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MHED9000382Another massive retail chain that once dominated strip malls and suburban landscapes has gone the way of Circuit City. This time, we say farewell to Blockbuster, the video rental company that once hosted nearly 10,000 stores throughout the United States.

There were several apparent death knells for Blockbuster, but most of them suggest that the massive chain simply failed to adjust quickly enough to changing customer preferences. Early on, the shift from VHS tapes to DVD rentals signaled a notable shift, in that purchasing DVDs was easier and less expensive for consumers. Although Blockbuster moved to stock DVDs, it faced a significant challenge: Customers had changed their comparison standard. Instead of weighing rental fees against expensive purchases of VHS tapes, they considered the lower costs of owning DVDs.

The physical design of DVDs also prompted new competitive options in the marketplace. Whereas Blockbuster stores had once appealed to consumers because of their expansive space and wide aisles, the slim profiles of DVDs made it easy to ship or store them in much smaller locations. Thus the stores themselves became a massive overhead cost that other competitors such as Redbox did not suffer.

Blockbuster earned much of its revenues from strict late fees on rented entertainment. But inspired by his frustration with massive late fees charged on a single rental, one Blockbuster customer named Reed Hastings came up with the idea of Netflix, which eliminated all such fees and provided movies to customers through the mail, at least initially. As technology advanced, Netflix readily added a streaming service, and customers quickly learned that they did not need to hold any physical version of the movie in their hands, much less drive anywhere to get a hold of the film

Ultimately, Blockbuster attempted to respond to all these competitive threats. It tried out a mail-order service, as well as a streaming option available both on demand and through the DISH network. But these moves were too little and too late, and the company continued to lose money and customers to other providers.

Although around 50 franchise-owned stores remain in business for now, the general reaction to the closing of the last Blockbuster-owned store suggested consumers were not particularly bothered by the loss. Instead, it seemed to bring relief to various laggards who admitted they had been holding on to a late movie for years, hoping never to have to pay the accrued late fees.

Todd Leopold, “Your Late Fees Are Waived: Blockbuster Closes,” CNN.com, November 6, 2013, http://www.cnn.com/2013/11/06/tech/gaming-gadgets/blockbuster-video-stores-impact/.

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