Blockbuster Netflix Quotes

About 20 years ago I told an Exec to tell her friend, an Exec at a big entertainment company that they should develop a video library where anyone can pull up a film or tv show when they want to, from home. This was before Video On Demand. Before Netflix went streaming. Before Amazon Video and Hulu. That entertainment company I told about my vision for a VOD-type of service to was Blockbuster. But because I was a very young Executive, a woman, and Asian; they didn't listen. Look where Blockbuster is now. - Don't take Good Advice for Granted. Futurist - Kailin Gow

was not obvious at the time, even to me, but we had one thing that Blockbuster did not: a culture that valued people over process, emphasized innovation over efficiency, and had very few controls. Our culture, which focused on achieving top performance with talent density and leading employees with context not control, has allowed us to continually grow and change as the world, and our members’ needs, have likewise morphed around us.

a young Goldman Sachs banker named Joseph Park was sitting in his apartment, frustrated at the effort required to get access to entertainment. Why should he trek all the way to Blockbuster to rent a movie? He should just be able to open a website, pick out a movie, and have it delivered to his door. Despite raising around $250 million, Kozmo, the company Park founded, went bankrupt in 2001. His biggest mistake was making a brash promise for one-hour delivery of virtually anything, and investing in building national operations to support growth that never happened. One study of over three thousand startups indicates that roughly three out of every four fail because of premature scaling—making investments that the market isn’t yet ready to support. Had Park proceeded more slowly, he might have noticed that with the current technology available, one-hour delivery was an impractical and low-margin business. There was, however, a tremendous demand for online movie rentals. Netflix was just then getting off the ground, and Kozmo might have been able to compete in the area of mail-order rentals and then online movie streaming. Later, he might have been able to capitalize on technological changes that made it possible for Instacart to build a logistics operation that made one-hour grocery delivery scalable and profitable. Since the market is more defined when settlers enter, they can focus on providing superior quality instead of deliberating about what to offer in the first place. “Wouldn’t you rather be second or third and see how the guy in first did, and then . . . improve it?” Malcolm Gladwell asked in an interview. “When ideas get really complicated, and when the world gets complicated, it’s foolish to think the person who’s first can work it all out,” Gladwell remarked. “Most good things, it takes a long time to figure them out.”* Second, there’s reason to believe that the kinds of people who choose to be late movers may be better suited to succeed. Risk seekers are drawn to being first, and they’re prone to making impulsive decisions. Meanwhile, more risk-averse entrepreneurs watch from the sidelines, waiting for the right opportunity and balancing their risk portfolios before entering. In a study of software startups, strategy researchers Elizabeth Pontikes and William Barnett find that when entrepreneurs rush to follow the crowd into hyped markets, their startups are less likely to survive and grow. When entrepreneurs wait for the market to cool down, they have higher odds of success: “Nonconformists . . . that buck the trend are most likely to stay in the market, receive funding, and ultimately go public.” Third, along with being less recklessly ambitious, settlers can improve upon competitors’ technology to make products better. When you’re the first to market, you have to make all the mistakes yourself. Meanwhile, settlers can watch and learn from your errors. “Moving first is a tactic, not a goal,” Peter Thiel writes in Zero to One; “being the first mover doesn’t do you any good if someone else comes along and unseats you.” Fourth, whereas pioneers tend to get stuck in their early offerings, settlers can observe market changes and shifting consumer tastes and adjust accordingly. In a study of the U.S. automobile industry over nearly a century, pioneers had lower survival rates because they struggled to establish legitimacy, developed routines that didn’t fit the market, and became obsolete as consumer needs clarified. Settlers also have the luxury of waiting for the market to be ready. When Warby Parker launched, e-commerce companies had been thriving for more than a decade, though other companies had tried selling glasses online with little success. “There’s no way it would have worked before,” Neil Blumenthal tells me. “We had to wait for Amazon, Zappos, and Blue Nile to get people comfortable buying products they typically wouldn’t order online.

