Check out this sad article on the demise of the Blockbuster movie rental chain. Behind Blockbuster’s current sorry state is a story of self-inflicted injury — a tale of how Blockbuster had the path to industry dominance built for them by Enron Broadband Services (EBS), but failed to recognize the gift.
Way back in 1999, Blockbuster had a thriving business renting out movie DVDs — this was long before Netflix or any other companies had made a serious large-scale start on video-on-demand (VOD) services over the Net. EBS entered a partnership with Blockbuster to take it into the VOD business. It was essentially a revenue-sharing deal — EBS would do most of the heavy lifting to build a VOD infrastructure for Blockbuster, and the two companies would share the revenue from the VOD business once it was up and running.
EBS chose Blockbuster because the Blockbuster name was big back in 1999. The problem with the deal is that Blockbuster never really seemed to have any sense of urgency about the idea of video-on-demand. Like many successful companies, Blockbuster was making so much money with its current business model that it wanted to ignore the coming changes of which EBS tried to warn Blockbuster. Basically, Blockbuster signed on to the partnership with EBS because EBS was doing all the work to launch the new operation — Blockbuster had little skin in the game of actually building the new VOD business.
Blockbuster executives never seemed to really expect EBS to be able to build a functional VOD operation, at least not quickly. And yet, by the end of 2000, EBS had a robust VOD infrastructure up and running on its state-of-the-art network. All the tests of the VOD technology were successful, including testing with customers.
The biggest problem EBS and Blockbuster faced with this new VOD business back in 2000 was a lack of access to movie content. The large film corporations had not yet embraced the VOD concept at that time; therefore, getting them to release content for distribution via VOD was a difficult, negotiation-intensive process. Blockbuster, who never like the VOD concept themselves, used the lack of content as their excuse to abandon the partnership with EBS in 2001.
Blockbuster’s stupidity in 2001 seems unimaginable as we look back on it. At essentially zero cost to itself, Blockbuster had been handed a video-on-demand infrastructure by Enron Broadband Services. Yes, the major film studios were initially skittish about the VOD business model, but they were coming around slowly but surely, testing the market by releasing more and more VOD content over time. As the first major entrant into wide-scale VOD movie delivery, Blockbuster was poised to dominate that emerging business and to scale up its revenues dramatically. And yet Blockbuster walked away from this gift — Blockbuster really did not want video on demand to ever happen because it did not want to go through the effort required to adapt to a new business model. Blockbuster’s fear of change led to its current withering on the vine.
It seems that Enron and Blockbuster were a horrible mismatch for a partnership — two companies at opposite ends of the innovation spectrum. If, as this blog has suggested, Enron’s downfall was the result of an excess of innovation, then surely Blockbuster’s demise is the result of a lack of innovation.
[Leo Thompson is a frequent contributor to Cara Ellison's Enron Online: The Enron Blog and will also be contributing to this blog from time to time.]