  Regardless.

• 25:28Speaker 01

  Dicks.

• 25:29Speaker 00

  Dicks. They, so what they did was they lobbied the US government to outlaw the rental of video cassettes in 1983 via something called the Consumer Video Sales Rental Act.

• 25:41Speaker 00

  But of course, the train was already leaving the station. The brand new video rental industry was already making about a billion dollars a year. People liked it. Congress never even voted on that act. So Hollywood was just dragged, kicking and screaming every step of the way into this new industry of watching movies at home. They didn't want to change, understandably, but what they later learned was that they were about to start making more money than they had ever imagined. And fast. By 1987, the studios were figuring this out. So they started bringing down the price of videotapes. And when they did that, sales of VHS became the largest single source of revenue for

• 26:24Speaker 00

  almost all the studios, because they were able to sell new movies and their old ones too.

• 26:32Speaker 00

  See what I mean about hubris? I mean, it's kind of everywhere in this story. Before we even really get to Blockbuster, I think the funniest part about this whole section of the story is Disney. I mean, they were probably the ones who were most anti-video cassette. They held out for ages and then finally, in 1988, they released Cinderella on video and immediately sold six million copies.

• 26:57Speaker 01

  As you would, as you would.

• 26:58Speaker 00

  I mean, idiots.

• 27:00Speaker 01

  I recall one of the big VHSs that we owned as a kid was Fantasia by Disney, which is an absolute classic.

• 27:06Speaker 00

  Classic, right? They would have sold millions of those too. The point is, they could have been doing this for years. They would literally just being stubborn. They made, just on Cinderella, they made $180 million from an entirely new revenue stream just from one single movie. So, so sheepishly, Disney executives start throwing everything at video cassettes. By the mid 90s, I mean, we all know, videos were a massive part of Disney, truly like massive. They sold 32 million copies of The Lion King, Rob.

• 27:42Speaker 01

  Hakuna Matata.

• 27:43Speaker 00

  Hakuna, you know, Hakuna Matata.

• 27:46Speaker 00

  Like this was, this was the thing about Disney and they had been fighting against it. So to reiterate, Disney took Sony to court for eight years to make VCRs illegal. And just 11 years later, Disney was selling 32 million copies of a Lion cartoon based on Hamlet.

• 28:04Speaker 01

  There you go.

• 28:04Speaker 00

  There you go. It really does move along these industries, you know? The thing that they tried to strangle at great cost turned out to be basically an ATM, which is a wild little part of that story. So in the late seventies, these video cassettes were being sold for a hundred bucks. But by the late 1980s, they'd come down to about $65 each, according to this book, Built to Fail by Alan Payne, which is actually a really great source for this whole story. I'm using it quite liberally. At $65 to buy and $3 to rent, anyone trying to make money out of a videotape would have to rent it 22 times before turning a profit. And that's not including things like rent, staff, power, tax and the rest. And this is pretty much the most important thing of this whole story because it explains

• 28:46Speaker 00

  why video rental businesses were the way they were. A new movie came out with lots of hype. A video store buys it for quite a lot of money and has to immediately rent it as many times as possible before that hype and the marketing wears off. So they rent them for one night at a time. And if it comes back late, the customer is charged a fine, which makes sense. I mean, businesses need to keep that stock turning over. And if it's lost under your bed, then that's their investment that's not making any money. So the fine kind of makes sense. After a while, maybe after a month, the new video moves away from the new releases section of the shop into the library space, the weeklies or the three day rentals.

• 29:32Speaker 00

  Any rentals out of this area is pretty much a bonus for the business. People can take them home for a week because, you know, there's not as much demand. And that's the business model. That's the whole thing. The system worked. People understood it. They liked it. They didn't love getting fines, but the least they understood where they were coming from. And there's always a business that becomes dominant. And for video rentals, that was Blockbuster. It didn't invent the system, but it did take it national and then international. So on Blockbuster, it was started by a guy named David Cook in Dallas, Texas in October 1985. He was already pretty successful. He started Cook Data Services, which sold software to oil businesses of all things.