Netflix’s algorithm has a deeper (even if still quite limited) understanding of your tastes than Amazon’s, but ironically that doesn’t mean Amazon would be better off using it. Netflix’s business model depends on driving demand into the long tail of obscure movies and TV shows, which cost it little, and away from the blockbusters, which your subscription isn’t enough to pay for. Amazon has no such problem; although it’s well placed to take advantage of the long tail, it’s equally happy to sell you more expensive popular items, which also simplify its logistics. And we, as customers, are more willing to take a chance on an odd item if we have a subscription than if we have to pay for it separately.

Blockbuster turned down a chance to purchase the then fledgling Netflix for $50 million in 2000.

Most interesting of all, unlike the vast majority of firms that fail when the industry shifts, Netflix had responded successfully to four massive transitions in the entertainment and business environment in just fifteen years: From DVD by mail to streaming old TV series and movies over the internet. From streaming old content to launching new original content (such as House of Cards) produced by external studios. From licensing content provided by external studios to building their own in-house studio that creates award-winning TV shows and movies (such as Stranger Things, La Casa De Papel, and The Ballad of Buster Scruggs). From a USA-only company to a global company entertaining people in 190 countries. Netflix’s success is beyond unusual. It’s incredible. Clearly, something singular is happening, which wasn’t happening at Blockbuster when they declared bankruptcy in 2010.

DVD technology allowed Netflix to create a completely new business model. Rather than renting out individual movies and being charged exorbitant late fees if they failed to return the VHS tape in time, Netflix customers paid $20 per month for a subscription to “unlimited” movies—provided they checked out just one movie at a time. This allowed Netflix to eliminate Blockbuster’s widely loathed late fees and capture the powerful and certain revenue stream from the proven model of a subscription service. Netflix took off, and even went public as a DVD-by-mail service. But Hastings never lost sight of his ultimate vision for Netflix—on-demand television delivered via the Internet

Deaths from P-type loonshots tend to be quick and dramatic. A flashy new technology appears (streaming video), it quickly displaces what came before (rentals), champions emerge (Netflix, Amazon), and the old guard crumbles (Blockbuster). Deaths from S-type loonshots tend to be more gradual and less obvious. It took three decades for Walmart to dominate retail and variety stores to fade away. And no one could quite figure out what Walmart was doing, or why it kept winning. S-type loonshots are so difficult to spot and understand, even in hindsight, because they are so often masked by the complex behaviors of buyers, sellers, and markets. In science, complexities often mask deep truths: mountains of noise conceal a pebble of signal.

The fact that Blockbuster passed up the opportunity to buy Netflix for $50 million is perhaps only matched by Kodak’s failure to capitalize on digital photography, the very technology they’d invented. Yet, Netflix’s assault on Blockbuster was merely the result of a solitary convergence.

It was not obvious at the time, even to me, but we had one thing that Blockbuster did not: a culture that valued people over process, emphasized innovation over efficiency, and had very few controls.

So why did Blockbuster not create Netflix, and why did Sears not create Amazon? One reason is the innovator’s dilemma, where disruptors of old paradigms have trouble disrupting themselves, largely because of good management.

the entertainment industries’ existing processes for capturing value from blockbusters start with a set of experts deciding which products are likely to succeed in the market. Once the experts have spoken, companies use their control of scarce promotion and distribution channels to push their products out to the mass market. In short, these processes rely on curation (the ability to select which products are brought to market) and control (over the scarce resources necessary to promote and distribute these products). Long-tail business models use a very different set of processes to capture value. These processes—on display at Amazon and Netflix—rely on selection (building an integrated platform that allows consumers to access a wide variety of content) and satisfaction (using data, recommendation engines, and peer reviews to help customers sift through the wide selection to discover exactly the sort of products they want to consume when they want to consume them). They replace human curators with a set of technology-enabled processes that let consumers decide which products make it to the front of the line. They can do this because shelf space and promotion capacity are no longer scarce resources. The resources that are scarce in this model, and the resources that companies have to compete for, are fundamentally different resources: consumers’ attention and knowledge of their preferences.

