WEBVTT 00:00:00.000 --> 00:00:02.200 Okay, I want you to do something for me. Just, 00:00:02.279 --> 00:00:03.540 you know, close your eyes for a second. Let's 00:00:03.540 --> 00:00:04.740 do a little time travel. All right, I'm with 00:00:04.740 --> 00:00:07.660 you. Go back to a Friday night. Let's say it's 00:00:07.660 --> 00:00:14.619 1999, maybe 2002. You've had a long week. You're 00:00:14.619 --> 00:00:16.620 finally in the car, or maybe you're in the back 00:00:16.620 --> 00:00:19.440 seat of your parents' minivan, and you pull into 00:00:19.440 --> 00:00:22.620 that brightly lit strip mall. You walk through 00:00:22.620 --> 00:00:26.280 those double glass doors, and it just hits you 00:00:26.280 --> 00:00:29.820 instantly. The smell. The smell. Yes. It's that 00:00:29.820 --> 00:00:33.420 incredibly specific mix of, what is it, ozone 00:00:33.420 --> 00:00:36.979 from the Kiwis, carpet cleaner, stale popcorn. 00:00:37.079 --> 00:00:40.240 And the warm plastic from the VHS cases. The 00:00:40.240 --> 00:00:43.340 warm plastic, yes. It's a sensory trigger that 00:00:43.340 --> 00:00:45.259 I think is hardwired into the brain of pretty 00:00:45.259 --> 00:00:47.119 much anyone over the age of 30. It really is. 00:00:47.179 --> 00:00:49.840 It's almost Pavlovian. You smell that and your 00:00:49.840 --> 00:00:51.960 brain immediately signals, okay, work is over. 00:00:52.060 --> 00:00:54.000 The weekend has officially started. Exactly. 00:00:54.200 --> 00:00:56.179 And then you have the whole ritual. You rush 00:00:56.179 --> 00:00:58.600 to the new releases wall, scanning for that one 00:00:58.600 --> 00:01:01.920 copy of the Matrix or Titanic that isn't behind 00:01:01.920 --> 00:01:03.840 one of those little rented out signs. Right. 00:01:03.960 --> 00:01:05.680 And you're elbowing other families out of the 00:01:05.680 --> 00:01:08.260 way to get to it. You are. Maybe you grab a box 00:01:08.260 --> 00:01:10.640 of snow caps or raisinets at the counter. I mean, 00:01:10.640 --> 00:01:13.219 for a solid two decades, that blue and yellow 00:01:13.219 --> 00:01:16.480 ticket stub. That was the absolute center of 00:01:16.480 --> 00:01:18.719 the entertainment universe. It was complete cultural 00:01:18.719 --> 00:01:21.519 dominance. Absolute, unquestioned dominance. 00:01:21.799 --> 00:01:23.519 But if you open your eyes and you look at the 00:01:23.519 --> 00:01:27.040 world today, that entire empire has just evaporated. 00:01:27.099 --> 00:01:29.379 It's gone. I mean, we are talking about a company 00:01:29.379 --> 00:01:32.500 that at its absolute peak, this is in 2004, had 00:01:32.500 --> 00:01:36.689 9 ,094 stores. Globally. 9 ,000. They employed 00:01:36.689 --> 00:01:40.769 84 ,300 people. 84 ,000 people. That's bigger 00:01:40.769 --> 00:01:42.829 than the entire population of Santa Fe, New Mexico, 00:01:42.890 --> 00:01:45.090 just working for a video store. Exactly. And 00:01:45.090 --> 00:01:48.390 today, what's left of all that? There is exactly 00:01:48.390 --> 00:01:51.569 one franchise store left on the entire planet. 00:01:51.810 --> 00:01:56.090 Just one. In Bend, Oregon. From over 9 ,000 to 00:01:56.090 --> 00:01:59.120 one. That is... It's honestly hard to even comprehend 00:01:59.120 --> 00:02:01.980 that level of collapse. And that's really what 00:02:01.980 --> 00:02:04.640 we are unpacking today, because the easy narrative, 00:02:04.680 --> 00:02:06.519 the one everyone, you know, repeats at dinner 00:02:06.519 --> 00:02:08.560 parties is, oh, Netflix came along, streaming 00:02:08.560 --> 00:02:11.400 happened, and Blockbuster was just this big dinosaur 00:02:11.400 --> 00:02:14.180 that was too slow to notice. Right. The classic 00:02:14.180 --> 00:02:17.509 technology killed the beast story. And while 00:02:17.509 --> 00:02:19.930 technology obviously played a massive role, that 00:02:19.930 --> 00:02:22.569 is such an oversimplification. It actually misses 00:02:22.569 --> 00:02:25.250 all the most interesting, the most dramatic parts 00:02:25.250 --> 00:02:27.009 of the story. I have a feeling you're going to 00:02:27.009 --> 00:02:29.930 tell us that Blockbuster was actually way more 00:02:29.930 --> 00:02:32.110 high tech than any of us give them credit for. 00:02:32.210 --> 00:02:34.509 They were. This isn't just a story about streaming 00:02:34.509 --> 00:02:37.090 versus physical media. This is a story about. 00:02:37.830 --> 00:02:41.229 incredible corporate hubris it's a story about 00:02:41.229 --> 00:02:45.009 internal civil wars that literally tore the company's 00:02:45.009 --> 00:02:48.030 leadership apart and it's a story about specific 00:02:48.030 --> 00:02:51.469 agonizingly painful missed opportunities that 00:02:51.469 --> 00:02:54.150 had almost nothing to do with bandwidth and everything 00:02:54.150 --> 00:02:56.289 to do with vision okay so we're gonna dig into 00:02:56.289 --> 00:02:58.110 that yeah we are we're gonna look at the corporate 00:02:58.110 --> 00:03:00.229 history the financial filings the leadership 00:03:00.229 --> 00:03:02.810 struggles that turned a multi -billion dollar 00:03:02.810 --> 00:03:05.689 juggernaut into well a single tourist attraction 00:03:05.689 --> 00:03:08.939 in Oregon I am so ready to dive in but before 00:03:08.939 --> 00:03:10.379 we get to the fall we have to talk about the 00:03:10.379 --> 00:03:12.960 rise because i think most people myself included 00:03:12.960 --> 00:03:14.900 probably assume blockbuster was started by some 00:03:14.900 --> 00:03:18.360 movie buffs who just you know loved cinema and 00:03:18.360 --> 00:03:21.199 that is the very first misconception we need 00:03:21.199 --> 00:03:23.960 to just clear out of the way the origin of blockbuster 00:03:23.960 --> 00:03:26.219 has almost nothing to do with movies it has everything 00:03:26.219 --> 00:03:28.939 to do with oil and gas databases oil okay you 00:03:28.939 --> 00:03:30.620 have to explain that connection that makes no 00:03:30.620 --> 00:03:32.979 sense So we have to talk about the founder, a 00:03:32.979 --> 00:03:35.699 man named David Cook. And he was not a Hollywood 00:03:35.699 --> 00:03:39.500 guy. He wasn't a film school grad. In 1978, he 00:03:39.500 --> 00:03:42.199 founded a company called Cook Data Services. 