Blockbuster and Change

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Another American institution files for bankruptcy.

It’s all too easy to chalk up Blockbuster as a victim of the Great Recession, but that wouldn’t be entirely accurate.

Companies file for bankruptcy all the time, especially after major changes to their financial structure.

Certainly, Blockbuster’s 2004 spin off from Viacom has been a challenge. As a part of the deal, the movie rental company had to pay Viacom shareholders a $5 per-share dividend, and Blockbuster racked up about $1 billion of debt in the process. But the spin off isn’t the real reason for the bankruptcy filing.

It’s also easy to postulate that Blockbuster was aced by the competition. Netflix and Redbox have more successfully tapped into consumers’ unquenchable quest for convenience and low price, respectively. But, competition doesn’t fully explain why the retail behemoth is in serious trouble.

In its prime, Blockbuster was impressive. Remember being awed by their fantastic selection of movies? And they migrated from VHS to DVDs fairly successfully. But ultimately, Blockbuster lacked vision and quick reflexes necessary to navigate change.

Consider what happened in the music business. In less than 20 years, the industry standard in music’s retail business moved from vinyl to cassettes to CDs to no physical product at all. An incredibly high percentage of music is now purchased or shared online.

What we have here, is a failure to communicate

Movie distribution is headed in the same direction. Smart people at Blockbuster probably saw the changes coming and failed to effectively communicate the change to its long-term planners, to investors, and to their research and development department.

When I was in high school, teachers would tell us that we would experience more change in the next two decades than Americans had experienced in the last 200 years. Successful companies need to either stay ahead of the curve or become shorter-term successes and get out of the way when someone copes with change in a better, cheaper way.

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