The examination of critical business failures doesn’t only compare Blockbuster and other emerging entrepreneurial ventures in the video industry but also serves for persuading future ventures to keep up with current trends.

Entrepreneurs who create innovations often attempt to find solutions to problems that individuals are facing in their day-to-day lives. However, this process is not always as simple as it may seem, as the market can change after the products/services have been released.

Entrepreneurs who want to find long-term success need to anticipate changes in their customers’ needs and successfully adapt their initial design to fit the changing industry, which if not accounted for, can collapse the venture entirely. One of the ventures which failed to adapt their initial design and listen to their customers’ needs was Blockbuster.

Blockbuster was founded by David Cook in Texas in 1985. Cook was a software developer who had a vision for a customer-focused video rental business (Igorgrochu, 2024). Cook saw quick success with Blockbuster and was able to open 3 additional stores within the first year (Nesse, 2023). A couple years later, in 1987, Wayne Huizenga, “an American serial entrepreneur and investor, acquired Blockbuster for an undisclosed sum” (Lessons from the Rise of Netflix and the Fall of Blockbuster, 2025). Huizenga followed a standard business plan for expansion and opened additional stores and acquired some of the direct competitors, resulting in Blockbuster becoming a video rental powerhouse. In 1987, Blockbuster’s success allowed them to open a store every 17 hours (Lessons from the Rise of Netflix and the Fall of Blockbuster, 2025).

David Cook’s original idea was for individuals to be able to enter a nice location, browse a wide range of videos, rent them, and later return them. Blockbuster also incorporated a fee for those that did not return their rentals on time. Blockbuster had a larger selection than the average video rental business at the time, offering 10,000 VHS tapes (Nesse, 2023). Cooks original business model still remained under Huizenga’s leadership.

It seemed like Blockbuster was destined for long-term success in the video rental business.  At the company’s peak in 2004, they had 9,000 stores in the United States, 65 million registered customers, and were valued at 3 billion dollars (Nesse, 2023). The company made a large amount of its revenue from capitalizing on their late fee policy, which at the time showed no sign of slowing down. In fact, during this time, Blockbuster made over $800 million from late fees alone (Nesse, 2023). Blockbuster continued to see positive recognition across the country from their customers and eventually were bought out by Viacom in 1994 for 8 billion dollars (Nesse, 2023). The merger between Blockbuster and Viacom seemed promising for the company’s success. During this time, Viacom was an “American communications and media conglomerate that was once one of the largest in the United States” (Britannica Money, 2024). “Viacom, known for its extensive array of cable channels, including popular networks like Comedy Central, MTV, Nickelodeon, and BET Networks, had established itself as a major force in the media landscape” (Viacom-CBS merger: insights and takeaways, 2022).

Despite Blockbuster’s early success, the business started to decline due to a change in the video rental business, which shifted the needs of their customers.  Unfortunately for Blockbuster, direct competitors like Hollywood Video, Redbox, and Netflix entered the video rental space in the late 1900s and early 2000s and were able to provide services that Blockbuster lacked (Igorgrochu, 2024). However, not only did Blockbuster lack the services, but they also refused to update their model to match the newer services and innovations.

The initial threat to Blockbuster was DVD technology (which was offered by Hollywood Studios). DVDs were cheaper, more durable, and offered better picture quality than the VHS tapes that Blockbuster offered (Lessons from the Rise of Netflix and the Fall of Blockbuster, 2025).

Redbox later began to offer automated rental kiosks that allowed their customers to rent movies for a lower price (Igorgrochu, 2024) and return their rentals to a location of their choice. Netflix then opened a completely new market for the video rental industry with the services that they provided. Netflix began mailing DVDs to customers’ homes and eliminating late fees, all of which could be accomplished seamlessly online (Lessons from the Rise of Netflix and the Fall of Blockbuster, 2025). Additionally, when a Netflix customer returned their rental, they would be asked for feedback on the film they just returned. If the customer liked the rental, the website would automatically recommend similar movies. These new companies created major threats to Blockbuster, as customers could now acquire the same rentals for less money, while not having to worry about late fees, which Blockbuster still relied on for profit. Despite the competition, Blockbuster seemed complacent with their approach and decided not to change their design and continued to offer their original services, focusing on their physical locations (Igorgrochu, 2024).