00:03:42.520 --> 00:03:45.419 Cook Data Services. And his business was supplying 00:03:45.419 --> 00:03:49.099 software and database management services to 00:03:49.099 --> 00:03:51.740 the oil and gas industries in Texas. He was a 00:03:51.740 --> 00:03:54.199 data guy, a mainframe guy. He thought in terms 00:03:54.199 --> 00:03:57.319 of efficiency and scale. So how on earth do you 00:03:57.319 --> 00:04:00.629 go from drilling for oil? to renting out VHS 00:04:00.629 --> 00:04:03.210 tapes. Well, to put it simply, his oil software 00:04:03.210 --> 00:04:05.530 business tanked. It wasn't successful. But his 00:04:05.530 --> 00:04:07.770 wife, Sandy Cook, was actually the one who suggested 00:04:07.770 --> 00:04:10.030 the video business. She saw the potential there. 00:04:10.090 --> 00:04:12.530 So David Cook, being a data guy, takes a look 00:04:12.530 --> 00:04:14.689 at the video rental industry in the early 80s. 00:04:14.710 --> 00:04:17.579 And what does he see? I'm guessing. Just a lot 00:04:17.579 --> 00:04:20.160 of mom and pop stores with like index cards and 00:04:20.160 --> 00:04:23.439 really chaotic shelves. Precisely. It was a completely 00:04:23.439 --> 00:04:26.839 fragmented, totally inefficient mess. The stores 00:04:26.839 --> 00:04:29.540 were small, the selection was limited, and everything 00:04:29.540 --> 00:04:32.959 was tracked by hand. Cook realized he could apply 00:04:32.959 --> 00:04:35.600 his background in managing these massive databases 00:04:35.600 --> 00:04:38.600 to the problem of video rental. So he didn't 00:04:38.600 --> 00:04:42.259 see movies. He saw inventory units. He saw SKUs. 00:04:42.519 --> 00:04:45.160 He saw inventory units that needed to be tracked 00:04:45.160 --> 00:04:48.220 efficiently across a large network. He basically 00:04:48.220 --> 00:04:51.220 saw it as a logistics problem, not a cinema problem. 00:04:51.439 --> 00:04:54.839 So Blockbuster was a big data company disguised 00:04:54.839 --> 00:04:57.100 as a video store. Right from the very beginning. 00:04:57.300 --> 00:04:58.939 That is the perfect way to put it. While the 00:04:58.939 --> 00:05:00.839 local store down the street was using a shoebox 00:05:00.839 --> 00:05:03.060 full of handwritten index cards, Blockbuster 00:05:03.060 --> 00:05:05.759 was using mainframes and barcodes from day one. 00:05:05.959 --> 00:05:08.439 This was absolutely revolutionary for that industry. 00:05:08.740 --> 00:05:10.839 And that's what allowed them to scale up so massively. 00:05:11.060 --> 00:05:12.920 It's the only thing that made it possible. The 00:05:12.920 --> 00:05:15.379 very first store, which opened in Dallas on October 00:05:15.379 --> 00:05:20.319 19, 1985, had 8 ,000 VHS tapes and 2 ,000 beta 00:05:20.319 --> 00:05:22.779 tapes. That way, 10 ,000 tapes. Yeah. In a single 00:05:22.779 --> 00:05:25.759 store. In 1985. 10 ,000 tapes. That must have 00:05:25.759 --> 00:05:28.459 just completely blown the competition out of 00:05:28.459 --> 00:05:31.660 the water. My local store had maybe 500 on a 00:05:31.660 --> 00:05:34.259 good day. It did. And here's a fun little design 00:05:34.259 --> 00:05:36.959 note for you. Cook actually tried to join an 00:05:36.959 --> 00:05:39.800 existing franchise first, a company called Video 00:05:39.800 --> 00:05:42.899 Works, but he left because they wouldn't let 00:05:42.899 --> 00:05:45.379 him use his own interior design scheme. No way. 00:05:45.420 --> 00:05:48.139 Let me guess. The blue and yellow. The blue and 00:05:48.139 --> 00:05:50.600 yellow. He had this vision for the branding, 00:05:50.759 --> 00:05:53.839 the torn ticket stub logo, everything. They said 00:05:53.839 --> 00:05:56.779 no. So he went out on his own. That's wild. It's 00:05:56.779 --> 00:05:58.540 just wild to think that a video works had just 00:05:58.540 --> 00:06:00.639 said, sure, David, you can paint the walls blue. 00:06:01.220 --> 00:06:02.720 Blockbuster, as we know, it might never have 00:06:02.720 --> 00:06:05.319 existed. History turns on these tiny little moments. 00:06:05.519 --> 00:06:07.939 But Cook was really just the spark, the rocket 00:06:07.939 --> 00:06:10.220 fuel that came from somewhere else or rather 00:06:10.220 --> 00:06:13.279 someone else. A man named Wayne Huizenga. I know 00:06:13.279 --> 00:06:15.259 that name. He's the waste management guy. Right. 00:06:15.360 --> 00:06:18.129 The garbage empire. He is. He was a co -founder 00:06:18.129 --> 00:06:20.850 of Waste Management. An associate of his, John 00:06:20.850 --> 00:06:23.889 Milk, happened to see one of Cook's early blockbuster 00:06:23.889 --> 00:06:26.610 stores and was just floored by the efficiency 00:06:26.610 --> 00:06:28.970 of the model. He saw the barcodes, the computers, 00:06:29.089 --> 00:06:31.550 and he brought Huizenga in. So now we have an 00:06:31.550 --> 00:06:34.410 oil data guy and a garbage mogul running a movie 00:06:34.410 --> 00:06:36.930 business. It sounds like the setup for a bad 00:06:36.930 --> 00:06:39.589 joke, but it was a lethal combination for business. 00:06:40.280 --> 00:06:43.100 Huizenga didn't know a thing about movies, but 00:06:43.100 --> 00:06:46.060 he knew logistics on a massive scale. And he 00:06:46.060 --> 00:06:49.240 knew the Ray Kroc model. The McDonald's model. 00:06:49.399 --> 00:06:51.920 The McDonald's model of aggressive, systematized 00:06:51.920 --> 00:06:55.259 expansion. He brought that industrial scale thinking 00:06:55.259 --> 00:06:58.399 to video rental. They set a goal to open a new 00:06:58.399 --> 00:07:01.759 store every 24 hours. Every single day. That's 00:07:01.759 --> 00:07:03.560 insane. That's not just aggressive. That's a 00:07:03.560 --> 00:07:06.860 conquest. It was a blitzkrieg. They just rolled 00:07:06.860 --> 00:07:09.379 across the country. They bought up regional rivals 00:07:09.379 --> 00:07:13.199 like Major Video, Aeros, Sound Warehouse. They 00:07:13.199 --> 00:07:15.120 didn't compete. They just consumed the market. 00:07:15.259 --> 00:07:16.600 And at the same time, they were making a very 00:07:16.600 --> 00:07:18.920 specific branding choice that set them apart. 00:07:19.120 --> 00:07:21.819 Yes. They decided to be family friendly. Right. 00:07:22.279 --> 00:07:25.040 No adult section. Exactly. No adult films. Now, 00:07:25.100 --> 00:07:26.920 you have to remember, a lot of independent stores 00:07:26.920 --> 00:07:29.519 made a significant chunk of their revenue from 00:07:29.519 --> 00:07:31.939 that back room, you know, behind the beaded curtain. 