Blockbuster Inc. is the largest chain of DVD and video game rental stores in the world. But this powerhouse company didn’t start off big. It started as a single store in Dallas, Texas, back in 1985.
David Cook was a man with a dream. He started his single store-front company with the projection of 1,500 Blockbusters, someday. He was a genius as creating and storing databases and $6 million into a distribution center that tracked 10,000 titles per store. He grew the business and eventually made it public, allowing people to begin franchises of their own.
Soon, H. Wayne Huizenga got wind of the new company and checked it out for himself. After initially questioning the perseverance of the video format, Huizenga decided to buy the company. He became an enthusiastic manager and at one point was opening a new Blockbuster franchise once every 17 hours. Huizenga is credited for making the company such a huge success by dominating the market.
The multi-billion dollar Blockbuster was acquired by Viacom in 1994 for a purchase price of $8.4 billion. Viacom, determined to make the most of its investment, worked out a deal with the major movie studios that Blockbuster would rent certain movies to customers before those movies were available to purchase. This created a significant source of revenue for the movie studios (they got 40 percent of the profit from this agreement). Eventually, Blockbuster accounted for nearly half of the revenue for new movies.
In the 1990s, Blockbuster bought out its major competitor in the UK, called Ritz Video. All the storefronts were changed to the Blockbuster name and almost immediately the company became the biggest rental store in the country.
1998 was when BLockbuster started to deteriorate. The deal that had been so profitable for the movie studios and so instrumental in solidifying Blockbuster’s household name concerning video rentals was offered for DVD rentals – 40 percent to the studios for the profits of rentals for movies that weren’t available to purchase. Blockbuster turned the offer down, this time.
In 2002, Blockbuster acquired two other movie rental franchises that helped to cement Blockbuster as a ubiquitous brand. It bought the Dallas-based Movie Trading Company and the UK-based 64-storefront Gamestation. Both these acquisition proved a powerful learning tool when creating Blockbuster’s own video game rentals.
The video company spun off to its own in 2004. Facing a blow to its business through the popularity of Netflix and other online rental services, Blockbuster invested millions into its own version of an online rental outfit. The company declined to simply buy Netflix for $50 million. Blockbuster also did away with its largest profit-margin initiative: the late fee. The company also started to diversify its products by creating the Game Rush store-in-store concept to rent and sell video games as well as DVDs.
However, every year since Blockbuster left the safety of Viacom, it has lost money. $1.62 billion in 2002, $978.7 million in 2003, and $1.24 billion in 2004. In 2005, Blockbuster had to renegotiate its loan covenants to avoid being forced into bankruptcy. As of February 2006, the company had a market value of about $500 million.
Blockbuster Online may be the saving grace of the Blockbuster brand. As of 2007, the online Total Access online-rental initiative had more than 3 million subscribers. Blockbuster has also gotten behind Blu-Ray discs online, softening the cost of investing in such a new technology.
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