Blockbuster Brand Check-up: Late Fees and a Late Move Online
At the end of 2004, Blockbuster had 9,094 stores and $6.1 billion in revenue. Less than six years later its shares had been suspended from the NYSE after a last close of 15 cents, and the company had filed for Chapter 11. We look at the record: how much it earned from late fees, how it answered online rental, and why that answer stalled.
Key takeaways
- Late fees were about 14% of Blockbuster’s rental revenue in 2004, and dropping them in 2005 cut rental revenue by more than $500 million.
- Reed Hastings says Blockbuster turned down a chance to buy Netflix for $50 million in 2000, an account former CEO John Antioco has disputed.
- Total Access, launched in November 2006, had its advertising cut and its pricing changed within a year, as new management shifted the balance toward profitability.
- Blockbuster’s shares fell from a 2002 high of $30.25 to 15 cents before the NYSE suspended trading in July 2010.
Download the full Blockbuster Brand Check-up (PDF): vital signs, timeline, diagnosis, treatment and sources.
Where Blockbuster stood at its peak
Viacom took Blockbuster public in August 1999 at $15 a share and kept more than 80% of the company. Five years later the chain had 9,094 stores worldwide and $6.1 billion in revenue.
Scale can make a business look healthier than its customers feel. In paid search, branded search inflation credits ads for demand the brand already had. Blockbuster had a similar blind spot: busy stores did not show how customers felt about the terms.
Late fees: revenue built on a penalty
In 2000, Blockbuster collected nearly $800 million in late fees, 16% of its revenue, the Associated Press reported. The company’s own filing puts extended viewing fees at about 14% of rental revenue in 2004. A large share of income came from customers who returned movies late.
On January 1, 2005, Blockbuster stopped charging those fees in its company-operated U.S. stores. It had estimated the fees would have brought in $400 million to $450 million in 2005. According to the company’s 2005 annual report, the program cost about $60 million in marketing and implementation and cut rental revenue by more than $500 million that year. Blockbuster reported a net loss of $588.1 million for 2005.
The Netflix meeting is contested
Netflix co-founder Reed Hastings has written that in early 2000 he and Marc Randolph met Blockbuster CEO John Antioco in Dallas and offered to sell Netflix for $50 million, and that Antioco declined. In 2022, Antioco disputed that account, saying there were no serious conversations about buying Netflix. We treat the story as contested. The timing is clearer: Blockbuster Online launched in the U.S. in August 2004.
Total Access grew, then lost its support
On November 1, 2006, Blockbuster launched Total Access. Online members could return discs to a store and take a free in-store rental, something a mail-only rival could not match. By the end of 2006 the company had about 2.2 million online subscribers.
The board had already changed. Activist investor Carl Icahn and two other dissident nominees won board seats in May 2005. On July 2, 2007, former 7-Eleven chief Jim Keyes replaced Antioco as chairman and CEO. That quarter, Blockbuster changed Total Access pricing, reduced advertising and minimized in-store promotion, shifting the balance from subscriber growth toward profitability. It ended the quarter with about 3.1 million subscribers.
How the shares and the business fell
Blockbuster’s Class A shares traded as high as $30.25 in the second quarter of 2002. Revenue fell to $4.1 billion in fiscal 2009, and that annual report raised substantial doubt about the company’s ability to continue as a going concern. The shares closed at 15 cents on July 6, 2010, the last day before the NYSE suspended trading. In September 2010 Blockbuster filed for Chapter 11 with a market value of $12 million. Dish Network bought most of its assets in April 2011 with an auction bid valued at $321 million. By 2019, one Blockbuster store was left, in Bend, Oregon.
For contrast, Netflix reported $9.37 billion in revenue for the first three months of 2024 and 269.6 million paid memberships. Before adjusting for inflation, one quarter of Netflix revenue is now larger than Blockbuster’s revenue for all of 2004.
What growing companies can learn
Blockbuster saw the threat. Its responses came late, and the strongest one had its advertising cut within a year. Look at which of your revenue lines customers resent, because a competitor can build a brand around removing them. When you launch the replacement, agree up front how long it will be funded and what it must show. A yearly marketing audit is a good place to ask both questions.
This check-up uses public information available on April 23, 2024. It is brand and marketing analysis, not investment advice.
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