00:07:32.019 --> 00:07:34.540 True. Blockbuster refused to stock it. And that 00:07:34.540 --> 00:07:36.920 decision made them safer the suburbs. Parents 00:07:36.920 --> 00:07:38.680 felt comfortable dropping their kids off there 00:07:38.680 --> 00:07:41.779 on a Saturday afternoon. It was a brilliant marketing 00:07:41.779 --> 00:07:44.300 move. It was the complete Disneyfication of the 00:07:44.300 --> 00:07:47.569 video store. It was. But they also faced threats. 00:07:47.889 --> 00:07:50.670 Believe it or not, in 1989, Nintendo actually 00:07:50.670 --> 00:07:53.810 tried to sue to stop video game rentals. Really? 00:07:54.069 --> 00:07:57.589 Yes. They lobbied Congress to ban game rentals 00:07:57.589 --> 00:08:00.029 outright, arguing it was piracy and would kill 00:08:00.029 --> 00:08:02.569 game sales. Wow. I remember renting Nintendo 00:08:02.569 --> 00:08:04.889 games at Blockbuster all the time. That was huge. 00:08:05.110 --> 00:08:07.410 If Nintendo had won that lawsuit, it would have 00:08:07.410 --> 00:08:09.430 wiped out a massive revenue stream for them. 00:08:09.490 --> 00:08:12.100 A huge one. But Blockbuster fought it in court 00:08:12.100 --> 00:08:14.899 and they won. And that victory basically paved 00:08:14.899 --> 00:08:16.639 the way for game rentals to become a central 00:08:16.639 --> 00:08:19.240 pillar of their business for years. OK, so by 00:08:19.240 --> 00:08:21.279 the early 90s, they're just this unstoppable 00:08:21.279 --> 00:08:23.779 force. Completely. But here is where the first 00:08:23.779 --> 00:08:26.399 kind of genius moment of foresight comes in. 00:08:26.959 --> 00:08:29.620 Wayne Huizinga sells the company. He gets out 00:08:29.620 --> 00:08:33.620 at the top. He sells to Viacom in 1994 for $8 00:08:33.620 --> 00:08:38.179 .4 billion. $8 .4 billion? That's a great exit. 00:08:38.669 --> 00:08:41.350 But why did he sell? Did he just want to cash 00:08:41.350 --> 00:08:43.730 out? This is the really fascinating part. Our 00:08:43.730 --> 00:08:46.169 sources indicate that Huizenga actually foresaw 00:08:46.169 --> 00:08:48.769 the threat. Even back in the early 90s, he was 00:08:48.769 --> 00:08:51.830 worried about the rise of cable TV and specifically 00:08:51.830 --> 00:08:55.190 video on demand. No way. In the early 90s. He 00:08:55.190 --> 00:08:57.870 looked at the future, saw that technology might 00:08:57.870 --> 00:09:01.019 eventually make the physical tape obsolete. And 00:09:01.019 --> 00:09:03.000 he admitted he didn't know how to solve that 00:09:03.000 --> 00:09:06.200 future tech problem. So he sold at the absolute 00:09:06.200 --> 00:09:08.860 perfect peak of the market. Wow. So the guy who 00:09:08.860 --> 00:09:10.860 scaled it up essentially predicted the crash 00:09:10.860 --> 00:09:13.340 20 years before it happened and walked away with 00:09:13.340 --> 00:09:15.720 billions. That is honestly, that's some pretty 00:09:15.720 --> 00:09:18.340 savvy business. It is incredible foresight. So 00:09:18.340 --> 00:09:21.820 Viacom buys them. They needed Blockbuster's massive 00:09:21.820 --> 00:09:24.200 cash flow to help finance a bid for Paramount. 00:09:24.419 --> 00:09:27.179 And under Viacom's ownership, we enter the second 00:09:27.179 --> 00:09:30.659 phase, the era of the economic engine. This is 00:09:30.659 --> 00:09:32.460 where the business model shifted again thanks 00:09:32.460 --> 00:09:35.240 to Sumner Redstone at Viacom. Okay, let's unpack 00:09:35.240 --> 00:09:38.659 the money side of this. Because renting a movie 00:09:38.659 --> 00:09:41.860 for three or four bucks, it doesn't seem like 00:09:41.860 --> 00:09:44.480 a way to build a multi -billion dollar empire 00:09:44.480 --> 00:09:46.899 unless you have some kind of trick up your sleeve. 00:09:47.179 --> 00:09:49.299 The trick was something called revenue sharing. 00:09:49.580 --> 00:09:51.759 See, the old model is actually pretty painful 00:09:51.759 --> 00:09:54.159 for a video store. The pre -blockbuster model. 00:09:54.559 --> 00:09:57.960 A store had to buy a VHS tape from the studio. 00:09:58.539 --> 00:10:01.340 A copy of a new hit movie might cost that store 00:10:01.340 --> 00:10:07.019 $65, maybe even more. $65 for one tape. So you 00:10:07.019 --> 00:10:09.620 had to rent it out. What, 20 times just to break 00:10:09.620 --> 00:10:12.259 even on that one copy? Exactly. And that is why 00:10:12.259 --> 00:10:14.879 your local mom and pop store only had maybe five 00:10:14.879 --> 00:10:16.980 copies of a big new release. They just couldn't 00:10:16.980 --> 00:10:20.179 afford to buy 50 copies at $65 a pop. Okay, so 00:10:20.179 --> 00:10:23.019 how did Viacom change that? They used their Hollywood 00:10:23.019 --> 00:10:25.480 clout to broker a new kind of deal. Blockbuster 00:10:25.480 --> 00:10:27.440 would get the tapes from the studios for a very, 00:10:27.480 --> 00:10:30.059 very low upfront cost, sometimes just a few dollars, 00:10:30.240 --> 00:10:32.879 almost nothing. But in exchange, they would give 00:10:32.879 --> 00:10:35.580 the movie studio a cut of every rental fee, usually 00:10:35.580 --> 00:10:38.210 around 40%. Oh, I see. So the studio becomes 00:10:38.210 --> 00:10:40.909 a partner in the rental business. They're betting 00:10:40.909 --> 00:10:43.269 on volume. Correct. And because that upfront 00:10:43.269 --> 00:10:46.210 cost was so low for Blockbuster, they could afford 00:10:46.210 --> 00:10:49.389 to just flood the shelves. They could stock 200 00:10:49.389 --> 00:10:52.690 copies of Titanic. They launched that huge guaranteed 00:10:52.690 --> 00:10:56.190 in stock campaign. I remember that. If they didn't 00:10:56.190 --> 00:10:57.909 have the new release you wanted, you get a free 00:10:57.909 --> 00:11:00.389 rental coupon or something. Right. And this was 00:11:00.389 --> 00:11:02.129 the move that absolutely crushed the remaining 00:11:02.129 --> 00:11:04.830 competition. The little independent stores couldn't 00:11:04.830 --> 00:11:07.029 get these deals. They were still paying full 00:11:07.029 --> 00:11:09.669 price for tapes while Blockbuster was getting 00:11:09.669 --> 00:11:12.590 them by the truckload for pennies up front. It 00:11:12.590 --> 00:11:14.710 was game over. This also had to have changed 00:11:14.710 --> 00:11:18.019 how we browsed for movies, right? Yeah. I feel 00:11:18.019 --> 00:11:20.200 like the store layout itself started to shift 00:11:20.200 --> 00:11:22.940 around this time. It did, absolutely. The entire 00:11:22.940 --> 00:11:25.639 store was redesigned to funnel you like a salmon 00:11:25.639 --> 00:11:27.700 swimming upstream directly to the new release 00:11:27.700 --> 00:11:29.919 wall. That's where the money was. It wasn't about 00:11:29.919 --> 00:11:32.779 discovering some obscure 70s classic in the back 00:11:32.779 --> 00:11:36.320 corner. No, it was about homogenizing film taste. 