• 30:14Speaker 00

  He took that business public in 1983 and he made about eight million dollars, which he decided to pile straight into a video rental business that he called Blockbuster. So importantly, David Cook is not really a film buff or retail expert. He's more of a computer and data guy. And actually, according to a handful of sources on this, it was his wife at the time, Sandy, who told him that the stores should be bigger and brighter than the competition. And she apparently even designed the famous blue and gold torn ticket logo, which a lot of us will recognise. So maybe she is a bit of an unsung hero in this story, Sandy Cook.

• 30:55Speaker 00

  Which incidentally, Rob, I mean, if you put a barbecue on the beach, you're a Sandy Cook.

• 31:02Speaker 01

  You are a dad. You are a dad.

• 31:03Speaker 00

  Dad to dad, I thought I'd slip that in there and it would be okay.

• 31:06Speaker 01

  It was good.

• 31:07Speaker 00

  It's okay?

• 31:07Speaker 01

  It was good. Yeah, it wasn't too bad.

• 31:09Speaker 00

  It was medium.

• 31:09Speaker 01

  Yeah, I'm also just remembering that a kid in primary school told me that his dad owned Blockbuster. And now I'm realising that he was lying to me this whole time.

• 31:15Speaker 00

  Could have been a franchisee.

• 31:16Speaker 01

  It could have been a franchisee, in which case I hope he's doing okay now because he's clearly out of business.

• 31:20Speaker 00

  He's not in Blockbuster anymore.

• 31:22Speaker 01

  Definitely not in Blockbuster anymore.

• 31:25Speaker 00

  So right from the starting line, Cook's whole thing was growth. The first thing he did was build this big national distribution centre in Dallas. He licensed the business so that it could be franchised, which it was. And he wanted to open a thousand stores in the first five years. That was his goal. He basically made it so that a franchisee would sign up and a truck would roll out of this Dallas distribution centre. And the truck had everything that they needed, inventory, computer system, apparently even toilet paper for the bathrooms. Cook famously said, unload the truck and you're in business. And they were cash flow positive, a lot of them, really, really fast. So Blockbuster was off and racing. But David Cook actually didn't stick around. In fact, he sold the business when he only had 20 stores.

• 32:12Speaker 00

  And a slight departure, a really quick aside here because this is all sounding great, but the system that Cook expanded had kind of a monster lurking in it, which is the late fees. Initially, it's all pretty straightforward. We need people to bring the product back so that we can rent it out again. And that's fair enough. If you don't punish a late return, then people aren't going to make the effort to get it back on time. As with any incentive structure though, they could have gone with the carrot or the stick. The carrot could have been some sort of benefit or reward for on time returns. The stick was obviously the fines and they went with the latter. They fined people. That

• 32:55Speaker 00

  was initially just about a pragmatic approach to keeping stock on the shelves. But pretty soon, they started making a really noticeable amount of money from the late fees. So they became like a drug and Blockbuster got totally addicted to them. And if you fast forward to the year 2000, Blockbuster earned $800 million from late fees, 16% of total revenue. And of course, these late fees, they're annoying to people. It's kind of like a parking ticket. Whether or not you did the thing wrong doesn't really matter. The feeling of getting a fine is irritation and Blockbuster had attached itself to that feeling from the outset. But

• 33:37Speaker 00

  once you're addicted to that revenue, I mean, you can't just stop. You're just going to keep pissing people off, Rob.

• 33:43Speaker 01

  Do you remember the look on your parents' face when you'd go to the video store and they'd find out that there was a fine because of you? Because you'd lied that, you know, the overnight, the new release. And you go, oh, no, it was a weekly. You'd swapped out the piece of paper and they'd be like, we've got to pay a $20 fine, Chris.

• 33:59Speaker 00

  I remember that very well. It was a, it was a death stare at the counter in front of this person that you were kind of keen to make sure, knew you were a bit of a film buff yourself.

• 34:08Speaker 01

  Yeah.

• 34:08Speaker 00

  Embarrassing.

• 34:09Speaker 01

  Yep.

