Thinking About Blockbuster Video After a Blockbuster Week
Reflecting on a record-breaking economic week, the author recalls how Blockbuster Video's rejection of a $50 million acquisition offer from Netflix in 2000 led to Blockbuster's bankruptcy and Netflix's rise to a $243 billion market cap, illustrating the American economic system's ability to reward innovation and risk-taking while punishing complacency, and expressing optimism for continued strong economic growth.
All (most?) of us are likely users of the ubiquitous streaming service, Netflix; most (many?) of us likely remember when Netflix wasn’t even a streaming service, but a purveyor of DVDs by mail; and many (some?) of us likely remember what life was like before a world of even DVDs by mail, when one had to actually leave one’s house and go to a store – most likely a Blockbuster Video – to rent a movie on DVD. (A select few of us likely remember when that movie was delivered not via DVD but via VHS tape!)
Well, as we made our way through a blockbuster week for the markets and economy – March retail sales up 9.8%, record quarterly profits from the big wall street banks, initial jobless claims at the lowest level in a year and a record high for the S&P 500 – we got to thinking about Blockbuster Video and one of the greatest “Can I have a do-over?” moments in the history of American business. You see, in 2000 a young Netflix tried to sell itself to then industry leader Blockbuster for $50 million and was turned down cold.
As we know, Netflix went on to revolutionize the distribution and production of filmed content – and turn itself into a publicly traded company with a $243 billion market cap – and Blockbuster went bankrupt. While the demise of Blockbuster undoubtedly caused personal and financial pain for many, its failure – and the spectacular success of Netflix – speak, we think, to the genius of an American economic system that punishes complacency, rewards risk-taking and makes capital available to those entrepreneurs that seek to change the world.
That economic system, that was so tested during the worst of last year’s downturn, is poised to deliver the greatest annual economic growth this county has seen in nearly 40 years. Things are continuing to get better.