00:11:36.460 --> 00:11:38.659 It was about watching what everyone else was 00:11:38.659 --> 00:11:40.240 watching because that's what Blockbuster had 00:11:40.240 --> 00:11:43.299 500 poppies of. It created the Blockbuster culture, 00:11:43.440 --> 00:11:45.700 not just as a store, but as a media consumption 00:11:45.700 --> 00:11:48.340 habit. And it clearly worked. From a financial 00:11:48.340 --> 00:11:50.700 perspective. It worked like a charm. So by 2004, 00:11:50.919 --> 00:11:53.500 they reached their absolute peak. They spin off 00:11:53.500 --> 00:11:55.480 from Viacom. They're an independent public company 00:11:55.480 --> 00:12:01.000 again. Over 9000 stores. Billions in revenue. 00:12:01.120 --> 00:12:03.139 They look completely and totally invincible. 00:12:03.759 --> 00:12:05.940 But 2004, I mean, that's right around when the 00:12:05.940 --> 00:12:07.980 first cracks start to show, right? Yeah, okay. 00:12:08.120 --> 00:12:09.639 Because we have to talk about the what -ifs, 00:12:09.759 --> 00:12:12.779 the massive missed opportunities. And there's 00:12:12.779 --> 00:12:16.799 one big, red, streaming -sized elephant in the 00:12:16.799 --> 00:12:19.200 room. The Netflix refusal. The big one. The year 00:12:19.200 --> 00:12:22.519 is 2000. Netflix is a tiny, fledgling startup. 00:12:22.600 --> 00:12:25.519 They're just doing DVD by mail. Reed Hastings, 00:12:25.600 --> 00:12:27.960 the founder of Netflix, flies to Dallas to meet 00:12:27.960 --> 00:12:30.080 with Blockbuster's leadership team. He makes 00:12:30.080 --> 00:12:32.320 them an offer. What's the offer? He proposes 00:12:32.320 --> 00:12:35.620 selling Netflix to Blockbuster for $50 million. 00:12:36.539 --> 00:12:42.080 $50 million for Netflix. I mean, Blockbuster 00:12:42.080 --> 00:12:43.820 probably spent more than that on their blue and 00:12:43.820 --> 00:12:47.320 yellow carpet in a year. Probably. And the Blockbuster 00:12:47.320 --> 00:12:49.299 executives, according to Hastings, basically 00:12:49.299 --> 00:12:51.220 laughed them out of the room. They just laughed 00:12:51.220 --> 00:12:53.120 at him. They didn't see the value. They thought 00:12:53.120 --> 00:12:55.779 it was a tiny niche business. Their thinking 00:12:55.779 --> 00:12:58.799 was. People want to go to the store. They want 00:12:58.799 --> 00:13:01.100 the instant gratification of grabbing a movie 00:13:01.100 --> 00:13:03.240 and watching it tonight. They don't want to wait 00:13:03.240 --> 00:13:05.759 three days for a DVD to show up in the mail. 00:13:05.960 --> 00:13:09.139 Okay, to be fair, in the year 2000, internet 00:13:09.139 --> 00:13:11.500 speeds were garbage, and waiting for the mail 00:13:11.500 --> 00:13:14.440 was kind of annoying. But still, looking back, 00:13:14.679 --> 00:13:18.360 ouch. It is the ultimate ouch moment in modern 00:13:18.360 --> 00:13:20.779 business history. But I want to bring up a different 00:13:20.779 --> 00:13:23.200 missed opportunity, one that people rarely talk 00:13:23.200 --> 00:13:25.679 about. And this one actually proves that Blockbuster 00:13:25.679 --> 00:13:28.720 wasn't just ignoring the future. OK, I'm intrigued. 00:13:29.019 --> 00:13:32.139 Have you ever heard of the Enron deal? Enron, 00:13:32.259 --> 00:13:36.019 as in the massive accounting fraud, spectacular 00:13:36.019 --> 00:13:38.879 collapse of the energy sector. Enron, the very 00:13:38.879 --> 00:13:42.009 same. But before they imploded in the late 90s 00:13:42.009 --> 00:13:45.009 and early 2000s, Enron was investing billions 00:13:45.009 --> 00:13:47.590 of dollars in building out a broadband and fiber 00:13:47.590 --> 00:13:50.169 optics network. Right. I remember that. In 2000 00:13:50.169 --> 00:13:53.769 and 2001, Blockbuster signed a 20 year exclusive 00:13:53.769 --> 00:13:57.350 deal with Enron to create a video on demand service. 00:13:57.669 --> 00:14:01.330 Wait, what? In 2000? That's years. Before YouTube 00:14:01.330 --> 00:14:03.549 even existed. That's way before Netflix started 00:14:03.549 --> 00:14:06.149 streaming. Years before. The plan was to stream 00:14:06.149 --> 00:14:08.409 movies directly over Enron's high -speed fiber 00:14:08.409 --> 00:14:11.370 optic cables right into people's homes. Blockbuster 00:14:11.370 --> 00:14:13.649 did see the digital future coming. They absolutely 00:14:13.649 --> 00:14:16.129 knew physical media wouldn't last forever. So 00:14:16.129 --> 00:14:18.250 what happened? Why didn't we all have Blockbuster 00:14:18.250 --> 00:14:21.639 On Demand boxes next to our TVs in 2002? Two 00:14:21.639 --> 00:14:24.100 big reasons. First, Enron had the pipes, but 00:14:24.100 --> 00:14:26.360 Blockbuster really struggled to get the digital 00:14:26.360 --> 00:14:28.799 rights from the movie studios. The studios were 00:14:28.799 --> 00:14:30.860 terrified of digital distribution back then. 00:14:30.899 --> 00:14:32.799 They thought it would just lead to a piracy nightmare. 00:14:33.100 --> 00:14:34.700 And the second reason? Well, the second reason, 00:14:34.779 --> 00:14:38.840 it was Enron. Right. Their partner famously imploded 00:14:38.840 --> 00:14:41.399 in a massive corporate scandal. The whole deal 00:14:41.399 --> 00:14:43.879 collapsed. Enron went bankrupt just a short time 00:14:43.879 --> 00:14:46.559 later, and Blockbuster's early shot at streaming 00:14:46.559 --> 00:14:49.000 just vanished. But it shows that the narrative 00:14:49.000 --> 00:14:51.639 of... Blockbuster was clueless and didn't know 00:14:51.639 --> 00:14:53.940 streaming was coming is just false. They tried. 00:14:54.139 --> 00:14:55.980 They just bet on the wrong partner and arguably 00:14:55.980 --> 00:14:58.679 the wrong technology closed fiber optic cables 00:14:58.679 --> 00:15:01.100 instead of the open Internet. That is fascinating. 