Money & Business

Blockbuster's Failure: Not Necessarily a Show-Stopper for Rentals

By / Nov 8, 2013 (photo by ell brown/Flickr)

While the once-mighty video-rental giant is shutting down its few remaining stores, one association says the industry still has a future, with or without Blockbuster leading the way.

Yesterday, @Blockbuster sent what might have been the saddest tweet ever posted by a brand:

This week’s news that Blockbuster would be shuttering its remaining company-owned locations left many surprised—not over the closures, but that the company still even existed. In the age of Hulu and Netflix, the idea of going to a store to rent a video seems decidedly old-hat.

But according to one association, Blockbuster’s failure doesn’t necessarily mean that an entire industry will follow.

What Happened?

Blockbuster is often cited as a clear example of a company whose business model was disrupted completely, leading to its eventual demise. While it experienced huge growth in the 1980s and 1990s, frustrations with some of its practices—most notably its late-fee system, which Blockbuster ended in 2005—left a sour taste with many consumers. And changes in technology quickly left the brand behind.

The beginning of the end started on a fateful day in 1997, when a man who had rented a copy of Apollo 13 from Blockbuster found that he owed a $40 late fee. That man, Reed Hastings, went on to found Netflix, which undercut Blockbuster’s model entirely by sending movies through the mail and eventually through video on demand. A slightly more brick-and-mortar approach to home entertainment, Redbox, followed in 2002, and cable companies have also increased their on-demand options in recent years.

Blockbuster, which changed corporate hands numerous times over its 28-year history and even was a public company for a time, filed for bankruptcy in 2010 and was purchased by Dish Network in 2011, which hoped to turn it into a direct competitor to Netflix. Dish ultimately gave up on those plans, building a video-on-demand service but otherwise closing many of the company’s remaining 1,700 stores. (At its peak, Blockbuster had as many as 9,000 locations.)

This week, Dish announced that the remaining 300 company-owned stores would close in January, along with the company’s DVD-by-mail service. While the video-on-demand service (along with about 450 franchised locations worldwide, nearly all outside the U.S.) will continue to operate, the move raised an obvious question: Does the video rental industry still have a life in it?

Still Room for Rentals

One association with a vested interest in the video rental industry says Blockbuster’s death doesn’t necessarily mean the end of rentals altogether.

The Entertainment Merchants Association, which represents the retail arm of the home entertainment industry, recently said as much to Bloomberg Businessweek.

“The fact is that one retailer just doesn’t an industry make,” EMA president and CEO Mark Fisher told the publication. “When Tower [Records] closed its doors, it certainly didn’t signal the end of the music business.”

The home entertainment industry is seeing growth: After years of declines, the industry hit $18 billion in sales in 2012, a trend that was continuing into 2013, according to the association’s annual industry report. (That said, a good chunk of that growth came from video on demand.)

Nonetheless, Blockbuster—along with Tower Records, which first tested video rentals in 1981—holds a prominent position on EMA’s industry history page, a role that likely won’t be forgotten anytime soon.

Beyond Blockbuster

But even without Blockbuster, the brick-and-mortar store still has room. Niche-focused independent video stores are still common and have held yearly events to drive industry growth, and Family Video, once Blockbuster’s largest competitor, is actually growing. In a Springfield (Ill.) Journal-Register report from February, its president, Keith Hoogland, noted that the company was opening three stores a month—many in locations formerly served by Blockbuster. That said, Family Video is being careful to diversify, recently adding pizza to the mix.

“I think this year might be bigger for growth because Blockbuster is shrinking, and we’re able to go in and open up stores near where Blockbuster used to be,” Hoogland told the paper. “We kind of made our hay in small and mid-sized cities, but now we’re in Chicago, Detroit, Dallas and a lot of larger cities.”

Family Video has also been successful mixing retail with property management efforts, anchoring the video stores around an entire strip mall that the company owns.

If your industry lost an important player, how would you ensure that others didn’t go down with it? Give us your take in the comments.

Ernie Smith

Ernie Smith is the social media journalist for Associations Now, a former newspaper guy, and a man who is dangerous when armed with a good pun. More »

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