Almost everyone is wrong about why Blockbusters lost to Netflix.
It wasn't because they "didn't see the internet coming"
It wasn't because they made too much on late fees.
It's not because they refused to change.
See, the stories we tell ourselves about incumbents dying are largely not true.
I saw Nokia make a better phone than the iPhone but it be killed by focus groups. Toys"R"Us failed because of an enormous debt burden from an insane leveraged buy out.
Back to Blockbusters.
Blockbusters saw the move to online delivery and streaming early on but were totally stymied.
We forget this, but there were actually two "disruptions", one, the move to DVD's by mail, and the other, the shift to "movies on demand" thanks to a faster internet. Both made their existing structure unsuitable.
Blockbusters had grown rapidly by being a franchise business.
By 2004 it had over 9,000 stores, owned by a patchwork of thousands of individual owners and a few regional franchise owners who owned hundreds of locations, all of whom had enormous power.
All of whom had bought into the idea of being a retail business and had typically spend $300-700k of their life savings on each store.
It was a simple proposition, rent a storefront, have movies, have people walk around and pick a few up, upsell them on popcorn, soda and ice cream and get 100% margin on late fees.
Clearly either launching DVD's by mail or online streaming was going to enrage every single store owner, leading to costly legal battles, requests to dismantle the board , and all manner of issues. Something the debt laden company couldn't afford.
You then add in Carl Icahn spending $200m to become an activist investor to force the company to revamp stores and to ignore online threats more easily and you've got all the elements of an issue.
See there are two questions to ask in business transformation.
The first is to be naive.
To ask "knowing all you know now, about people, technology, business, the future, what would you company look like if you set it up today"
The second is to be pragmatic.
"If we know what we should have built, what stops us from getting there"
And there are often massive issues, some can be worked around, some can be trained away, some can be divested, some can be destroyed, but many barriers to change can't move.
The skill for Digital Transformation is to balance the dreams with the realities, the bold questions and the imaginative answers.
And to use this to plot your 10 year plan to future dominance.
But sometimes, truth be told, you may just be starting in the wrong place.
P.s I used ChatGPT to help research this piece and it was a total waste of time, factually inaccurate, and after 20 mins work was generally utterly useless. So I threw everything out and just smashed it out in 25 mins.