It was not obvious at the time, even to me, but we had one thing that Blockbuster did not: a culture that valued people over process, emphasized innovation over efficiency, and had very few controls. Our culture, which focused on achieving top performance with talent density and leading employees with context not control, has allowed us to continually grow and change as the world, and our members’ needs, have likewise morphed around us. Netflix is different. We have a culture where No Rules Rules.

It's better to be treated as a paper airplane than a fighter jet. When you are disrupting, the best possible start-up scenario is to be dismissed, even ignored, just as Blockbuster ignored Netflix—right up until Blockbuster was "netflixed."17 Southern New Hampshire University (SNHU) is a good example of an organization that took on fly-under-the-radar market risk.18 A decade ago, SNHU was a two-thousand-student college with declining enrollment. Instead of trying to increase enrollment by competing for Ivy League-caliber professors at the high end or with government-funded community colleges at the low end, the university chose to play where no one else was playing—online. There was no guarantee that students would be interested in online degree programs. But because SNHU took on market risk, playing where no one else was playing, and there were many students looking for the flexibility provided by online courses, it is now considered the Amazon of education, with thirty-four thousand students enrolled. SNHU is in the process of jumping to yet another growth curve to decrease the cost of a college degree by measuring competencies rather than credits. One student demonstrated all 120 competencies in one hundred days. His associate's degree cost a grand total of $1,250. A good example of taking on market risk in personal, career terms is Amy Jo Martin, founder of Digital Royalty. In 2008, of the hundreds of millions of dollars being spent on advertising and publicity by the NBA, very little was allocated to social media. Martin saw an unmet need, and leveraged her expertise to persuade the Phoenix Suns to hire her as director of digital media, a first-of-its-kind position within the NBA. Martin's clients have included Shaquille O'Neal, and she has more than a million Twitter followers. Her gig sounds fantastically fun, but at the outset people wondered if it was even a job.

To put it simply, blue-sky opportunities are about skating to where the puck will be, not where it is now. Sometimes blue-sky opportunities arise by thinking more broadly or reframing how you’re approaching a problem: Blockbuster saw its business as “video stores” and was locked into handing customers tapes and DVDs. Netflix focused on “content delivery,” and it didn’t matter if that content came from the mail or streaming video. By thinking about how to let customers watch movies and TV shows in a different way, Netflix saw a means to exceed Blockbuster’s local maxima and find a new global maxima.

Like in business, the emergence of new players necessarily changes the way the game must be played. Blockbuster—the sole superpower in the movie rental business—failed to appreciate that a small company like Netflix and an emerging technology like the internet required them to reexamine their entire business model. Big publishers doubled down on old models when Amazon showed up instead of asking how they could update and upgrade their models in the face of a new digital age. And instead of asking themselves, “What do we need to do to change with the times,” taxi companies chose to sue the ridesharing companies to protect their business models instead of learning how to adapt and provide a better taxi service. Sears got so big and so rich from sending out paper catalogues for so many decades that they were too slow to adapt to the rise of big-box stores like Walmart and ecommerce. And believing itself without Rival, the behemoth that was Myspace didn’t even see Facebook coming.

In today’s era of digital transformation, every organization and every industry are potential partners. Consider the taxi and entertainment industries. Ninety percent of Uber riders wait less than ten minutes for a driver, compared with 37 percent of taxi riders. Netflix costs its viewers $0.21 per hour of entertainment compared with $1.61 per hour with the old Blockbuster video-rental model.

but we had one thing that Blockbuster did not: a culture that valued people over process, emphasized innovation over efficiency, and had very few controls.

Nos sentamos todos alrededor de una enorme mesa de cristal y, tras unos minutos de charla, Marc y yo planteamos nuestra propuesta, esto es, que Blockbuster comprara Netflix y nosotros desarrollaríamos y gestionaríamos Blockbuster.com como su división de alquiler de videos online. Antioco nos escuchó atentamente, asintiendo con frecuencia, y al cabo preguntó: «¿Cuánto tendría que pagar Blockbuster por Netflix?». Cuando oyó nuestra respuesta, cincuenta millones de dólares, se negó en redondo. Marc y yo salimos de allí desanimados.

