A Blockbuster Failure to Innovate

Gloria Ha
3 min readOct 12, 2020
Photo by CardMapr on Unsplash

We are living in the Netflix age. Who hasn’t watched Tiger King on Netflix? Despite the pandemic and other streaming competitors, such as Amazon and Hulu, Netflix is still doing well because of its original productions and expansion into global markets.

Do you remember when Netflix was a mail-in DVD subscription service? Many might not — especially to the late millennials and zillennials. Blockbuster was the name of the game and the place to be on a Friday night. Despite long lines and exorbitant strict late fees, Blockbuster was a weekend ritual for many. At its peak in 2004, Blockbuster consisted of 9,094 stores and employed approximately 84,300 people worldwide with a market value of $5 billion. But in 2010, Blockbuster filed by bankruptcy with $1 billion in debt because it couldn’t keep up with Netflix. Currently, they do have one store open in Bend, Oregon as a 90s-themed Airbnb rental for the nostalgic.

One of the biggest mistakes they made was in 2000 when Netflix approached them for a buyout deal for $50 million and they said no. At first, Netflix didn’t seem much like a competitor. They didn’t have any stores and simply offered a DVD mail subscription service. With their strategically-placed stores, other chain video stores (such as Hollywood Video) could not compete. Aware of their customer’s frustrations with their strict late fee charge, Blockbuster launched a “No more late fee” policy in 2005. But this only further frustrated its customer base because of its false advertising. The new policy would charge full price after 8 days and customers would either have to pay the price or “get to keep it”.

Photo by Sean Benesh on Unsplash

I remember being frustrated myself and that’s what turned me to Netflix. At first, I was doubtful because I worried about DVDs being ruined in the mail and not arriving on time. But they were reliable and affordable with a comparable selection like Blockbuster. Redbox was another DVD provider located conveniently at your local convenience store/ supermarket that offered DVD rentals for just $1. But the selection was limited and the DVD had to be returned to the same kiosk. When Netflix launched their streaming service in 2007, it was death to the late fee and no longer did customers have to worry about returning their DVDs.

In the same year, Blockbuster bought Movielink, an online video store that allowed customers to download movies. But by then, it was already too late. Netflix had already accumulated a significant customer base and offered the streaming service alongside their DVD mail subscription service. With growing broadband capacity and increasing influence of the internet, DVD sales were becoming less popular. One of the biggest concerns in the movie industry at that time was the illegal downloading of movies, which would undermine their profitability and posed a big threat to its future.

An affordable streaming service was the answer to this (as it has been for the music industry as well). It was clear that the previous Blockbuster model was not working anymore. Though streaming was new and some people were hesitant to adopt it at first, now it was become the industry standard. As CEO of Netflix Reed Hastings admits, “if Blockbuster had launched their own streaming service two years earlier, Netflix may never have happened”.



Gloria Ha

Prospective UX/UI Product Designer currently studying UX!