• 34:10Speaker 00

  I'll never forget that. You're absolutely right. But the point is that these fines, they do become really important in this story later. And hopefully I don't piss you off here because we're going to take a short break and I'll be back in a few seconds.

• 34:26Speaker 00

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• 35:07Speaker 00

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• 35:58Speaker 00

  Welcome back. Thanks for joining us. Here comes the big dog in this story, Wayne Huizenga. Sure, I mean, David Cook, he's the founder, but this guy, Wayne Huizenga, he is the reason that Blockbuster is a business that we all know about. He bought it off David Cook for less than $20 million in 1986, and he sold it in 1994 for 8.4 billion. 20 million to 8.4 billion in eight years. Not a bad situation.

• 36:29Speaker 01

  It's a pretty good return. Is he, is he the Ray Kroc of this story?

• 36:32Speaker 00

  Yeah.

• 36:32Speaker 01

  The McDonald's guy?

• 36:33Speaker 00

  He is, but I'd, I'd argue that he's even better than him because he did this three times. He built three different Fortune 500 companies that have nothing to do with each other.

• 36:42Speaker 01

  Wow.

• 36:43Speaker 00

  I mean, you could kind of make any sports reference you wanted here, but you could just also argue that he's probably the best general businessman of the 20th century. You know?

• 36:53Speaker 01

  Is he available to help my business?

• 36:55Speaker 00

  He's got other shit on at the moment, but he is, he is the goat like.

• 37:00Speaker 01

  Does he like podcasts?

• 37:01Speaker 00

  I don't know. Look, probably not. He's had his fingers burnt. He watched what happened with um Blockbuster. He made a, a ton of money.

• 37:08Speaker 01

  Yeah.

• 37:09Speaker 00

  I mean, he didn't walk away with the eight point four billion. He walked away with six hundred million again.

• 37:12Speaker 01

  Oh, boo hoo.

• 37:13Speaker 00

  Boo hoo. Sorry, Wayne. I mean, he's not normal. He's really good at picking winners. And I mean, in a way, this story is kind of about him. The other two businesses, by the way, from Blockbuster are Waste Management and Auto Nation. They didn't even have anything to do with each other, but on him, he started driving garbage trucks. He borrowed five thousand dollars from his father in law, bought one truck in nineteen sixty two, drove it himself at four AM, built this into Waste Management, which is one of the largest companies in America. And really, his whole philosophy is just about growth, spread, be huge. He's kind of, Robbie's kind of one of these dudes that people who are really into hustle culture are all about. Just work harder, just do more.

• 37:58Speaker 01

  Get up at four AM.

• 37:59Speaker 00

  Yeah.

• 37:59Speaker 01

  What are you doing at four AM? I'm, I'm awake.

• 38:01Speaker 00

  I'm, I'm awake. Well, he was driving garbage trucks, which worked out well because he ended up many, many times over a millionaire. So, you know, he was great. Within two years of the Blockbuster buyout, it had gone from twenty stores to over a thousand. So he knew what he was doing very, very quickly. Then it added another two thousand stores in the following three years. They had increased the total video rental industry on their own by fifty percent in just five years. They were going berserk and every store was full of people straight away. They barely had to advertise and it was doing something really well. Psychological choice theatre.

• 38:42Speaker 00

  Behavioral economists now say this is actually kind of quite important for people too young to remember. It's the physical version of browsing Netflix, but you're not sitting on your couch, you're walking down aisles. It's social, maybe, I don't know, Rob, maybe I'm just nostalgic here, but I miss this, walking down the aisles, pulling out a tape, looking at the back of it. There it is, the full Monty, you know, am I gonna rent this? It's kind of a big deal. I've only gonna have, I can only afford three movies to bring home tonight.

• 39:13Speaker 01

  Hmm.

• 39:13Speaker 00

  Choice Theatre.

• 39:14Speaker 01

  It's nice. I don't know.

• 39:15Speaker 00

  It's nice.

• 39:16Speaker 01

  Again, maybe it is just nostalgia, but it feels nice being able to see it physically, than being on your Netflix, your YouTube, whatever it is and going, what am I gonna look at? Here are all these different thumbnails, here are all these different pictures of things. And then you get that choice paralysis.