The right way to look at this new market was not to think, “How can we protect our existing business?” Instead, Blockbuster should have been thinking: “If we didn’t have an existing business, how could we best build a new one? What would be the best way for us to serve our customers?” Blockbuster couldn’t bring itself to do it, so Netflix did instead. And when Blockbuster declared bankruptcy in 2010, the existing business that it had been so eager to preserve by using a marginal strategy was lost anyway.

Artificial Intelligence will do to many careers what Netflix did to Blockbuster!

The best entrepreneurs don’t just follow Moore’s Law; they anticipate it. Consider Reed Hastings, the cofounder and CEO of Netflix. When he started Netflix, his long-term vision was to provide television on demand, delivered via the Internet. But back in 1997, the technology simply wasn’t ready for his vision—remember, this was during the era of dial-up Internet access. One hour of high-definition video requires transmitting 40 GB of compressed data (over 400 GB without compression). A standard 28.8K modem from that era would have taken over four months to transmit a single episode of Stranger Things. However, there was a technological innovation that would allow Netflix to get partway to Hastings’s ultimate vision—the DVD. Hastings realized that movie DVDs, then selling for around $ 20, were both compact and durable. This made them perfect for running a movie-rental-by-mail business. Hastings has said that he got the idea from a computer science class in which one of the assignments was to calculate the bandwidth of a station wagon full of backup tapes driving across the country! This was truly a case of technological innovation enabling business model innovation. Blockbuster Video had built a successful business around buying VHS tapes for around $ 100 and renting them out from physical stores, but the bulky, expensive, fragile tapes would never have supported a rental-by-mail business.

There is one thing we can all agree on, though. Had Huizenga been at Blockbuster in 2000 when Reed Hastings offered to sell Netflix to Blockbuster for $50 million, he would have “damn sure” bought it—but for a lot less after he finished negotiating. And he would have convinced Hastings to take a pay cut to come to work for him!

Reed Hastings could not have known it at the time, but when he tried to sell Netflix to Blockbuster in 2000, his company already had a doctorate degree in movie knowledge as compared to Blockbuster—which never got past the first grade. Netflix could not beat Blockbuster with money, but they easily did it with a deep understanding of their customers’ behavior. Redbox did the same.

The fate of the two companies was starkly different, as was its leadership. In its 25-year history, Blockbuster had five CEOs, none of whom had much interest in the inner workings of the video rental business. Netflix is still run by its Co-founder, Reed Hastings, who wrote a $1.9 million check 23 years ago to start the company. He is a self-described “math wonk,” and it shows in the company’s obsession with following the numbers to what its customers want. Blockbuster had thousands of times more data about movie watching than Netflix but rarely used it in productive ways. Even though Netflix was a fraction of the size, its obsession with data created a knowledge advantage that became its ultimate weapon against Blockbuster.

The answer is they became obsessed with understanding what subscribers watched and why. Netflix understood that there were thousands of movies as good or better than the new releases of the day. But that did not matter unless subscribers believed the same.

To address this challenge, Netflix built elaborate algorithms to suggest older titles to its customers. Over time, these algorithms got better and better. But never satisfied, Netflix conducted a very public contest that awarded a $1 million prize to anyone who could improve on their recommendation model (called Cinematch) by 10 percent. As an example of how far Netflix had come, it took three years for someone to improve what it had already built, and Netflix awarded the $1 million prize to a group from AT&T that finally did it.

Our company was in the middle of its best year ever because we had built on the strengths Netflix could not duplicate. Blockbuster was in the middle of its worst year ever because in its quest to be relevant again, it had consistently tried to be Netflix instead of Blockbuster. Our stores were three times more profitable than Blockbuster’s and growing. Blockbuster’s stores had entered a death spiral from which they would never recover.