Retailers think of technology as a pure cost center: The products on their shelves are what the customers want; having the physical location and the right products in your inventory are enough. Technology is for operational things like cash registers and warehouse systems, and you don't upgrade any of them before your business plan says so.
Entertainment companies have to think differently about technology. Their product is intellectual property, and as technology evolves, so do the way customers interact with their product. This is nothing new - entertainment companies have had to adapt to FM radio, broadcast TV, color TV, cable TV, HD video, VHS, DVD, etc. But distribution has always been tightly controlled, and technology is a key component of this. So entertainment companies in general are pretty forward-looking in a technology sense - at least moreso than retailers.
In retail, the general customer interaction hasn't changed in a long time (or rather, in 1998 it hadn't changed fundamentally since the advent of credit cards). So the thought that technology could revolutionize the customer experience hadn't even crossed their minds. They had DVDs and VHS tapes - physical goods that they sold. But the product in entertainment is NOT physical, it's the intellectual property: and the retail guys never understood that. Once the consumers realized that, it was game over, man.
Realistically, there was probably very little Blockbuster could have done to challenge Netflix. Netflix was lean and able to move fast - Blockbuster was tied to an aging and slow-moving brick and mortar retail business. Even if Blockbuster had tried to close all their stores and move to a Netflix model, it's ridiculously hard for a large company to disrupt itself. Politically, you'll have a lot of resistance from within and meddling by the "old guard" to make sure the new "disruptive" product isn't going to be good enough to make them obsolete. There is also just a lot of capital overhead involved in running a retail business - obstacles that Netflix didn't have.
I disagree completely. There's nothing that would have prevented BlockBuster from doing a few really great things:
1. Get customers email address and email them the day before the day of and every day thereafter a DVD is due with options to renew the rental at some kind of reduced rate right in the email, as well as perhaps some kind of option to buy.
2. Implement a "lottery" system. Blockbuster doesn't hold on to inventory forever, so eventually they sell off old rentals. Occasionally give them away. Give them away at a rate which is high enough to keep people renting, but low enough to not decimate profits. Maybe 1:50 or so? And only movies that are getting sold off anyhow. Some people might "game" this system, but they're renting to do so!
3. Make suggestions. BB had my entire friggin rental history for a couple of years and not once did they recommend anything to me that I might like. Could they have thrown in the occasional suggested rental for free with some other rental I was making? Sure. Even better if it was the first disc of the first season of a TV show; I'd be back for all the rest of the discs of all the rest of the seasons.
These all would have required hiring a CXO (customer experience officer) and giving them a lot of budget and authority to do things which seem like they'd hurt the bottom line for the sake of keeping the company afloat. Would it have worked for sure? Maybe, maybe not. But they would have had a better chance of keeping everything afloat.
Trying to sell me overpriced popcorn and whatever was a total joke; I can get that stuff much, much cheaper at the grocery store. Blockbuster isn't a movie theater than can charge outrageous premiums because customers are trapped once they're on the premises.
But Blockbuster didn't do anything to try and turn their ubiquity and huge collection of data into competitive advantage. So they failed.
If you watch only a few movies a month, Redbox is more economic than Netflix. If you only watch two movies per month, paying $3-$4 at Blockbuster is on par with Netflix.
Sure Netflix economics are great if you already have broadband, have stopped paying for cable TV, and you hate driving to the places where Redbox has kiosks. But if any of those conditions aren't met, Netflix doesn't look quite as genius.
Redbox "proves" that there is still demand for physical media rentals. Blockbuster had a kiosk at my local grocery store for a while and that meant I could return a movie or rent a new one every trip if I so desired at something like $1.50 a pop. That was pretty compelling.
Even more compelling would have been a store with a couple of people who really knew movies and could recommend things and with a deep, deep back catalog. Cutting the customer-facing square footage in half would allow each and every store to pack damn near every movie ever made in. Yeah it might take a guy a minute or three to head to the back and pull the movie you're looking for, but it could be done.
The ownership of the movies is a model that Netflix SORELY wishes they had at the moment. Netflix is publicly traded. And because they're publicly traded it means they have to file financials. And filing financials means a profit & loss kind of statement. And because Netflix doesn't actually OWN much IP, it means they have to rent or lease it. And that means the studios which own the IP that Netflix desperately needs to stay in business are perfectly informed of Netflix's financials. So they know just how much they can squeeze Netflix for every time a contract negotiation comes up.
Blockbuster would not be in the same position because they would own the catalog. Purchases are expensive, but over any 20 year period they might be cheaper than renting.
Now it looks like Netflix was inevitable, but it took a few huge blunders by other companies for them to succeed. Remember when Starz basically gave away the rights to thousands of shows and movies (for $30 million/year)? We could just as likely be talking about Viacom Streaming and all those silly things that Netflix did.
http://daindunston.com/blockbuster-the-customer-owns-your-pu...
Hollywood Video may have been following BB in many ways, but had the opposite attitude toward customer service. In fact that was the differentiator they counted on. Treat people good and they'll always want to come in. Hollywood never stopped treating people good, but people stopped coming in.
Time will tell how long this strategy will work for Redbox. In their favor: their 36,000 kiosks are placed directly in the footpath of hundreds of millions of shoppers every week. (Walmart alone sees over 100M shoppers per week in the US, and 3,700 Walmart stores have Redbox kiosks). Working against them: broadband penetration, Netflix, Amazon, and the steady transition away from physical media.
[1] About a quarter of US households do not have high-speed broadband. That number will shrink over time, obviously, but perhaps not as quickly as we like to think it will.
And you're right about adoption: there are a lot of people in the US who just don't care about the Internet. They will be increasingly less relevant as time goes on (this is already causing social angst at some levels) but they will persist. Usually you don't see 100% adoption of things like this until all the old people die and are replaced in the consumer pool by younger generations (aka generational cyclicality).
It won't be a spectacular implosion like Blockbuster because they have the benefit of low capital overhead: those kiosks aren't that expensive and the DVDs themselves are basically free (AFAIK Redbox prints copies of them as-needed in exchange for a share of rental revenue to the copyright owners). So they can keep running them as long as the rental revenue covers the maintenance and re-stocking of the kiosks. The kiosks aren't even using valuable real-estate: if you got rid of a Redbox kiosk, I don't know there's anything else you could really put there that would generate a lot of money.
Redbox is giving streaming a whirl, but frankly when I saw Verizon's name attached to it I didn't even bother.
Customers hated them, and it would appear that Blockbuster hated them back. Maybe it didn't have to be Netflix, but someone was going to come along eventually and pull off an alternative that has no late fees, always has what you want, and you don't have to drive there. Could have been Redbox. You still have to drive there, sometimes the kiosk is out (in which case the web or app can tell you not to bother to get in the car), but at least if you're late it's only another dollar.
Blockbuster tried to fake it, but it still came off as the same weaselly company with the same weaselly fine print ("no late fees" comes to mind). Hollywood kind of tried, and they seemed a little more sincere, but it was still the doomed physical model.