• 39:33Speaker 00

  Yeah.

• 39:33Speaker 01

  And thirty minutes go by, you have a fight with your partner and you go, oh, we're not gonna watch anything tonight.

• 39:37Speaker 00

  Yeah, screw you.

• 39:38Speaker 01

  Yeah.

• 39:38Speaker 00

  Yeah, I agree. And we do have to be a little bit careful not to get too nostalgic here, because it was also, like, the things that were annoying then are kind of what you think about now and think about fondly. Like, if you had one TV in the house, it's a lot of family politics here.

• 39:51Speaker 01

  Oh, yeah.

• 39:52Speaker 00

  What are we watching? There's no iPads, there's no watching another thing. Like, we are collectively watching this thing tonight.

• 39:58Speaker 01

  Yeah, we're watching the news at seven o'clock every night and that was a given.

• 40:01Speaker 00

  Totally.

• 40:02Speaker 01

  Had to be on.

• 40:02Speaker 00

  Or six, depending on which channel you're watching.

• 40:05Speaker 01

  Yes.

• 40:05Speaker 00

  I'm just saying.

• 40:06Speaker 01

  That's important, that's important to say, important to mention.

• 40:09Speaker 00

  I know. Look, this is all very important. But by nineteen ninety-four, Blockbuster already had nine thousand stores and about sixty thousand employees. Huizenga is in absolute top gear. And that's when he decided to sell, because he's smart. Now, when you're making shitloads of money and opening thousands of stores a year, people notice. And one man noticed probably more than anyone. His name is Sumner Redstone, which is, I reckon, the most American name I've ever heard. Agree?

• 40:42Speaker 01

  It's up there.

• 40:42Speaker 00

  Sumner Redstone.

• 40:45Speaker 00

  You know, he feels like he's on Yellowstone or something. But what he actually was, was the head of Viacom, which is this massive media conglomerate that owned Paramount Pictures, MTV, Nickelodeon, Comedy Central. And what he saw when he looked at Blockbuster was a pipeline for his content. He wanted to buy it because it seemed like he was buying the distribution chain, which is kind of a standard thing for an industrialist to want to do, to spread out throughout everything in their industry. So in 1994, that is what he did. Viacom bought Blockbuster in a deal worth 8.4 billion dollars. And Wayne Huizenga's cut was that 600 million bucks, which is not bad.

• 41:28Speaker 00

  Again, considering that he only tipped 18 million dollars into this business eight years earlier on your way. So now Viacom, it owns these 9,000 stores where people went to get their entertainment. And in theory, this is great. Paramount puts out a movie and the biggest rental chain in the world can push it harder than the competitors' movies. The reality was that these two businesses had basically nothing to do with each other. One was a rental business, bricks and mortar, and the other was a content business. And they, they sort of didn't link in the way that we currently think they do today.

• 42:07Speaker 00

  And to finance the deal, Viacom loaded enormous amounts of debt onto Blockbuster. And that debt kind of became a monster. Every time the business needed to invest in something new, technology, competing with a rival, you know, improving the stores, it was doing it while carrying this enormous weight on its back. Now Wayne Huizenga left the business. He had his 600 million, so Viacom needed to send in someone new to be CEO. And they picked this guy called Bill Fields. Which, Rob, you remember at the start, I said one of these guys was a key person in the building of Walmart?

• 42:44Speaker 01

  Yep.

• 42:44Speaker 00

  That's Bill Field.

• 42:45Speaker 01

  Okay.

• 42:45Speaker 00

  So he now is brought in by Sumner Redstone to run Blockbuster. And of course, he does what you'd expect a Walmart guy to do. He says to himself, I think I want to make this place a bit more like Walmart. So he started filling the stores with stuff that weren't videos, music, CDs, books, games. He wanted to transform it into a broad entertainment superstore. Unmitigated failure, like absolute shanking.

• 43:12Speaker 01

  Yep.

• 43:13Speaker 00

  Goes down in history. Within 18 months, he's gone. The business was performing worse than it ever has.