00:15:01.340 --> 00:15:03.639 So it wasn't blindness. It was just. Really, 00:15:03.700 --> 00:15:06.480 really bad execution and bad luck. Exactly. And 00:15:06.480 --> 00:15:09.299 that theme, bad execution and crippling internal 00:15:09.299 --> 00:15:12.460 conflict, that brings us to the real cause of 00:15:12.460 --> 00:15:15.000 death. Because the fatal blow didn't come from 00:15:15.000 --> 00:15:17.480 Netflix on the outside. It came from a civil 00:15:17.480 --> 00:15:19.960 war on the inside. This is the part of the story 00:15:19.960 --> 00:15:21.539 I really didn't know much about. So who were 00:15:21.539 --> 00:15:24.529 the combatants in this internal civil war? In 00:15:24.529 --> 00:15:26.970 one corner, you have John Antioco. He became 00:15:26.970 --> 00:15:29.870 the CEO in 1997. He's a sharp retail guy, came 00:15:29.870 --> 00:15:31.850 from Taco Bell and PepsiCo. He understood the 00:15:31.850 --> 00:15:33.970 customer. And in the other corner, you have the 00:15:33.970 --> 00:15:37.929 activist investor, the legendary Carl Iken. Iken 00:15:37.929 --> 00:15:39.929 is a huge name, a corporate raider type, right? 00:15:40.049 --> 00:15:42.809 He's known for being, let's say, aggressive. 00:15:43.330 --> 00:15:45.590 He gets a position on a company's board, and 00:15:45.590 --> 00:15:47.970 he pushes for changes that maximize shareholder 00:15:47.970 --> 00:15:50.750 value, and he wants it now. Okay, so set the 00:15:50.750 --> 00:15:53.659 scene for me. It's 2005. The company is now public 00:15:53.659 --> 00:15:56.980 again. Antioco knows the business is in trouble. 00:15:57.159 --> 00:15:59.840 He identifies two huge problems that are killing 00:15:59.840 --> 00:16:02.740 them. One. Customers absolutely hate late fees. 00:16:02.940 --> 00:16:06.720 Two, Netflix, with its subscription model, is 00:16:06.720 --> 00:16:08.879 starting to really steal their customers. The 00:16:08.879 --> 00:16:11.299 late fees were the absolute worst. I'm pretty 00:16:11.299 --> 00:16:14.019 sure I still owe them money. I remember racking 00:16:14.019 --> 00:16:17.379 up like $40 in late fees for one movie and just 00:16:17.379 --> 00:16:19.440 being too embarrassed to ever go back to that 00:16:19.440 --> 00:16:21.320 store again. And you weren't alone. It was the 00:16:21.320 --> 00:16:23.799 number one customer complaint by a huge margin. 00:16:24.360 --> 00:16:27.100 So Antieco makes a bold move. He launches the 00:16:27.100 --> 00:16:29.399 No Late Fees campaign. Which sounded amazing. 00:16:29.460 --> 00:16:31.500 It was a great headline. It sounded great, but... 00:16:31.799 --> 00:16:34.399 And here's the classic blockbuster problem. There 00:16:34.399 --> 00:16:37.259 was some very tricky fine print. It wasn't really 00:16:37.259 --> 00:16:40.039 no fees. If you kept the movie for more than 00:16:40.039 --> 00:16:43.159 eight days past its due date, the system automatically 00:16:43.159 --> 00:16:45.720 converted the rental into a sale and it charged 00:16:45.720 --> 00:16:47.879 you the full retail price of the movie. What? 00:16:47.980 --> 00:16:50.500 So I rent a movie for $4, keep it a week and 00:16:50.500 --> 00:16:52.500 a half too long, and suddenly I bought it for 00:16:52.500 --> 00:16:54.759 $25. That's exactly what happened. And if you 00:16:54.759 --> 00:16:56.460 returned it after that, they would refund you 00:16:56.460 --> 00:16:59.220 the price, but they'd subtract a hefty restocking 00:16:59.220 --> 00:17:02.220 fee. That feels... That feels really deceptive. 00:17:02.220 --> 00:17:06.319 It felt so deceptive that 48 states sued Blockbuster 00:17:06.319 --> 00:17:09.099 for false advertising. 48. They had to pay millions 00:17:09.099 --> 00:17:11.259 in settlements and issue a flood of coupons. 00:17:11.279 --> 00:17:14.500 It was a PR disaster. But, and this is the weird 00:17:14.500 --> 00:17:17.160 part, it actually started to bring some customers 00:17:17.160 --> 00:17:19.940 back. People liked the idea of no late fees, 00:17:20.160 --> 00:17:23.579 even if the execution was flawed. Okay, so Antioco 00:17:23.579 --> 00:17:27.279 is trying, maybe clumsily, to fix the customer 00:17:27.279 --> 00:17:29.319 relationship. What about the Netflix problem? 00:17:29.640 --> 00:17:31.759 This is where Anciogo actually gets brilliant. 00:17:31.980 --> 00:17:34.940 In 2007, he launches a program called Blockbuster 00:17:34.940 --> 00:17:38.200 Total Access. This was the hybrid model that 00:17:38.200 --> 00:17:40.380 Netflix could not touch. Tell me how it worked. 00:17:40.660 --> 00:17:43.000 So, you subscribe to Blockbuster Online, you 00:17:43.000 --> 00:17:45.160 pay a monthly fee, just like Netflix, you get 00:17:45.160 --> 00:17:47.400 your DVDs in the mail, but, and this was the 00:17:47.400 --> 00:17:49.980 killer feature, when you're done watching a movie, 00:17:50.180 --> 00:17:53.720 you can take that DVD from the mailer to any 00:17:53.720 --> 00:17:56.039 physical Blockbuster store, drop it on the counter, 00:17:56.200 --> 00:17:58.839 and you get a free in -store rental. Right there 00:17:58.839 --> 00:18:01.299 on the spot. Oh, that is good. That is really 00:18:01.299 --> 00:18:03.819 good. Because the most annoying part of Netflix 00:18:03.819 --> 00:18:06.500 back then was the turnaround time. You had to 00:18:06.500 --> 00:18:08.680 mail it back and wait two or three days for the 00:18:08.680 --> 00:18:11.200 next one to arrive. This gave you instant gratification. 00:18:11.500 --> 00:18:14.519 It perfectly combined their new online business 00:18:14.519 --> 00:18:17.559 with their biggest asset, their 9 ,000 physical 00:18:17.559 --> 00:18:20.019 stores. It was something Netflix couldn't compete 00:18:20.019 --> 00:18:22.880 with. And it worked. How well did it work? They 00:18:22.880 --> 00:18:25.099 started gaining subscribers like crazy. They 00:18:25.099 --> 00:18:27.440 were adding them faster than Netflix was. Reed 00:18:27.440 --> 00:18:29.980 Hastings, the Netflix CEO, was reportedly terrified. 00:18:30.359 --> 00:18:33.559 He even approached Antioco again to propose a 00:18:33.559 --> 00:18:36.700 partnership or a merger because he felt so threatened 00:18:36.700 --> 00:18:39.440 by total access. They were winning. They finally 00:18:39.440 --> 00:18:41.099 figured it out. They had Netflix on the ropes. 00:18:41.299 --> 00:18:43.819 They were winning the war for customers. But 00:18:43.819 --> 00:18:45.460 they were losing the war for the balance sheet. 00:18:45.579 --> 00:18:47.839 And this is where Carl Icahn enters the ring 00:18:47.839 --> 00:18:50.730 with his boxing gloves on. Let me guess. This 00:18:50.730 --> 00:18:53.890 whole free in -store rental thing was very, very 00:18:53.890 --> 00:18:56.529 expensive. It was incredibly expensive. Every 00:18:56.529 --> 00:18:58.450 time a customer swapped a movie in -store for 00:18:58.450 --> 00:19:01.869 free, it cost Blockbuster about $2 in lost revenue. 