FastCompany published a fascinating timeline covering key moments in the rise and fall of Blockbuster (abbreviated version below). Business resilience is not guaranteed, and the Blockbuster story brings this reality into striking relief.
1985: First Blockbuster store opens in Dallas.
1994: Viacom acquires Blockbuster for $8.4 billion.
1997: Reed Hastings returns Apollo 13 to Blockbuster six weeks overdue, and is dismayed by the $40 late fee.
1998: Reed Hastings founds Netflix.
1999: Viacom holds Blockbuster IPO, valued at up to $4.8 billion.
2000: Blockbuster declines offers to purchase Netflix for a mere $50 million.
2002: Blockbuster debuts Super Bowl ad. The company posts a $1.6 billion loss.
2003: Netflix posts first profit, earning $6.5M on revenues of $272M.
2004: Blockbuster enters online DVD rental market.
2005: Blockbuster launches a marketing campaign touting its new "No Late Fees" policy. Subsequently, 48 states launch investigations into the program, charging Blockbuster with misrepresenting its late fee policy to customers. Blockbuster settles for $650,000.
2006: Blockbuster, now valued at $500 million, surpasses its goal of two million subscribers for its online platform. Netflix reaches 6.3 million subscribers by December.
2007: Blockbuster hires new CEO Jim Keyes. Keyes decides to roll back the company's Total Access plans. "Clearly our spending on that one channel was exceeding our returns," he said during a company earnings call. After losing a half-million subscribers in the third quarter, Blockbuster announces it will no longer report its subscriber count.
2008: Jim Keyes: "I've been frankly confused by this fascination that everybody has with Netflix...Netflix doesn't really have or do anything that we can't or don't already do ourselves."
March 2010: Blockbuster reinstates late fees, which had been costing the company $300 million in revenue annually.
May 2010: In an interview with Fast Company, Jim Keyes is asked whether Blockbuster's financial troubles were due in part to Netflix's success. "No, I don’t know where that comes from," he says. Keyes denies his company is going bankrupt.
July 2010: Blockbuster launches Droid X app. Blockbuster is de-listed from the New York Stock Exchange after shares hit all time lows.
August 2010: Though ailing from a debt of $900 million, Blockbuster's head of digital strategy explains, "We're strategically better positioned than almost anybody out there. Never in my wildest dreams would I have aimed this high." Blockbuster adds video games to by-mail subscription plans for no additional cost, but neglects to mention that new releases will not be available for three months.
September 2010: Drowned in revenue losses of $1.1 billion, Blockbuster files for bankruptcy. The company is valued at just $24 million.
I've long railed against shareholder value as the driving economic principle for public companies. Obviously corporations are in business to make money, and shareholders deserve to reap the rewards of their investments. But as the excellent Peter Drucker stated decades ago, profit is not the explanation, cause, or rationale for business strategy, but rather proof of its validity.
The purpose of business is to create a customer. And to do this, companies must have something of value (and desire) to sell. Who has better shareholder value - Apple or GM? Who as more desirable products - Apple or GM?
Given my bias against managing enterprise value according to quarterly profit goals, I was shocked and pleasantly surprised to read Shoshana Zuboff state the following in Businessweek:
"As a professor at the Harvard Business School, including 15 years teaching in the MBA program, I have come to believe that much of what my colleagues and I taught has caused real suffering, suppressed wealth creation, destabilized the world economy, and accelerated the demise of the 20th century capitalism in which the U.S. played the leading role.... Under the flag of shareholder value (a concept honed by HBS faculty and glorified in many of our courses), firms also turned to financialization.... a typical indicator of economic decline."