• 43:20Speaker 01

  Oh, no.

• 43:21Speaker 00

  Bill, you feel for the guy, like head, head down, tail between legs. He's gone 18 months. So next up, John Antiocho, and he's the third person that we mentioned here. This is the genius who rescued Taco Bell. And interestingly, before that, a convenience chain called Circle K. Now, this is deep reference. We may cut it.

• 43:43Speaker 01

  Yep.

• 43:44Speaker 00

  This is a deep reference. Did you ever watch Bill and Ted's Excellent Adventure?

• 43:48Speaker 01

  Yeah, I've seen that.

• 43:48Speaker 00

  Me too. Loved that movie, right? So they hang out in front of a convenience store called Circle K. It's quite important in that story.

• 43:57Speaker 01

  Right.

• 43:58Speaker 00

  The Circle K. It's kind of the same as 7-Eleven, but that's, that's there because he did it.

• 44:05Speaker 01

  Interesting.

• 44:06Speaker 00

  Interesting throw forward to the product placement episode that we'll be doing in a couple of weeks.

• 44:09Speaker 01

  Interesting. I thought you were going to talk about Taco Bell, but that's a different story.

• 44:12Speaker 00

  Taco Bell, yeah, no, I mean, that is its own story. That came to Australia quite recently and blew up and didn't work. But anyway, I digress. Antiocho, he walked in to Blockbuster and immediately killed this entertainment superstore experiment. He knew what Blockbuster was. And to his credit, I mean, he could see the problems that needed solving. He knew that the late fees were destroying the customer relationship. He could see that the internet was coming. I mean, he was a pretty smart guy and for a while, his smartness looked like it was going to work. But first DVDs. Just three years after Viacom bought Blockbuster,

• 44:54Speaker 00

  the business model was being fundamentally tested and they really didn't understand how significantly the test was. What happened was DVDs. So these arrived in 1997 and they were better in every way. Better sound, better picture, you could skip scenes, you could add subtitles, you could change languages. I mean, this is all brand new. And because the studios now understood the money involved in at home entertainment, they wanted to sell as many DVDs as possible straight away. So they priced them at about $20. I mean, that is a knife directly in the eye of this rental model. People are now asking themselves, well, why am I renting this movie for four bucks if I can just buy it for 20?

• 45:37Speaker 00

  Not our problem, funnily enough, says the studios, but Blockbuster is now facing a value problem. John Antiocho, he had a kind of a pretty clever answer to this. He negotiated revenue sharing deals with the studios. So instead of buying a DVD outright, like they'd been doing with the VHS, Blockbuster could get DVDs much cheaper in exchange for giving the studios a cut of every rental. So it was a revenue share deal. It meant that they could afford to stock more copies of new releases. More copies meant more rentals in that crucial opening window. So it was a good idea, but it meant cutting in the studios in a way that they'd kind of never done before.

• 46:20Speaker 00

  It worked for a while, but the bigger threat was arriving from a completely different direction. 1997, a guy named Reed Hastings, he'd co-founded a little company that mailed videos and DVDs to your house. It was called Netflix. When you were done, you'd post them back. No due date, no late fees. No late fees. That's what Reed Hastings was really selling. He looked at Blockbuster and he saw an industry that was making its customers feel bad on purpose. And he said, all right, what if we don't do that? By 2003 years in, he had about 300,000 subscribers. But they were losing money.

• 47:06Speaker 00

  And Hastings flew to Dallas to meet with John Antiocho. He offered to sell the whole business for $50 million to Blockbuster. Antiocho passed. The story goes that he laughed them out of the room. In his defence, Netflix was losing money and Blockbuster did have thousands and thousands of stores all around the world. And on paper, it seemed pretty obvious to say no, but let's just bank that moment because we're going to need it later. Now, this part of the story doesn't really get told enough. People remember Blockbuster as this hulking, blind monster that got beaten by the internet because it was too stupid to see anything coming. And there is definitely a lot of truth to that. But John Antiocho tried to change it and he genuinely tried.