00:19:02.170 --> 00:19:04.650 They were losing millions of dollars, betting 00:19:04.650 --> 00:19:07.109 that they could crush Netflix first and then 00:19:07.109 --> 00:19:09.849 raise prices later. It's a classic tech startup 00:19:09.849 --> 00:19:12.910 strategy, right? Burn cash to acquire users and 00:19:12.910 --> 00:19:16.049 build a moat. It is. But Blockbuster wasn't a 00:19:16.049 --> 00:19:18.569 Silicon Valley startup. They were a publicly 00:19:18.569 --> 00:19:21.549 traded retail company with shareholders who demanded 00:19:21.549 --> 00:19:24.289 quarterly profits. And one of those shareholders 00:19:24.289 --> 00:19:26.710 was Carl Eichen. And he didn't like the cash 00:19:26.710 --> 00:19:29.089 burn. He looked at the numbers and said, you 00:19:29.089 --> 00:19:32.230 are setting money on fire. He argued that the 00:19:32.230 --> 00:19:34.470 company was bleeding to death. He wanted to kill 00:19:34.470 --> 00:19:37.410 total access, cut costs, focus on profitability 00:19:37.410 --> 00:19:40.069 in the stores and pay out dividends to shareholders. 00:19:40.450 --> 00:19:43.940 He waged a very public, very nasty. proxy war 00:19:43.940 --> 00:19:46.440 against Antioco. And who won that fight? Aiken 00:19:46.440 --> 00:19:49.660 won. In 2007, he got his allies on the board 00:19:49.660 --> 00:19:53.220 and he successfully pushed Antioco out. Antioco 00:19:53.220 --> 00:19:55.519 left with a massive severance package, but he 00:19:55.519 --> 00:19:58.579 was gone. And Aiken brought in a new CEO to execute 00:19:58.579 --> 00:20:01.380 his vision, a man named James Keyes. And what 00:20:01.380 --> 00:20:03.420 was Keyes' background? Was he a tech visionary? 00:20:04.250 --> 00:20:07.309 A media expert? He was the former CEO of 7 -Eleven. 00:20:07.390 --> 00:20:09.210 A convenience store guy. A convenience store 00:20:09.210 --> 00:20:11.329 guy. And his strategy reflected that background 00:20:11.329 --> 00:20:14.190 perfectly. He immediately rolled back total access. 00:20:14.509 --> 00:20:16.970 He raised the prices for the online rentals. 00:20:17.009 --> 00:20:19.710 He effectively killed the one program that was 00:20:19.710 --> 00:20:21.609 actually beating Netflix. But what did he focus 00:20:21.609 --> 00:20:24.230 on instead? He wanted to double down on the physical 00:20:24.230 --> 00:20:26.450 retail experience. He wanted to sell more popcorn, 00:20:26.670 --> 00:20:29.230 more candy, more merchandise. He wanted to make 00:20:29.230 --> 00:20:31.990 the stores entertainment destinations. He famously 00:20:31.990 --> 00:20:34.410 downplayed the threat from Netflix, saying that 00:20:34.410 --> 00:20:36.890 Blockbuster's real competitors were Apple and 00:20:36.890 --> 00:20:39.539 Walmart. So right at the exact moment when the 00:20:39.539 --> 00:20:41.900 entire world was pivoting to digital and streaming, 00:20:42.119 --> 00:20:44.359 they brought in a guy to focus on selling more 00:20:44.359 --> 00:20:47.079 Slurpees and DVDs. That is the tragedy of this 00:20:47.079 --> 00:20:49.880 whole story. This is the specific moment Blockbuster 00:20:49.880 --> 00:20:52.779 died. It wasn't in 2010 when they finally filed 00:20:52.779 --> 00:20:55.920 for bankruptcy. It was right there in 2007 when 00:20:55.920 --> 00:20:59.519 the board, led by Aiken, chose short -term quarterly 00:20:59.519 --> 00:21:01.779 profit over the long -term survival strategy 00:21:01.779 --> 00:21:05.359 that was actually working. That is just... It's 00:21:05.359 --> 00:21:07.200 heartbreaking. Yeah. It's like watching a car 00:21:07.200 --> 00:21:09.220 crash in slow motion where the driver actually 00:21:09.220 --> 00:21:11.559 have a map to safety, but the passenger grabs 00:21:11.559 --> 00:21:13.359 the steering wheel and drives them straight off 00:21:13.359 --> 00:21:14.960 a cliff because it's a shorter route. That is 00:21:14.960 --> 00:21:18.720 a very, very apt analogy. And after that, it 00:21:18.720 --> 00:21:21.640 was just a death spiral. In 2008, in a move that 00:21:21.640 --> 00:21:24.180 I can only describe as pure desperation, Blockbuster 00:21:24.180 --> 00:21:27.200 tried to buy Circuit City. Circuit City, the 00:21:27.200 --> 00:21:29.349 electronics store that was also... Very publicly 00:21:29.349 --> 00:21:31.789 going out of business at the time. Yes. Analysts 00:21:31.789 --> 00:21:34.609 at the time called it two drowning swimmers trying 00:21:34.609 --> 00:21:36.930 to save each other by grabbing onto one another. 00:21:37.109 --> 00:21:39.210 That paints a very vivid picture. The bid was 00:21:39.210 --> 00:21:41.650 eventually withdrawn, but it just showed a complete 00:21:41.650 --> 00:21:44.730 lack of vision. They were trying to build a bigger 00:21:44.730 --> 00:21:47.650 retail fortress just as the entire concept of 00:21:47.650 --> 00:21:51.029 physical retail was crumbling. By 2010, the debt 00:21:51.029 --> 00:21:53.940 was just... insurmountable they owed nearly a 00:21:53.940 --> 00:21:57.720 billion dollars they filed for chapter 11 bankruptcy 00:21:57.720 --> 00:22:01.359 in september 2010 and that's when the vultures 00:22:01.359 --> 00:22:03.940 started circling the carcass well one big vulture 00:22:03.940 --> 00:22:07.079 swooped in dish network they bought the company 00:22:07.079 --> 00:22:10.420 out of bankruptcy in 2011 for about 320 million 00:22:10.420 --> 00:22:13.670 dollars which is just It's pennies on the dollar 00:22:13.670 --> 00:22:17.109 compared to that $8 .4 billion valuation back 00:22:17.109 --> 00:22:19.690 in the 90s. It's a rounding error. And Dish had 00:22:19.690 --> 00:22:22.170 a plan, at least theoretically. They wanted to 00:22:22.170 --> 00:22:24.289 use the Blockbuster brand for their own streaming 00:22:24.289 --> 00:22:26.609 service, which they called Blockbuster MoviePass, 00:22:26.869 --> 00:22:29.700 to compete with Netflix. Did it work? Not at 00:22:29.700 --> 00:22:31.660 all. They never really committed to it. It gained 00:22:31.660 --> 00:22:33.720 no traction. And they were also very interested 00:22:33.720 --> 00:22:35.980 in the company for its wireless spectrum rights. 00:22:36.220 --> 00:22:39.599 By early 2014, Dish announced it was closing 00:22:39.599 --> 00:22:41.880 all of the remaining corporate owned stores. 