From Blockbuster to just plain bust

Homecoming 2024 public forum: lights, camera, inaction as Ben Hayden-Smith reveals how Blockbuster let Netflix steal its spotlight

How did a thriving video company like Blockbuster go from having 5734 stores in the US in 2005, to spiralling towards extinction 10 years later?

Simple, says Ben Hayden-Smith, Adjunct Teaching Fellow at Bond University’s Business School:  They wore business blinkers, ignored opportunities and lacked innovative leadership.

Netflix, founded in 1997, would never have become so successful if its established entertainment rival Blockbuster Video had used ‘innovation leadership’ to meet their customers’ needs.

Mr Hayden-Smith told a forum during Bond University’s Homecoming Week that the Blockbuster board showed no vision even when it had the opportunity to buy the fledgling company Netflix which later took its video traffic.

The success of Netflix’s first screening, House of Cards, starring Kevin Spacey and Robin Wright, premiered on February 1, 2013 and fired a warning shot across the Blockbuster bow.

Yet when that embryonic version of Netflix was put up for sale for just $US50 million, Blockbuster’s fateful decision not to pay up, because they were in their own `successful’ rut, was the catalyst for their downward spiral into commercial oblivion.

They didn’t grasp what Steven Jobs would later identify: “Innovation is the ability to see change as an opportunity, not a threat.”

Mr Hayden-Smith said many customers don’t know what they want, and companies like Blockbuster didn’t know how to, or didn’t want to, innovate because they thought their status quo success would continue regardless.

“They didn’t like to face change because they thought everything was going well, their market share was huge and people seemed to like going into their stores to hire DVDs.”

He outlined the critical importance of innovation leadership as a key role in any business’s success and growth.

The rise of Netflix is a classic case of positive innovation succeeding at a customer level, and an example of what happens when no one has the leadership to innovate.

Mr Hayden-Smith said innovation is the use of new knowledge (tech and marketing) to offer new products or services that customers want.

“However, a new idea in itself is not an innovation. There needs to be a commercial aspect in it: invention plus commercialisation.

“Businesses have got to innovate or die. If you don’t do anything and rest on your laurels, someone else will take over.”

The Blockbuster story worsened very quickly.

At its peak in 2005 they had 5734 DVD stores.

Just 10 years later in 2015, due to the company’s board `putting the blinkers on’ and the Netflix team delivering innovative entertainment to customers, there were just 38 stores left.

 For Netflix the commercial equation was simple – Blockbuster had 200 million customers, leaving 130 million Americans untouched.

Blockbuster had tunnel vision while Netflix’s focus was on what customers liked - and that was being able to stay at home and order movies online.

Mr Hayden-Smith said Blockbuster was primarily a real estate business with so many shops, “and they failed to understand the job the customer was trying to get done”. 

He cited Clayton Christensen from the Harvard Business School: “Success does not come from understanding the customer. It comes from a deep understanding of the job the customer is trying to get done.” 

Netflix even created algorithms to suggest movies to match users’ profiles. 

Mr Hayden-Smith said companies like Netflix keep encouraging innovation to sustain existing markets and to identify any underserviced area that can use new technology in new ways.

It’s more than just thinking up new things, he said.

Success comes from doing those new things, and doing them well.