• 47:50Speaker 00

  And for a brief moment in 2006 and 2007, it was kind of working because in 2004, Antiocho launched Blockbuster Online, mailing DVDs by post, just like Netflix was. Within a year, they had a million and a half subscribers and Netflix was struggling with that. In 2005, he launched the No More Late Fees campaign. He just abolished them. The thing that had been making customers furious for 20 years was just gone. And customers responded, they came back, they liked that. Then he started chasing the Netflix idea, a blockbuster subscription service where the

• 48:33Speaker 00

  movies were sent to you in the mail, but you could drop them back at any store you wanted, which Netflix couldn't compete with because they didn't have any stores. So Antiocho was making all these moves. He was kind of nimble and trying. You know, it was kind of working, but what happened? Investors got fed up, specifically this guy called Carl Icahn.

• 48:55Speaker 00

  He's kind of the wolf in this story. Carl Icahn is probably one of the most famous corporate raiders in American history. He buys large stakes in companies. He forces his way onto the boards and then he pressures them to do what he wants. He exits when he makes his money. He's brutal and he's effective. He's absolutely not interested in long-term plans. He just wants a profit and he wants to exit. And he got involved with Blockbuster. He bought a 10% stake in 2004 for about $100 million. And from day one, he hated what John Antiocho was up to. I think what he hated most from reading about this was the no more late fees campaign. I mean, he just saw it as $800 million a year in lost revenue just gone. Why would you do that?

• 49:40Speaker 00

  That's insane. He didn't fully appreciate what those late fees were doing to this customer relationship. He just saw it as revenue disappearing. He fought Antiocho constantly and eventually in 2007, that CEO resigned. And Antiocho's replacement was this guy called Jim Keys. He'd been in the CEO role at 7-Eleven. He was a convenience store guy. So they've gone from Walmart to Taco Bell, 7-Eleven convenience, kind of all over the place.

• 50:09Speaker 01

  Yep.

• 50:10Speaker 00

  Which understandably, they haven't got a Wayne Huizenga anymore.

• 50:14Speaker 01

  No.

• 50:14Speaker 00

  What are you going to do without him? And I mean, the thing about this Keys guy is he wasn't really nimble and trying to do lots of different stuff. He wanted to stick to the fundamentals. In fact, in fact, in 2008, a journalist asked Keys about Netflix and Redbox, which is a new rival that was doing DVD rentals from inside vending machines. And Keys said he didn't see either of them as a competitive threat. And my, oh my, wasn't he wrong?

• 50:41Speaker 01

  Very.

• 50:42Speaker 00

  The thing about collapses is that they happen slowly at first and then really fast. But Blockbuster, the slow collapse had been happening for a while, basically since the DVD came out. And then this is where the collapse started happening fast. Jim Keys, he killed all of this Total Access stuff. He stripped back the online strategy and returned the focus to the Blockbuster stores. Real bricks and mortar kind of guy. And at the same time, Netflix launched online streaming in 2007.

• 51:14Speaker 00

  No need to get a DVD at all anymore. You just press play immediately. This was the thing that Blockbuster's debt had been preventing them from building. It needed new infrastructure. It needed technological investment, a clear runway, and it kind of had none of that stuff. By 2010, Blockbuster had more than a billion dollars in debt and really nowhere near enough revenue to service it. And in September 2010, it filed for bankruptcy. Dish Network brought the remaining assets at auction the following year for about $320 million, 17 years after it was valued at 8.4 billion. Dish tried to relaunch it as a streaming service, which went nowhere and the stores closed one by one, just like that.

• 52:00Speaker 00

  It was over, or it was nearly over, I should say. Because there is, as of right now, one Blockbuster store left on earth. It's in Bend, Oregon. It's a city with about 100,000 population. It's kind of a cultural thing now. It's run by a woman named Sandy Harding. She sells Blockbuster merchandise and even lets people sleep inside the store surrounded by DVD cases. This is on Airbnb, if you're interested, Rob.

• 52:27Speaker 01

  Sure.

• 52:28Speaker 00

  Get in there.

