The Big Flop - Blockbuster: Streaming Killed the Video Store with Lauren Lapkus and Laura Ramoso | 54

Episode Date: September 23, 2024

At the turn of the millenium, Blockbuster Video, with its ubiquitous blue-and-yellow stores, was the reigning champion of movie rentals. But early on, when presented with the chance to buy a little company called Netflix... Blockbuster made the wrong choice. Despite attempts to launch online rental services, the quaint allure of browsing store aisles couldn't compete with the instant gratification of streaming. In the end, boardroom squabbling and Blockbuster's stubborn adherence to nostalgia led to its own unraveling.Lauren Lapkus (Newcomers, The Last Blockbuster) and Laura Ramoso (Sit Up Straight) join Misha to be kind and rewind all the way back to the heyday of Blockbuster.Follow The Big Flop on the Wondery app or wherever you get your podcasts. You can listen to The Big Flop early and ad-free on Wondery+. Join Wondery+ in the Wondery app or on Apple Podcasts.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Wondery Plus subscribers can listen to The Big Flop early and ad free. Join Wondery Plus in the Wondery app or on Apple podcasts. Blockbuster CEO John Antioco rocks back and forth in his custom office chair, killing a few minutes before his meeting. These guys better show up and they better not waste my time, he thinks. Meanwhile, Reed Hastings and Mark Randolph, the CEOs of an up-and-coming video rental company, rush over to Blockbuster HQ. For months, they have been trying to nab a meeting

with Blockbuster, the biggest movie rental company in the game. And suddenly, with 12 hours of lead time, the two Californians are granted an appointment with Antioquo in Texas. Without hesitation, they charter Vanna White's private jet to try to make it in time, blowing $20,000 on the trip. Now that they have a meeting, they can sell their business to Blockbuster and can reinvest

their profits into something more stable. Antiochus scans the two as they enter his office. He listens half-heartedly as they give him a grand presentation about taking entertainment into a new millennium or whatnot. He smiles a swindle. This dot-com hysteria is completely overblown, he tells them. The lawyers ask how much they want. Hastings and Randolph check in with each other

before blurting out a figure. Fifty million dollars! Antiocho struggles to keep himself from laughing. There's no way their little company is worth even half that much. But sending Hastings and Randolph packing will be the biggest mistake of Antiochus' career because their little company, Netflix, won't stay little for long. Once a giant in the entertainment industry, Blockbuster is a brand that's been slowly dying for the last few years. In 2004, Blockbuster had 9,000 locations,

but then Netflix. Blockbuster had 9,000 locations, but then Netflix. Blockbuster had the chance to buy Netflix in 2000 for about $50 million. The days and nights of renting DVDs from Blockbuster are just about over. The Blockbuster video chain is officially closing its doors, closing its remaining 300 video stores. The end of an era.

It's the end of an era. This really is the end of an era. It's the end of an era. This really is the end of an era. We are on a sinking ship. From Wondery and Atwill Media, this is The Big Flop, where we chronicle the greatest flubs, fails, and blunders of all time. I'm your host, Misha Brown, social media superstar who you can often catch sneaking into the adult section at Don't Cross a Gay Man.

And today, we're paying our late fees so we can check out the epic saga and tragic demise of Blockbuster Video. ["Blockbuster Video Theme"] ["Blockbuster Video Theme"] On our show today, I'm so excited, everybody. We have an amazing actress, comedian, improviser and impressionist. She really does it all, including co-hosting the podcast Newcomers and Freedom. She's also the host of Haunting with Glass podcast and I Heart podcast.

It's Lauren Lapkus. Welcome to the show. Hi, thank you for having me. I'm so excited. Also, not to be outdone, on the show we have a fantastic comedian who you might recognize from her hilarious sketches on TikTok and Instagram. She is currently on tour with her show Sit Up Straight. It's Laura Ramoso. Welcome to the show, Laura. Hi, thanks so much for having me. So I don't know about you. It is rude to ask

anybody their age, but I definitely grew up going to Blockbuster all of the time. What was your experience with Blockbuster, if any at all? Yeah, I grew up going there all the time too. I am of age to recall these days. It was the best. It was like, it was such a special event to get to go rent a video with your parents and like have a little movie

Night at home. I loved it We had a couple little local video stores too that we would go to but I feel like my memories of blockbuster were so Important because they had like 500 copies of like the newest thing It was always like so exciting to see what they had They were always getting new things where the little video stores weren't always re-upping their stock Yeah the little video stores weren't always re-upping their stock. Yeah. And I actually have no history with Blockbuster because I moved to Canada in 2013 from Italy and we didn't have Blockbuster growing up. So I have zero knowledge and I'm bringing nothing to the table today.

Great. Well, your life sounds way cooler than mine. So you have that. Yeah. mine. So you have that. Well today, we're going to be very unkind as we rewind to a time of misplaced membership cards, questionable staff picks, and those dreaded late fees. Blockbuster video stores were more than just places to rent movies, they were cultural hubs cherished by families and movie buffs alike. But almost overnight, they vanished. For today's story, there's no one person who owns Blockbuster's demise, but four

key figures are all partially responsible. And we start with the tightly wound founder of Blockbuster, David Cook. David is a classic problem solver. A Dallas native, he prefers living life on the DL, making things work in private. He loves golfing, cats, and his wife. Could you imagine being a cozy millionaire? It sounds like the beginning of a Dateline episode though. A little bit. Cook is generally ahead of his time, but he constantly misses the mark.