00:22:41.980 --> 00:22:44.720 And that just left the franchisees, the independent 00:22:44.720 --> 00:22:49.059 owners. Yes. The corporate entity was dead. But 00:22:49.059 --> 00:22:52.160 the brand itself lived on in these small pockets 00:22:52.160 --> 00:22:54.700 where local owners were trying to keep the lights 00:22:54.700 --> 00:22:57.869 on one rental at a time. Before we get to the 00:22:57.869 --> 00:22:59.849 very last one standing, I want to talk about 00:22:59.849 --> 00:23:02.589 some of the weird tangents in Blockbuster's history. 00:23:02.849 --> 00:23:04.630 Because looking through the source material, 00:23:04.950 --> 00:23:07.410 they tried some really wild stuff. They weren't 00:23:07.410 --> 00:23:09.349 just in the U .S., right? They were global. Oh, 00:23:09.369 --> 00:23:12.910 they were a global empire. But their very American, 00:23:12.990 --> 00:23:16.789 family -friendly model didn't always translate 00:23:16.789 --> 00:23:18.970 well. Take Japan, for instance. What was the 00:23:18.970 --> 00:23:21.440 issue there? A couple of things. First, Japanese 00:23:21.440 --> 00:23:23.839 homes are generally much smaller than American 00:23:23.839 --> 00:23:25.839 suburban homes. They just didn't have the space 00:23:25.839 --> 00:23:28.880 for the massive superstore footprint that Blockbuster's 00:23:28.880 --> 00:23:31.400 model demanded. But the bigger issue was cultural. 00:23:31.599 --> 00:23:34.480 Okay. In Japan, adult entertainment pornography 00:23:34.480 --> 00:23:37.880 accounted for about 35 % of the entire video 00:23:37.880 --> 00:23:40.500 rental market. It was a huge piece of the business. 00:23:40.700 --> 00:23:42.900 And Blockbuster, with its family -friendly policy, 00:23:43.119 --> 00:23:46.240 wouldn't stock it. They flat out refused. So 00:23:46.240 --> 00:23:48.420 they were entering this massive market with one 00:23:48.420 --> 00:23:51.519 hand tied behind their back. Their local competitors 00:23:51.519 --> 00:23:53.720 just stocked everything the customers wanted 00:23:53.720 --> 00:23:56.339 and completely crushed them. Blockbuster had 00:23:56.339 --> 00:23:59.420 to exit Japan in 1999. That makes sense. You 00:23:59.420 --> 00:24:02.059 can't impose your corporate morality on a market 00:24:02.059 --> 00:24:04.099 that clearly wants something else. What about 00:24:04.099 --> 00:24:06.259 the U .K.? I feel like Blockbuster was huge there 00:24:06.259 --> 00:24:08.359 for a while. It was massive in the U .K. They 00:24:08.359 --> 00:24:10.859 bought a big chain called Sidovision, which was 00:24:10.859 --> 00:24:13.480 branded as Ritz, and they dominated the high 00:24:13.480 --> 00:24:15.910 street. But ultimately, they suffered the exact 00:24:15.910 --> 00:24:19.089 same fate as the U .S. branch. They entered administration, 00:24:19.369 --> 00:24:21.809 which is the U .K. version of bankruptcy, twice 00:24:21.809 --> 00:24:25.150 in 2013 before finally disappearing. Okay, here's 00:24:25.150 --> 00:24:27.170 one I saw that I had no idea about. Discovery 00:24:27.170 --> 00:24:30.910 Zone. Ah, yes. Discovery Zone. The indoor playground 00:24:30.910 --> 00:24:32.890 with the tubes and the ball pits and the constant 00:24:32.890 --> 00:24:35.180 smell of disinfectant. Blockbuster owned that. 00:24:35.259 --> 00:24:38.259 In the mid -90s, yes. They invested heavily and 00:24:38.259 --> 00:24:40.299 eventually took control. It was part of this 00:24:40.299 --> 00:24:42.740 grand vision they had to be an entertainment 00:24:42.740 --> 00:24:45.319 complex company, not just a video rental company. 00:24:45.539 --> 00:24:47.779 I had no idea. I just remember getting serious 00:24:47.779 --> 00:24:50.500 rug burn on those slides. It was another attempt 00:24:50.500 --> 00:24:52.859 to diversify that just burned through cash and 00:24:52.859 --> 00:24:55.420 ultimately failed. Discovery Zone went bankrupt 00:24:55.420 --> 00:24:58.849 in 1996. But if you think that's weird, let me 00:24:58.849 --> 00:25:01.029 tell you about the Blockbuster Block Party. The 00:25:01.029 --> 00:25:04.329 Block Party. What on earth was that? This was 00:25:04.329 --> 00:25:07.470 a wild experimental concept they tried in Albuquerque 00:25:07.470 --> 00:25:10.569 and Indianapolis in the mid -90s. I want you 00:25:10.569 --> 00:25:14.369 to imagine a giant... windowless building the 00:25:14.369 --> 00:25:17.990 size of a city block. Inside, you have laser 00:25:17.990 --> 00:25:20.690 tag, fancy restaurants, motion simulator rides, 00:25:20.829 --> 00:25:23.569 and huge lounge areas for adults to hang out. 00:25:23.789 --> 00:25:26.309 So it was like a Dave & Buster's but run by Blockbuster. 00:25:26.569 --> 00:25:28.789 Essentially, yes. It was their attempt to build 00:25:28.789 --> 00:25:31.690 an adult entertainment complex. Not in the Japanese 00:25:31.690 --> 00:25:33.950 sense, but in the Night Out for Grownups sense. 00:25:34.309 --> 00:25:36.529 It was a colossal failure. It just showed that 00:25:36.529 --> 00:25:38.009 they had all this cash and all this ambition, 00:25:38.109 --> 00:25:39.549 but they just couldn't figure out what they wanted 00:25:39.549 --> 00:25:42.460 to be. A total identity crisis. Exactly. they 00:25:42.460 --> 00:25:45.859 a tech company, a retail store, a theme park 00:25:45.859 --> 00:25:48.819 operator? They never knew. And that identity 00:25:48.819 --> 00:25:51.299 crisis brings us finally to the present day, 00:25:51.380 --> 00:25:54.180 the strange afterlife of the Blockbuster brand, 00:25:54.359 --> 00:25:57.359 because it just refuses to die. We have to talk 00:25:57.359 --> 00:26:01.099 about Bend, Oregon, the last Blockbuster on planet 00:26:01.099 --> 00:26:03.839 Earth. It is such a fascinating phenomenon. As 00:26:03.839 --> 00:26:07.079 of 2019, it's the only one left. And it's become 00:26:07.079 --> 00:26:10.869 this. This pilgrimage site for nostalgics, a 00:26:10.869 --> 00:26:12.970 tourist destination. I've seen the pictures. 