• 52:29Speaker 01

  Next holiday with the family, why not?

• 52:30Speaker 00

  Bend, Oregon.

• 52:31Speaker 01

  Let's do it.

• 52:32Speaker 00

  Check out the Blockbuster. I mean, as discussed, I'm extremely nostalgic, so I'm sort of up for this.

• 52:36Speaker 01

  Yeah.

• 52:36Speaker 00

  It's obviously, it's a tourist destination.

• 52:38Speaker 01

  Yeah.

• 52:39Speaker 00

  I mean.

• 52:39Speaker 01

  Is there much else in Bend, Oregon?

• 52:41Speaker 00

  I don't know. I hope we get a comment from somebody in Bend, Oregon who says, actually, there's heaps to do here.

• 52:45Speaker 01

  Yeah.

• 52:46Speaker 00

  I suspect it's mostly about this Blockbuster from an international perspective.

• 52:49Speaker 01

  Yep.

• 52:50Speaker 00

  But I mean, yeah, as discussed, it's nice that it's still there. Going to ye olde video shop is kind of nice, but there is only one left in the world. 9,000 down to one. Here's where we land this whole story. Let's pull this hulking thing together. Blockbuster dominated an industry. It blew it, it went bust. That part's interesting on its own, but the reason this story matters, the reason it is bigger than just a business failure, is what it changed. Blockbuster failed so badly, so completely and so publicly, that it handed Netflix and the subscription economy a weapon.

• 53:27Speaker 00

  Think about it. What was the central complaint about Blockbuster? It made you feel bad. Late fees, the anxiety of a due date, the fine, the argument at the counter with your kid. Yep. Which was annoying. Hmm. I was the kid, obviously. So were you. Yes. It's kind of that parking ticket feeling. The convenience, you know, sure, that was a big part of it, but it was the fines, I think, that really killed it. Netflix took that pain point and turned it into a pitch. Pay us a flat amount every month. Watch whatever you want. No due dates, no late fees, no bad feeling. I mean, that is the pitch. And it worked then, and it still works now. And then it grew. I mean,

• 54:09Speaker 00

  you and I are probably paying a handful of subscriptions every single month now, including, you know, streaming entertainment channels. I mean, I know I am. But of course, it's so much bigger than that. You forget to cancel them.

• 54:25Speaker 00

  At Blockbuster, I mean, you paid per use. You rented a movie, you paid for it. If you didn't rent anything, you paid nothing. Now, you pay, what, 18 bucks a month, whether you watch anything or not. I mean, you pay in July when you're sick in bed, rewatching The Office for eight hours straight. You pay in November when you haven't opened the app once because you've been outside. I mean, it's the same amount every month. And the amount goes up over time. And it's not just streaming, of course. The subscription model, it's everywhere. Software, music, news, fitness apps, cloud storage, car manufacturers actually are now charging subscriptions for features already installed in your car, Rob. If you want to use the heated seats or the heated steering wheel, I mean, it's obviously installed in the car. You gotta pay 15, 20 bucks a month to use it.

• 55:10Speaker 00

  Yeah, I'll stick to my old car, thanks. That's bonkers. It is bonkers. I mean, some of these new electric cars, actually, they have a speed limiter unless you pay an amount, an acceleration limiter, a speed limiter. I mean, the subscription economy is really, it's everywhere. And Netflix walked so all of these guys could run. And it was Blockbuster's failure that started it all. It didn't just kill video rental. It put the wind in the sails of the subscription model in those early days. It worked. And now pretty much all businesses want to be subscription businesses.

• 55:49Speaker 00

  Now, it's not Netflix's fault, really. They built something that people wanted and priced it in a way that's acceptable. That is business. Blockbuster hurt its customers with late fees and paid the price. Netflix and the subscription economy found a way to take even more money from us and make us feel good about it. Comes down to the feeling. Blockbuster left you feeling like you'd been ripped off. Netflix doesn't give you that feeling. And now Netflix and the others, they're raising their prices. They're adding advertising, they're cracking down on password sharing, they're charging separately for different features. And now they have a value problem, which makes me wonder what's going to come next.

