A Blockbuster store in Oregon will host three nights of sleepovers, Engadget reported. The location, said to be the last Blockbuster video store in the world, will offer guests 1990s movies, candy, and more, with proceeds going to the Humane Society of Central Oregon. The company fell out of popularity with the rise of Netflix.
According to the Engadget article, Blockbuster, which originally was called Blockbuster Video, is going out with a nostalgic bang. “The last Blockbuster in the world, located in Bend, Oregon, will be available to rent on Airbnb for three one-night stays in September, complete with a recreation of a 1990s living room, and all the snacks and movies you can handle,” the article said.
“[Story Manager Sandi] Harding says guests will have the store completely to themselves, and everything will be thoroughly cleaned between visits, abiding to CDC recommendations.” It goes on to say that customers will have access to ’90s “new release” movies, a pull-out couch, bean bags, soda, candy, video games, and popcorn. Even the bathroom is converted from the old staff break room.
Blockbuster Video used to be a pop culture mainstay in the United States, renting VHS tapes and DVDs to customers for a few dollars every couple days. So what happened?
Innovation: Incremental Vs. Disruptive
In the late 1990s, both Blockbuster and Netflix did market research to identify opportunities in growth. While Blockbuster’s mainstream customers fretted over the store carrying enough copies of new releases, Netflix’s niche market complained of Blockbuster’s late fees and lack of classic titles.
“Blockbuster was pursuing what we call incremental innovation—they were talking to their customer and offering small improvements in their service, in their in-store experience, in the availability of the movies,” said Dr. Michael Roberto, Trustee Professor of Management at Bryant University in Smithfield, Rhode Island. “But along came Netflix with what we call a disruptive innovation—a fundamentally different product and service. In fact, [it was] a whole new business model, and it undermined Blockbuster’s competitive advantage.”
Dr. Roberto said there are three major external threats to a business’s competitive advantage. The first is imitation, which is only a threat if someone finds a better way to do what your business does. The second is substitution, or when someone makes an alternative product or service that fulfills the same need as yours. The third is “hold up,” which he defined as “when either your buyers or suppliers gain leverage over you and begin to extract more profit from the value chain.”
Substitution was the threat that disrupted Blockbuster for good.
Be Kind, Rewind
These days, Netflix operates extensively with its streaming service on smart devices. In 1999, Blockbuster had store locations all over the United States and high-speed internet was yet to become the standard in American households. So how did Netflix one-up them?
“They weren’t focused on the attributes that Blockbuster was focused on; they had no stores,” Dr. Roberto said. “In-store experience, availability of new releases—these were not things they focused on. Netflix didn’t want to be in the new release business; they, in fact, were intent on being in the business of renting older movies.”
To do so, they came up with an entirely new way of renting movies, and they learned their business model quickly. By the time Blockbuster could catch up, Netflix was a major competitor. Big firms like Blockbuster also fear that adapting to a new way of doing business, like Netflix’s online-based “movies by mail” approach, will take away business from their golden goose—in this case, their stores. Video stores had proven themselves financially, so why take away investment dollars from a successful business practice on a gamble?
Unfortunately for Blockbuster, the opposite came true. Dr. Roberto explained that Blockbuster bought up dozens of copies of hit movies for each location, but after a month when everyone had seen that movie, they were sitting on copies of movies that nobody wanted to watch.
They tried to recoup their investment buy selling used movies, but Netflix’s comparably low investment of buying just a few copies each of classic movies saved them a bundle, and when they transitioned to streaming, the cost of having a digital copy of a movie that millions of people could stream made them a mint.
We’ve all seen how that worked out. These days, Blockbuster is such a novelty that they’re turning their final store into an Airbnb.
Dr. Michael A. Roberto contributed to this article. Dr. Roberto teaches leadership, managerial decision making, and business strategy as the Trustee Professor of Management at Bryant University in Smithfield, Rhode Island. He joined the faculty at Bryant University after teaching at Harvard Business School for six years. Previously, Professor Roberto was a Visiting Associate Professor at New York University’s Stern School of Business. Professor Roberto earned an MBA with High Distinction and a DBA from Harvard Business School.