00:26:13.029 --> 00:26:15.490 They sell their own merchandise. And they have 00:26:15.490 --> 00:26:17.950 the Russell Crowe memorabilia, right? Yes. That 00:26:17.950 --> 00:26:21.519 is a hilarious detail. The TV host John Oliver 00:26:21.519 --> 00:26:23.779 bought a bunch of Russell Crowe's movie props, 00:26:23.980 --> 00:26:26.740 including his jockstrap from the movie Cinderella 00:26:26.740 --> 00:26:29.880 Man, and he donated it all to one of the last 00:26:29.880 --> 00:26:32.740 blockbusters in Alaska. When that store finally 00:26:32.740 --> 00:26:34.900 closed, the items were sent to the store in Bend. 00:26:35.200 --> 00:26:37.140 That is just beautifully surreal. And didn't 00:26:37.140 --> 00:26:39.000 they do an Airbnb thing a few years ago? They 00:26:39.000 --> 00:26:41.200 did. In 2020, right in the middle of the pandemic, 00:26:41.460 --> 00:26:43.920 they listed the entire store on Airbnb. You could 00:26:43.920 --> 00:26:47.119 rent it out for the night for a 90s -themed sleepover. 00:26:47.319 --> 00:26:49.309 What did that entail? You got to sleep on a pull 00:26:49.309 --> 00:26:50.910 -out couch in the middle of the aisle surrounded 00:26:50.910 --> 00:26:54.109 by thousands of VHS tapes with an endless supply 00:26:54.109 --> 00:26:56.829 of snacks and a big TV. That sounds incredible, 00:26:57.029 --> 00:26:59.289 honestly. But there's also a weird financial 00:26:59.289 --> 00:27:01.609 afterlife to the company, right? Or something 00:27:01.609 --> 00:27:04.170 about a zombie stock. This is one of those bizarre 00:27:04.170 --> 00:27:06.509 market anomalies that could only happen in our 00:27:06.509 --> 00:27:09.609 current era. The corporate entity of Blockbuster 00:27:09.609 --> 00:27:12.049 didn't technically vanish. It became something 00:27:12.049 --> 00:27:14.890 called BB Liquidating Inc. It's just a shell 00:27:14.890 --> 00:27:16.809 company with no assets, no business, nothing. 00:27:17.069 --> 00:27:20.329 Okay. But during the meme stock craze in 2021, 00:27:20.650 --> 00:27:23.289 you know, with GameStop and AMC shares of BB 00:27:23.289 --> 00:27:26.069 Liquidating suddenly surged by thousands of percent. 00:27:26.150 --> 00:27:29.029 Why? Why would anyone buy stock in a dead company? 00:27:29.230 --> 00:27:33.450 Who knows? Nostalgia. Confusion. Maybe algorithms 00:27:33.450 --> 00:27:36.630 gone haywire. For a brief shining moment, people 00:27:36.630 --> 00:27:38.769 were pouring money into a company that effectively 00:27:38.769 --> 00:27:41.210 didn't exist anymore just because of the power 00:27:41.210 --> 00:27:43.009 of that name. And the website came back recently, 00:27:43.049 --> 00:27:45.950 too, didn't it? Yes. Just last year, in 2023, 00:27:46.410 --> 00:27:49.269 the Blockbuster website reactivated with a cryptic 00:27:49.269 --> 00:27:52.130 message. We are working on rewinding your movie. 00:27:52.349 --> 00:27:54.730 And their official Twitter account is still active, 00:27:54.809 --> 00:27:57.549 making jokes about working on the new Blockbuster. 00:27:57.670 --> 00:27:59.109 Do you think they're actually planning some kind 00:27:59.109 --> 00:28:01.630 of comeback? Or is it all just a marketing stunt? 00:28:01.849 --> 00:28:03.869 It's likely just brand maintenance, you know, 00:28:03.869 --> 00:28:06.470 keeping the trademark alive. But in this world 00:28:06.470 --> 00:28:09.309 of endless reboots and nostalgia plays, who knows? 00:28:09.430 --> 00:28:12.130 Maybe a blockbuster branded streaming service 00:28:12.130 --> 00:28:14.789 with a cool retro interface could actually find 00:28:14.789 --> 00:28:16.769 an audience. I would subscribe to that in a heartbeat. 00:28:17.029 --> 00:28:19.730 OK, so let's bring this all together. We've gone 00:28:19.730 --> 00:28:22.349 from the oil fields of Texas to the last stand 00:28:22.349 --> 00:28:26.529 in Oregon. When you look at this whole epic arc, 00:28:26.750 --> 00:28:29.579 what is the big takeaway for you? I think the 00:28:29.579 --> 00:28:32.799 summary is this. Blockbuster started as an innovative, 00:28:32.940 --> 00:28:35.519 data -driven company that used technology to 00:28:35.519 --> 00:28:38.140 build a monopoly and crush its competition. But 00:28:38.140 --> 00:28:39.980 when the next great technological shift came, 00:28:40.200 --> 00:28:42.059 they didn't die because they were blind or stupid. 00:28:42.220 --> 00:28:44.519 They died because of internal sabotage. They 00:28:44.519 --> 00:28:47.099 saw it coming. They had the Enron deal for streaming 00:28:47.099 --> 00:28:50.000 in 2000. They had the total access program that 00:28:50.000 --> 00:28:52.940 was beating Netflix in 2007. They had the map. 00:28:53.210 --> 00:28:55.410 Exactly. They had the technology. They had the 00:28:55.410 --> 00:28:57.630 strategy. What they lacked was the corporate 00:28:57.630 --> 00:29:00.410 will to suffer short -term financial losses for 00:29:00.410 --> 00:29:03.410 long -term survival and gain. Carl Eichen and 00:29:03.410 --> 00:29:05.190 the board wanted to keep the quarterly earnings 00:29:05.190 --> 00:29:07.829 high and the stock price stable. And in doing 00:29:07.829 --> 00:29:10.390 so, they sacrificed the entire future of the 00:29:10.390 --> 00:29:12.650 company. It's a lesson for every major business, 00:29:12.750 --> 00:29:16.000 really. You simply cannot... Cost cut your way 00:29:16.000 --> 00:29:18.980 to innovation. You cannot. And sometimes the 00:29:18.980 --> 00:29:21.559 safe bet, which for them was just focusing on 00:29:21.559 --> 00:29:24.059 their core retail business, is actually the most 00:29:24.059 --> 00:29:26.480 dangerous, most reckless bet of all. I want to 00:29:26.480 --> 00:29:28.500 leave our listeners with one final thought to 00:29:28.500 --> 00:29:31.960 mull over. Yeah. Just imagine an alternate reality. 00:29:32.640 --> 00:29:34.980 Imagine a world where Carl Icahn doesn't get 00:29:34.980 --> 00:29:37.900 involved, where John Antioco stays on as CEO. 00:29:38.359 --> 00:29:41.140 Total access is allowed to keep growing, burning 00:29:41.140 --> 00:29:43.829 cash, but crushing the competition. It is a very 00:29:43.829 --> 00:29:46.410 plausible alternate timeline. In that world, 00:29:46.430 --> 00:29:48.130 we aren't all sitting around saying Netflix and 00:29:48.130 --> 00:29:50.950 chill. We're saying blockbuster and chill. The 00:29:50.950 --> 00:29:53.470 blue and yellow app is on every smart TV in the 00:29:53.470 --> 00:29:56.789 world. And maybe, just maybe, you'd still be 00:29:56.789 --> 00:29:58.829 able to run out to a corner store on a Friday 00:29:58.829 --> 00:30:01.869 night and rent a video game and grab a box of 00:30:01.869 --> 00:30:05.269 Raisinets at the counter. One can dream. Thanks 00:30:05.269 --> 00:30:06.869 for listening to this deep dive. We'll see you 00:30:06.869 --> 00:30:07.789 next time. Take care.