A perfect example of what happens when you give people what they want.

Discussion in 'Economics' started by peilthetraveler, Mar 17, 2010.

  1. Look at blockbuster video. They were a very successful store for a long time. They were so successful that they were able to raise their rates to the most expensive place to rent movies. Sure redbox and netflix came along and took away the customers that didnt want to leave their house and the people that dont mind a weak selection for a cheap price, but thats not what brought Blockbuster down.

    What brought them down was rent 1-3 movies per month for a set fee, no late fees,keep the movies as long as you want. This was a hugely bad idea and I dont know why they didnt see it.

    People were always complaining about late fees. Some people even stopped going to blockbuster because of the late fees. So what did they do? Got rid of late fees. First they started letting people rent movies longer...instead of holding them 2-3 days, they let them hold them all week. Now with the subscription service, you can hold them indefinately. Now im sure some idiot over there at corporate said "Hey...we get them to pay a monthly fee whether they rent or not!" and of course all the board members cheered because they are idiots.

    What they failed to realize is that a monthly fee will ensure that customers always have 1 to 3 movies in their possession at all times, whether or not they want to watch them. This mean 1 to 3 movies off the shelves at all times, so its really hard to get the movie you want because its never there.

    Most of us know that you have to rent about 6 or 7 movies in a month before the membership subscription pays for itself, but that makes no difference to blockbuster which they failed to realize. If someone gets the unlimited in-store exchanges 2 movies out for 30 bucks per month, then it doesnt matter if the guy rents 2 movies per month, or 60 movies per month. Their will always be 2 movies out and it doesnt matter that its the same title. The shelves will have 2 less movies at all times which comes out to a daily rate of 50 cents per movie. The customer doesnt realize he is paying 50 cents per movie per day because he doesnt do the math...Obviously blockbuster didnt do the math either and didnt realize they were renting movies for 50 cents per day while at the same time taking movies off the shelf which in turn led to people leaving blockbuster because they couldnt get the movies they want.

    Netflix and redbox were never going to take away all of blockbusters market share,just a portion of it, and the people crying about late fees and prices, and threatening to go "somewhere else" caused blockbuster to wreck their already proven business model.

    The US was a proven business model, with a constitution that worked. The people cried for this and that and the other and the US listened and now you have a nearly bankrupt economy.

    We were the most powerful and richest country and people in the world and people just didnt get it that when you are the best, there is nothing to fix...but the people wanted more and now they are getting less. Just like blockbuster.

  2. Your math is flawed. What brought Blockbuster down was on-demand movies now available everywhere, fast internet movies, file sharing, & sites like hulu, etc. in addition to netflix.

    So, a combination of the above was just too powerful a force that could not be overcome with their expensive brick & mortar locations.

    It was not mispricing as you imply.
  3. jem


    also - you are assuming blockbuster had to pay for every copy of their videos. I doubt they do.

    I would bet they had a revenue sharing arrangement with a lot of distributors. Which paved the way for netflix.
  4. I agree with you and you can add in Redboxes.

  5. TGregg


    Exactly. When Redbox and DVDExpress hit town, Blockbuster's days were numbered. Life was already getting tough thanks to all of the above, but one dollar videos was the coupe de grace.

    Blockbuster tried some heavy discounting and I would occasionally wander in to take advantage, but I have only rented one movie from them in the past few years.

    And for technical folks who've (shall we say) gotten the news there's no reason to go there any more.
  6. Ckessler


    So some competition came in and offered the same product at a more accessible, quicker, and cheaper medium but what really did blockbuster in was renaming "late fees" to "restocking fees" ?

  7. A movie can be downloaded by torrent in 30 minutes

    Thats what brought Blockbuster and CD sales down the most imo
  8. clacy


    horse & buggy < automobile
  9. Blockbuster is a Brick and Mortar with all the associated expenses,staff costs,etc.. And they wanted to compete with netflix.

    Think about it simple math says that trying to compete with netflix and those kiosks when you have a huge overhead is a foolish try.

    They were trying to sell for a dollar something that cost them 1.25 to produce. How long can you stay in business doing this.
  10. direct tv has a new system now where you can download hundreds of movies to your dvr with the click of a mouse. why in hell would anyone drive to a movie rental place and put up with their bs?
    #10     Mar 17, 2010