• 56:33Speaker 00

  History doesn't repeat, but it does rhyme. So R I P Blockbuster, you absolute goose. I loved you, I miss you, but you're gone now.

• 56:42Speaker 01

  You're gone forever. I do, thinking through this whole story, I do wonder if there was that moment there with Viacom and Blockbuster that if they had potentially offered exclusive titles, similar to what your streaming services have now, and maybe it wouldn't have saved them. But I don't think that was something they ever did. Like, was it ever a case of, hey, you could only get this movie at Blockbuster? So I'm fairly certain they went everywhere.

• 57:05Speaker 00

  I think so too. I mean, that would have been a good idea. They were probably chucking this stuff around. But the thing that's in the, like, in the real genesis, in the kind of the DNA of Blockbuster was really, it was only about growth. There was no other big strategy going on, certainly in those Wayne Huza days. You know, and probably afterwards, it was just this idea that if we spread, if we grow all over the world, if we keep on opening more and more stores, then nothing else is going to matter. And it worked for a solid while and then it just stopped working.

• 57:33Speaker 01

  Yeah.

• 57:34Speaker 00

  And I think that's it. Like, they didn't pivot. They were, they went from a standing start to 9,000 stores, back down to a standing start in like, what, 20, 25 years?

• 57:43Speaker 01

  Crazy.

• 57:43Speaker 00

  Crazy. And now it's gone forever and no one even gets a conversation if we try to bring it up.

• 57:49Speaker 01

  Yep.

• 57:49Speaker 00

  Kind of amazing, but all right, we need to talk about a true, two truths and a lie. So at its number one, at its peak, Blockbuster was opening a new store more than once a day for seven years. True.

• 58:03Speaker 01

  Yep.

• 58:04Speaker 00

  That, that one's true. Between 1987 and 1994, 3,000 stores, which is one every 20 hours, give or take. Two, Mr Rogers contributed to the Supreme Court decision to save the VCR. Also true, Fred Rogers did testify to a Senate Subcommittee and he, you know, made his case pretty well.

• 58:24Speaker 01

  Good on him.

• 58:24Speaker 00

  Five judges agreed with him.

• 58:26Speaker 01

  Thank you, Fred.

• 58:26Speaker 00

  Thank you, Fred. And three, the last blockbuster in the world closed in 2018. False.

• 58:32Speaker 01

  False.

• 58:33Speaker 00

  That one's not true. Bend, Oregon, it's still open, it's still renting DVDs. Sandy Harding is still running it.

• 58:39Speaker 01

  I got it right.

• 58:39Speaker 00

  Honestly, good for her.

• 58:40Speaker 01

  I have to tell you the truth. I follow the last blockbuster on Instagram. So I did know this.

• 58:45Speaker 00

  You kept that close.

• 58:46Speaker 01

  I didn't reveal this information to you during or pre this episode recording.

• 58:51Speaker 00

  I'm gonna start following it.

• 58:52Speaker 01

  It's pretty funny.

• 58:52Speaker 00

  Good content.

• 58:53Speaker 01

  It's really good content.

• 58:54Speaker 00

  Oh, good on him. Good on you, Sandy, if you're listening.

• 58:57Speaker 01

  Yeah.

• 58:57Speaker 00

  Love you. That's it for Blockbuster, everyone. One of the most spectacular corporate collapses, certainly of the last 50 years. And it's still, I think, completely relevant. Next episode, we're going from video stores to cornflakes. Rob, I promise you, promise you, the origins of the cornflake story is one of the most bonkers thing I've ever been able to read up on.

• 59:18Speaker 01

  I'm excited.

• 59:19Speaker 00

  I'm excited too. It involves a doctor, a religion, an anti masturbation campaign and squeezing yogurt up.

• 59:28Speaker 01

  Yogurt up where? Sorry?

• 59:30Speaker 00

  Yogurt up your arse.

• 59:31Speaker 01

  Ah.

• 59:32Speaker 00

  Rob's doing the yogurt enema. Stay tuned. Thanks for listening.

• 59:38Speaker 00

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