What wound up destroying the Blockbuster business model was the successful implementation of what we’ll call the “Threshold Business Model.” It is based on the theory of collective behavior. As more people experienced Netflix, they enjoyed it, told their friends, and eventually the word of mouth created new subscriptions. People still held onto Blockbuster, but the peer pressure of everyone going to Netflix and liking creates a threshold that eventually allows one business to dominate and the other to file for bankruptcy.
Since then, Movie Gallery has filed for bankruptcy twice and its entire chain of stores has been liquidated. Is the structure of Redbox the sames as the old Blockbuster business profile? Instead of demanding compliance, Redbox puts the choices in the hands of the consumers instead. This is where Blockbuster could have survived if they had adopted a similar model. Redbox is highly competitive and growing despite the prevalence of streaming services.
Yet for all his operational acumen, he failed to see that networks of unseen connections would bring about his downfall. Over the past 15 years, scientists have learned much about how these networks function and how his fate could have been avoided. The following year, Dish Network bought the company out of bankruptcy for $320 million in hopes of keeping 600 stores open. In an attempt to wipe out $1 billion of debt, Blockbuster filed for bankruptcy, and the company was delisted from the NYSE.
- Blockbuster re-opened 15 of 38 former KPS stores by February 16, 1998,
 and re-employed 145 former KPS staff. KPS members were given special offers to join Blockbuster, but the video pre-paid coupon system was not retained.
- The irony is that Blockbuster failed because its leadership had built a well-oiled operational machine.
- By eschewing retail locations, it lowered costs and could afford to offer its customers far greater variety.
- Blockbuster used its location status to get instant coverage; it also promoted these stores by hosting video-game tournaments, special trade-in offers, and a more ‘hip’ look to the selection and staff.
- However, as the world became more technologically oriented, Blockbuster failed to follow suit.
- Stores began to close, and as of 2022, the last remaining store was in Bend, Oregon.
This scenario is already potent enough in day-to-day life, however it is particularly potent in the business world. A failure to innovate in the business world can leave you limping behind competitors who are soaring because they decided to update their business model. This is particularly important in the modern world because of the huge technological advances; it would be, in my opinion, an outrageous decision to not innovate and include technology within a business model. Some companies, however, have failed to make such moves and have, therefore fallen off the top of the ladder. Let us have a look at the demises of some former market leaders so that we can understand how their lack of innovation caused their business to slump. Some Tower Records stores still thrive in Japan long after their parent company declared bankruptcy and closed all of its American stores.
After a few people tweeted that they had noticed the website was active, more nostalgic Blockbuster fans shared their theories about the website as well as their memories of picking out flicks and video games with their family and friends. Antioco’s article in Harvard Business Review describes what happened next. While he convinced the board to back his plan, one of his lieutenants, Jim Keyes, led a rear guard action. He pointed out that the costs of Antioco’s changes — about $200 million to drop late fees and another $200 million to launch Blockbuster Online—were damaging profitability. Some were reluctant at first, they actually liked being able to browse movies at the store and pick one up at a moments notice, but others jumped right in. And as more of their friends raved about Netflix, the laggards tried it too, fell in love with it and convinced people they knew to give it a shot.
Network scientists call this the threshold model of collective behavior. For any given idea, there are going to be people with varying levels of resistance. As those who are more willing begin to adopt the new concept, the more resistant ones become more likely to join in. Blockbuster went bankrupt in 2010 and Netflix is now a $28 billion dollar company, about ten times what Blockbuster was worth. Today, Hastings is widely hailed as a genius and Antioco is considered a fool. At the time, there were only 300 Blockbuster stores still in operation, Business Insider reported.
We need to stop acting as if there is a recipe for business—like a cake or a casserole—and start thinking in terms of how factors are connected. The structure of those unseen connections, their context and how they relate to our objectives increasingly makes the difference between success and failure. Keyes felt the company couldn’t afford to keep losing so much money, so we pulled the plug. To this day I don’t know what would have happened if we’d avoided the big blowup over Antioco’s bonus and he’d continued growing Total Access. While ideas usually take hold in small niches of innovators, they can often spread to early adopters, who are only slightly more resistant to join in.
In March 2010, Blockbuster began “Additional Daily Rates”, or “ADRs”, for rentals not returned by their due date in the United States, having already used this procedure in other countries such as the UK for many years. An ADR was charged for each day a member kept the rental beyond the rental terms. On March 12, 2010, PricewaterhouseCoopers, Blockbuster’s independent registered public accounting firm, issued its audit opinion disclosing substantial doubt about Blockbuster’s ability to continue as a going concern. On March 17, 2010, Blockbuster issued a bankruptcy warning after continued drops in revenue threatened its ability to service its nearly $1 billion (~$1.32 billion in 2022) debt load. In Blockbuster Season 1, the staff at the video-rental franchise’s last store on Earth try to keep their beloved shop open as their corporate competitors’ booming streaming services dominate the market. A long, long time ago, when streaming became the predominant form of entertainment, video stores shuttered across the globe.
It is not clear whether Antioco’s team did such an analysis or not, but by 2004—six years before the company went bankrupt—he sensed that Netflix had become a significant threat and sought to change his firm’s policies. Yet how he went about doing that sealed his, and ultimately http://trymarketingonline.com/’s, fate. From 2003 to 2005, the company lost 75% of its market value, Forbes reported.
Duncan Watts, a pioneer in network theory, is quick to point out that social dynamics tend to be idiosyncratic and it’s not always clear exactly where thresholds exist. Still, you can use conventional marketing analysis to evaluate whether an idea is spreading to new groups or just growing within a niche. Antioco was, in fact, a very competent executive—many considered him a retail genius—with a long history of success.