"In the year 2000, two men flew to Dallas to sell their struggling startup for $50 million. The CEO laughed them out of the room. One company is now worth hundreds of billions. The other no longer exists. The last remaining Blockbuster store is in Bend, Oregon — and it is now a Netflix documentary."
Blockbuster was founded in 1985 in Dallas, Texas. By 1994, Viacom had acquired it for $8.4 billion, making it one of the most prized entertainment assets in the world. At its peak, Blockbuster operated over 9,000 stores across 25 countries, employed 60,000 people, generated $6 billion in annual revenue, and was a fixture of Saturday-night culture across America. The late fee was not a bug in Blockbuster's model — it was a feature. Late fees generated approximately $800 million per year, roughly 16% of Blockbuster's total revenue. They were also, by a wide margin, the single thing customers hated most about renting a video.
Reed Hastings and Marc Randolph built Netflix in 1997 specifically to attack this pain point. In 2000, after the dot-com bust had battered Netflix's prospects, they flew to Dallas to meet Blockbuster CEO John Antioco. Their pitch: Blockbuster should acquire a 49% stake in Netflix for $50 million and make it Blockbuster's online arm. Antioco reportedly laughed them out of the room. Whatever the precise exchange, the outcome is unambiguous.
Blockbuster founded in Dallas, Texas. The concept — large, well-stocked, well-lit video rental stores — rapidly displaces independent mom-and-pop rental shops across the US.
Viacom acquires Blockbuster for $8.4 billion. The company operates 3,000 stores and is expanding aggressively internationally.
Netflix founded. Business model: DVD by mail, no late fees. Blockbuster notices but does not respond.
Reed Hastings and Marc Randolph fly to Dallas. They offer Blockbuster 49% of Netflix for $50 million. Antioco declines. Netflix leaves determined to destroy Blockbuster's model.
Blockbuster launches Blockbuster Online — four years after turning down Netflix. The service gains traction. Blockbuster also launches Total Access: return in-store, get a free DVD. It is working.
CEO Antioco is forced out by activist investor Carl Icahn, who objects to the cost of Blockbuster's online strategy. His replacement, Jim Keyes, famously says: 'I don't understand why you'd want to watch movies on your PC.' Blockbuster Online loses momentum.
Netflix launches streaming. The platform war begins. Blockbuster has no digital streaming infrastructure.
Blockbuster files for bankruptcy. At peak it had 9,000+ stores. By 2019, one store remains — in Bend, Oregon, which becomes a global cultural relic and a Netflix documentary subject.
The most instructive subplot in Blockbuster's fall is what happened in 2007. By that year, Blockbuster Online was actually competing effectively with Netflix. CEO Antioco was executing the only strategy that could have kept Blockbuster alive. Then Carl Icahn, who held a 10% stake, objected to the costs of the online expansion and engineered Antioco's departure. His replacement, Jim Keyes, killed Blockbuster Online's competitive posture. Netflix breathed freely again. Blockbuster filed for bankruptcy three years later.