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  • Essay / The Decline of Blockbuster Entertainment - 659

    The Decline of Blockbuster EntertainmentHow could a company built into a multi-billion dollar empire fail less than two decades later? Blockbuster Entertainment started with one store in Dallas in 1985 and has become the dominant force in the movie rental industry. They were purchased by Viacom, at the height of their success, for $8.4 billion in 1994 and were bankrupt by 2010. A series of senior management mistakes, highlighted by a lack of strategic vision, led to the Blockbuster's rapid decline and eventual failure. In 2000, Blockbuster had the opportunity to buy rival Netflix, but failed to see Netflix's potential. Netflix founder Reed Hastings met with then-Blockbuster CEO John Antioco to discuss selling a 49% stake in Netflix to Blockbuster. The deal reportedly only cost Blockbuster $50 million, compared to its $6 billion in annual revenue. At the time, technology and internet stocks had suffered a serious decline and Blockbuster was skeptical about Netflix's future. Instead of acquiring Netflix, Blockbuster signed a twenty-year contract with Enron to offer pay-per-view movies. Enron filed for bankruptcy a year later. In 2004, Blockbuster launched its own DVD-by-mail service, but it was too late to catch Netflix. Netflix continued to grow and overtook Blockbuster in 2010 in market share. In 2004, Viacom decided to sell its majority stake in Blockbuster. Unable to find any interest, they decided to split Blockbuster via a stock swap. Blockbuster would have to pay Viacom shareholders $5 per share, which would result in nearly $1 billion in debt. At the time, Blockbuster management thought they could quickly pay off the debt with their $500 million a year... middle of paper ... but it took an average of three months. During the first three months, the stores were very unprofitable. Blockbuster simply couldn't afford to roll it out nationally. Red Box has grown to control a 40% share of the rental industry. When Blockbuster finally realized it needed to modernize its operations and adapt to an ever-changing industry, it was unable to do so due to its enormous debt and negative cash flow. Senior management failed to understand how technological advances would lead to changes in the way consumers rent and purchase movies. In the days of Blockbuster, they squandered their earnings on bonuses and lavish meetings. Their arrogance led them to feel invincible and that no one could ever catch up to them. Ultimately, Blockbuster's management failed to understand the need to evolve to meet the needs of its customers, while other companies rushed to fill this void..