How Did Ignoring Innovation Kill Blockbuster?

If you are Gen-Z and born in the late 90s or early 2000s, it is unlikely that you heard about Blockbuster before. To understand how huge the firm was back in the day, the firm recorded around 5 billion dollars in earnings in 2004. The unfortunate truth the firm had to face only a year later was that it went bankrupt and was forced to shut down due to its platform’s incompetence. Blockbuster’s failure is a lesson for brands and businesses that ignoring innovation can be fatal, and leveraging innovation to stay competitive is actually the way businesses can move the needle and stay within fiercely competitive markets. Hence, this blog will discuss how did ignoring innovation kill blockbusters (not in the literal sense but business-wise), the consequences of ignoring innovation like blockbuster, how to avoid blockbuster’s mistakes, and how to deploy innovation to stay and even gain a competitive advantage.

Blockbuster’s Fatal mistakes

Blockbuster’s fatal mistakes were not ones in their service or platform mainly. Though their platform did have downsides, it is not the main reason the firm actually witnessed its fatal fall. There are many reasons, like ignoring customer needs and providing a poor user experience. But to restate, the most fatal mistake made was that the firm ignored innovation. Here are some of the fatal mistakes that the firm made before their notorious downfall:

Not Collaborating With Netflix

In 2000, the now multi-million dollar streaming service Netflix offered to sell the firm to Blockbuster for $50 million dollars. However, this turned out to be one of the biggest “what ifs?” in the history of streaming services. At the time, Netflix was just a startup that was new to the market. The former CFO of Netflix mentioned that at the time, those responsible for Blockbuster were humorous in the way they turned down the offer, as they claimed that it was too high of a price to pay. Just a few years down the line, Netflix subscribers surpassed 6 million in 2006, and then the rest is history.

Relying On Outdated Practices

At the time of digital expansion and firms competing to innovate and provide the best user experience, the popular firm at the time had skepticism regarding renting DVDs online and providing them to users via mail like Netflix did. Nonetheless, Netflix was gaining more popularity due to the ease and convenience of the service, in contrast to Blockbuster, where you had to physically go to stores. All you had to do was go online and rent the film or video game you desired. Also, the firm could not keep up with the changes occurring at the time. By relying on old practices and a “better safe than sorry” mindset, the business made a strategic error by ignoring innovation. This is one of the core reasons of how ignoring innovation kill Blockbuster, which is moving very slow. 

Pricing Decisions That Backfired

Late fees were one of the main sources of Blockbuster’s revenue. When a customer did not return the rental on the day or time required, he or she was charged a dollar on a daily basis. A dollar here and there accumulated to $800 million in revenue for Blockbuster. On the other hand, Netflix and other new platforms at the time did not adopt the same principle and had a single flat price for customers to pay. At the time, Blockbuster had to compete with these growing services, and as a result, they ended up cancelling this pricing model. But as they say, when it rains, it pours; this made the firm prone to more challenges, in the sense that customers kept the movies and other rentals longer, as there were no penalties to pay.

This is not the end of the story yet; the series of pricing decisions seemed to not end. In 2006, the firm made a new program, Total Access, which allowed consumers to return rentals to the firm’s stores and rent a DVD for free in exchange. The program did succeed, but it had adverse and costly consequences. The firm lost $2 every time a customer exchanged a DVD, consequently leading to hefty losses. To recover from these losses, the firm raised the program’s price, leading to more customer churn.

The Final Nail: Excessive Debt

The final nail in the coffin of Blockbuster was the excessive debt they suffered from. The firm forged a deal with Viacom, which bought the firm in 1994. The deal entailed that Blockbuster had to pay a $5 per share dividend, causing Blockbuster to take an immense $905 million loan to pay it. This was the nail in the coffin, as this was one of the core reasons why the firm went bankrupt in 2010. When they declared bankruptcy, they had $1 million in debt. Too many changes within the streaming industry and too much debt caused the business to close its stores as people’s behaviors shifted and the business model of DVD stores was catching its last breath. In the next few sections we will dive deeper into why ignoring innovation kill blockbuster. 