In addition to Blockbuster’s complacency with their original design strategy, they lost focus on ensuring their success through the acquisition of their direct competitors. In 1997, “Warner Brothers offered Blockbuster a deal to rent out their DVDs before they were released to the public for a 40% cut, which Blockbuster rejected” (Lessons from the Rise of Netflix and the Fall of Blockbuster, 2025). Additionally, Blockbuster had the ability to buy out one of their primary competitors, Netflix, in 2000, however, passed on that deal as well (Nesse, 2023).

Customers started to become frustrated with Blockbuster’s late fees and acknowledged the company’s inability to provide services similar to other businesses emerging in the industry. As a result of better opportunities and services, customers eventually switched to other video rental providers. Blockbuster’s customer base began to significantly decline, which was also accompanied by various operational challenges (including acquired debt) which only made their current business struggles worse. “By January 2010, Blockbuster’s shares were down 91 percent from their peak, and the company was delisted from the New York Stock Exchange” (Lessons from the Rise of Netflix and the Fall of Blockbuster, 2025).  Later in 2010, the company filed for chapter 11 bankruptcy and, in 2013, closed the remainder of their corporate owned stores (Igorgrochu, 2024). Blockbuster’s initial thought was that they could maintain their original success without updating their business model, which ultimately resulted in the collapse of the company. What could Blockbuster have done to help maintain long-term success?

Blockbuster’s initial mistake was their inability to adapt to the changing industry for the services that they provided. Blockbuster showed that they were complacent with the products and services that they offered. The company thought that regardless of the new innovations that other companies were offering, they would still remain as one of the top video rental providers in the industry.  Although Blockbuster saw immediate success with a large customer base, many successful stores in operation, and a steady stream of revenue, they failed to utilize their funds effectively. The company had more than enough financial resources to explore new innovations, to acquire direct competitors, and to negotiate deals, allowing them to maintain their monopoly on the video rental business. As a result of Blockbuster sticking with their original design, the products/services became outdated within the video rental industry and their customers fled to other providers.

Blockbuster was initially based on an innovative design that consisted of upscale stores with a large selection of videos available for rent. However, they failed to keep striving for success and were unsuccessful in providing similar services to those that later entered the industry. Regardless of the initial success, any entrepreneurial venture that does not successfully adapt to a changing market and listen to their customer base is sure to fail, including previously well-established companies like Blockbuster.

References:

Britannica Money. (2024, March 28). Www.britannica.com. https://www.britannica.com/money/Viacom-Inc

Igorgrochu. (2024, July 1). The Rise and Fall of Blockbuster: A Detailed Account. Medium; Medium. https://medium.com/@igorgrochu/the-rise-and-fall-of-blockbuster-a-detailedaccount-11324a49acd9

Lessons from the Rise of Netflix and the Fall of Blockbuster (2025). Cato.org. https://www.cato.org/commentary/lessons-rise-netflix-fallblockbuster?gad_source=1&gad_campaignid=85808169&gclid=EAIaIQobChMIn4H6qKS0jgMViUtHAR15QQLvEAAYASAAEgLRKvD_Bw

Nesse, J. (2023, June 9). Blockbuster: The Rise and Fall of the Iconic Video Store | Ripley’s Believe It or Not! | Aquariums, Attractions, Museums. Www.ripleys.com. https://www.ripleys.com/stories/blockbuster

Viacom-CBS merger: insights and takeaways. (2022, October 1). Deal Making Wire. https://www.idealsvdr.com/blog/what-ma-advisors-can-learn-from-the-viacom-cbs-merger/