3 Disruption Lessons We Learned From Blockbuster

You can find the latest podcast at iTunes and also on Google Play and on most Podcast players. In this weeks episode, we take a look back at the Disruption signals and Transformation opportunities that occurred at Blockbuster in the years before their bankruptcy and the final closer of their stores. Dustin Engel who was the Manager of Online Marketing and Business Development during the pivotal years of 2004 and 2005. The blog this week summarizes the discussion and catalogs the three key takeaways from the discussion on the podcast. 


The year was 2010, and Blockbuster finally announced that it was going to file for bankruptcy. They had finally succumbed to the inevitable. There were a lot of articles written in the year that followed. But, the only voice we ever heard from Blockbuster was a calculated and positive one, that told us this was a step in a new direction for them. That this was the move they needed to restructure and regain their footing. Well… footing never regained.

Most articles at the time focused on how Netflix took down Blockbuster, and rarely did an article reference other factors at play or all the missteps and misfortunes that plagued Blockbuster for 15 years before the bankruptcy. Between 1997 and 2005, Blockbuster made a profit in only one of those years. They were bleeding money before Netflix was the powerhouse that was knocking at their back door. Blockbuster was one of the first major disruption stories in the new digital age. But since then we have seen numerous stories of disruption to other big industries and players that once seemed unstoppable.

What are the lessons that should be learned here? Are there lessons to be learned? Can we draw a correlation from their history and use it to avoid our fates?

One could argue that Netflix took Blockbuster down, but I would say it is more accurate to say Blockbuster left the door open to be disrupted. Many companies have done that and many are doing it now. At some point, they will be disrupted. Any company is vulnerable to disruption, but how you prepare and navigate will give you some control of the events to come.

Here are three key lessons from the Blockbuster story, that everyone should be looking at.


You must respect digital. You must respect change. If you are still living off the memories of “the golden years” when your company first took the world by storm, you are leaving the door open. If you are not willing to continually evolve and change and innovate, you will be disrupted. If you rest on the successes of your past, you have stopped and you will be passed up.

Companies that have been around for many years build up an infrastructure of stores, and hardware and systems and technology that has grown outdated and has become a burden. Often the hardest choice is to let all of this go and to know when to make that bold move. Blockbuster was an innovator when they started in 1995, they took the dark and dingy mom and pop stores and made them bright and big. They introduced inventory systems, barcodes and customer databases. They made the experience new and exciting. They acquired thousands of mom and pop stores and built out thousands of their own. They were unstoppable.

But, eventually that “innovative” experience became stale and old. All those stores started becoming liabilities as they had to look at new ways to reinvent the stores. When Blockbuster finally went head to head with Netflix in 2004 and took the fight online, they started off with a bang and at first it even put a sizable dent in Netflix’s stock price. But, over the next year as their new online business cannibalized the brick business… those assets became massive liabilities that brought their latest innovation to a screeching halt.

If a store was underperforming they couldn’t get out of the 10 or 20 year leases they were signing. What would they do with all those video tapes, now that everyone was moving to DVD.

What If Blockbuster was cash rich in 2000 and not heavily leveraged and burdened? Would they have agreed to acquire Netflix for just $50 million? And in the process, avoided the deal they made with Enron that less than two years later cost Blockbuster $1.6 billion dollars?


In 2005 as Blockbuster was enjoying some much-needed success from the move to online, they launched the disastrous “No Late Fee” campaign. Blockbuster was sued very publicly for misrepresenting late fees to their customers. While Blockbuster advertised that they had done away with the much maligned late fee, they were really just repackaging the fee into a more complex late fee that most customers had trouble understanding. Lesson: If you lie to your customers, they will revolt.

If you are not true to your customer and true to what you represent to them, they will see through it. Netflix struggles with authenticity and they have recovered from a number of self-inflicted hits to their brand, but they aren't burdened with all the other challenges that Blockbuster was challenged with. If you look at the most successful brands out there, they focus heavily on authenticity and less on features of their brand in their marketing campaigns. All of the big ones have made a misstep here and there, and they recovered.

What If Blockbuster had truly gotten rid of late fees in 2005 or earlier? Would we be telling a very different story now? Would their success launching their online product have continued to gain momentum? Would less customers have switched to their competitors that didn't charge late fees?

Customer Experience

When $300 million dollars of revenue are made each year from punishing your customers with late fees, that sends a very clear message of how you feel about your customers. Late fees were always a PR nightmare for Blockbuster. In fact, there is an urban legend that Reed Hastings was returning a copy of Apollo 13 in 1997 and decided he must start Netflix after he was charged $40 in late fees. If your customer experience drives people away from you, or the primary thing that customers talk about is negative, then you need to adjust now.

In addition to late fee nightmares, the marketing campaigns were strange and confusing. When the online product launched, Blockbuster quickly offered a Netflix-like all-you-can-eat service for $14.99 a month that also included two "free" rentals in the stores. This model not only started to cannibalize the brick business by pushing customers online, it frustrated store operators as they saw massive drops in revenue. They could no longer compete with their own online business when they were charging more than $5 a rental in a store and it came with the risk of late fee's. The strategy to fix this, was to get customers to go to the stores to get sodas and candy. It was a confusing time for customers.

Today customers have more access to information and to your competitors than ever before. They are empowered and they know it. They can buy from all over the world and expect overnight service for almost everything. You must adapt to the new reality.

In a fight between Digital Darwinism and Digital Customers, the customers will always win. You can't ignore your customers needs and not play nicely on the devices they want to use your service forever. You have know how to speak to them and listen to them and move to where they are moving before it is too late.

Today more than ever customers want a good experience, a positive experience and they want ease of use. If you have not changed your customer service model in the last 10, 20 or 30 years you are in big trouble and you are going to be disrupted eventually. And, when it happens you will be surprised that it did.

What If blockbuster had offered an all-you-can-eat subscription based model in their stores as well as online? Then Blockbuster could have leveraged their advantages over Netflix. Customers could get movies the same day and next day and drop them off somewhere else and get more movies in another city. They wouldn't have to wait at home to get more.


It seems so simple and obvious now, but in the 2 - 3 years BI (Before iPhone), of 2004 - 2006, many a big company sealed their own fates with the decisions they made. And those decisions are still dragging behind them and slowing them down.

1.       If you are anchored by leases, hardware, infrastructure, software and you are not finding ways to get rid of it, you are in big trouble. You will not be able to react when you need to and I guarantee you those things are already holding you back now.

2.       If you are not authentic and do not give your customer something to believe in, they will leave you as soon as someone else comes along and gives them a reason to believe and be loyal. People want to be a part of something, make them feel like they are.

3.       More than ever, customer experience is driving the messaging, the marketing and the brand. If you are not focused on customer experience 100% you are leaving the door open. Your customer has more access to information and your competitors than ever before. Your customers can no longer be treated as a commodity, customers need to be a part of the story and their customer satisfaction is your brand.


Dustin Engel @dustinengel

Eric Hanes @erichanes

We adapted the header image from an infographic found on the web produced by FINDMBASONLINE and ironically they are no longer around. Several of the reference stories for this feature were found on sites that are now out of business or have been acquired by other companies. Oh, the irony.