Consequence Of Ignoring Innovation like Blockbuster

Firms that are stubborn to actually innovate or alter their way of thinking and working more often than not suffer plenty of consequences. The lack of will to change could cause dramatic and costly consequences. This lack of will to alter your way could cost you in missing out on several benefits, especially when every competition is innovating and following the trends. Some of these consequences include:

Incompetence & Loss Of Market Share

With the rapid evolution of technology, markets have become more dynamic. This made the competition more fierce day by day. If a business did an innovation that consumers liked, it would actually win the race, but only if other competitors did not innovate. In most cases, businesses want to compete to innovate, and those who ignore innovation get overlooked like Blockbuster. As an inevitable consequence, they face loss of market share.

Less Consumer Trust & Loyalty

Customers are becoming more demanding from firms, as they expect firms to offer them an experience compliant with the latest evolutions in technology and trends. Businesses that fail to innovate can make consumers trust them less and can lead to less loyalty, especially for those seeking sustainable options, better experience, and overall functionality. Research backs that firms who do innovate have a better rate of customer retention and loyalty in comparison to those who don’t. Ignoring transformations leads to less desirability.

Unseized opportunities

By failing to innovate or stagnating, businesses might fail to untap hidden opportunities. These opportunities could actually move the needle for most businesses. With the loss of innovation, businesses might miss out on several chances to expand and prosper. Businesses who are not innovating mostly miss out on untapped opportunities, and those who do expand and untap hidden ones, like Amazon, are actually expanding into cloud computing with AWS, which resulted in them generating various revenue streams.

Low Employee Morale

At first glance, low employee morale as a cause of stagnation and no innovation might seem odd. However, if you look closely, no innovation or transformation can impact employee morale vastly. Less innovation could create a feeling of stagnation and boredom amongst employees, causing them to feel lower morale and demotivation as they are working on outdated and forgotten practices, which leads to an overall loss of productivity and even talent retention.

The Idea That “Ignoring Innovation Kill Blockbuster” — and How To Innovate

To restate, ignoring innovation had fatal consequences for Blockbuster, and for firms that stagnated and didn’t keep up with the innovations occurring at their time. Hence, it is crucial for firms to be proactive in their approach and always try to keep up with the trends and innovations of their time. So given this, innovation might seem a word that is used without actually actionable frameworks or a strategy to conduct. So, how could businesses actually innovate and avoid the harsh lesson that Blockbuster had to learn in the hard way?

Culture Is The First Step To Innovation

Businesses that want to create innovative solutions to their customers should have an innovation-first mindset and deploy a culture of innovation internally. It is crucial for businesses that want to deploy innovative experiences to create an internal culture where employees are encouraged to share their ideas, have room for experimentation, and can take calculated risks. This can be done by leaders who always remind those who they lead of the necessity of innovation and consistent evolution. Conversations about innovation could aid in uncovering new ideas and possibilities that might have been overlooked before.

Closer Look On Consumer Needs

By getting a closer look on consumer needs and comprehension of consumers’ wants and needs, businesses could innovate desirable experiences and products that have a multitude of benefits, from retention to loyalty. Businesses who have a laser-sharp focus on what their customers want can provide better experiences. This laser-sharp focus could be in the form of regular feedback, research, and engagement with customers, understanding their concerns, their fears, and their needs. An approach businesses might consider is forging a statement of consumer needs that is thorough yet concise, defining their ideal client needs and requirements.

 Invest In Resources That Drive Innovation

Businesses who aim to actually adopt an innovation-first mindset should be willing to invest in resources that drive innovation forward. By investment, we do not mean only in financial terms, but we mean investment by all means. Investment in resources such as tools and research can move the business forward. In addition to this, businesses should aim to provide their employees some time to pursue and brainstorm ideas and techniques that drive innovation forward. Time is also critical for driving innovation forward. Firms should invest in tools and time to allow innovation to take place.

Conclusion

In conclusion, Blockbuster’s failure is a harsh lesson in business: a hard lesson that entails that businesses who fail to innovate are prone to fatal risks, at times leading to the business going bankrupt and in debt. Thus, it is paramount for businesses to innovate continuously. Ignoring innovation killed Blockbuster in the sense that it was stagnant and had a shortsighted view, creating outdated pricing models and drowning in debt due to false strategic decisions. Not keeping up with innovation leads to market share loss, lower employee morale, and lower customer satisfaction. To overcome these obstacles and avoid them, businesses need to be on a consistent roadmap of innovation. They can do this by creating a culture of innovation, having a laser-sharp focus on consumers, and investing their financial and time resources with the ultimate goal of driving and attaining innovation.