Conceptually, he's great, but in practice, he keeps stumbling. For example, in 1998, he tries to sell people on digitized music catalogs, which is only a couple of years pre-iPod, but in the tech world, that might as well be a century. So back in the late 70s, his bread and butter is software, specifically tailored to the needs of the oil and gas companies. So things go well for him for a bit, but in the 80s, the oil market tanks. Get it? And Cook's customers start to stiff him.

So while Cook tries to figure out what to do with this company's fancy barcode technology, his wife Sandy clocks America's obsession with video rentals, and she convinces her husband to look into the market, which leads him to founding Blockbuster. Sandy even picks out the blue and yellow color scheme for the business. That's very memorable. Yeah. What's the best idea you've ever gotten from a romantic partner? Um… I almost said something disgusting, so I tried to distub myself.

Well, I don't know. Say it. No! I tried to just stop myself. Well, I don't know. Say it. No. Well, in the 1980s, you have a couple of options for seeing your favorite movie. You can watch it in theaters. You can watch it on TV if it ever airs, interrupted by hundreds of ads and probably sanitized

in some sort of way. Or you could get a hold of a VHS tape if the studio has released it. And by the 80s, VCRs become more affordable. Their price drops from thousands to hundreds of dollars. Can you guess how much buying a VHS would set you back in the early 80s? Oh, god.

I would say $50. $30. In today dollars? $30, which is like $100 today, $100 to $300. For one movie? Yeah, because it was new technology. So you would only buy it like if you were going to show it, I would guess, like at a movie theater.

Yeah. You weren't going to own, unless you're really rich. For sure. Wow. Well, the VCR market creates a lot of demand for things to watch with them. And Cook has some high-tech concepts that are sure to give Blockbuster an edge in the home rental industry. Cook uses his barcode inventory system to keep track of every film each location has,

which is over 10,000 films per store. The barcode system allows customers to choose movies from the shelves themselves and embedded security tags prevent them from just walking off without paying. The inventory system has another great feature. It allows each individual blockbuster to cater to local interests. Clerks are even encouraged to watch movies and recommend their picks. Clerks are even encouraged to watch movies and recommend their picks. And there's also the personalized membership cards, which let customers get in and out without hassle. This is bringing me back. I forgot so many of these little details. I forgot the cards, yeah.

Being terrified of stealing movies, there's always the bad kids who would run out with them. Yeah. bad kids who would run out with them. Of course, they also keep the renters honest since membership cards require IDs and payment info to set up, which is important for tracking late fees, a pillar of Blockbuster's profit strategy. But perhaps customer's favorite amenity is the store hours. Unlike mom and pop places, Blockbuster's stay open later. Of course, if those folks are looking for a little late-night content, they'll be sorely disappointed

because Blockbuster is family-friendly, unlike those nasty indie rental places. So, what do we think? Is it missing anything? I feel like maybe next steps could have been like movie nights at Blockbuster. That's cute. And make it more of like a social thing, and then you could like maybe write something half off. I don't know. I mean, could you imagine if they had done that,

then they could have pivoted to like owning movie theaters? Yeah. Right. I'm surprised they didn't have a porn section. I feel like that makes sense because it's so corporate. But like, I just remember that as being a big part of every other place in my town. With the black curtain. There was always that little room where you're like, what's in the room? What's in the room?

What's going on in there? What is in there? Really, it wasn't missing anything, because Blockbuster, it wasn't instant hit when it came out. I mean, franchisees can't wait to sign up. And real estate companies love how much extra foot traffic Blockbusters bring to like malls. If folks run a video, they also have to come back.

And that's twice the amount of food court excursions and window shopping temptations. By 1986, four locations are in business and three more are being built in Dallas, Fort Worth, Texas. Cook even has license agreements for 86 more stores in San Antonio, Houston, Detroit, Chicago, and Atlanta, and things are moving along swimmingly. Well, almost. Because Blockbuster has already lost $1.9 million in six months. Startup costs for Blockbuster locations are steep, especially for 1986. Each new store cost up to $700,000. Wow. But Cook, he believes these are just growing pains.

After all, what company isn't in the red when they first start up? So once all these other locations are built, the money will obviously start pouring in. What could go wrong? I'm amazed that they cost $700,000 for each one. That feels like such a bad... It's so much. Like, why is it so much? Because they turned over into, like, 7-elevens really quickly when they all went out. So I'm like, so was it to build the actual structure? Because it's just a room with shelves. There's nothing like special about the layout or anything. Does it to do with like rights or like inventory purchase?

I mean, those VHSs were expensive, $30 a piece and you had 10,000 of them. Every single one of those is gonna be a huge part of the cost, but. Yeah. And all the like, all the like sour punch straws. Marked up. To fund the expansion, Cook takes out $7 million in credit

and tries to raise some capital by selling $13 million worth of shares. But despite public love for the brand, he gets hated on by investors and so Blockbuster only manages to raise about $4 million on the stock market. Basically, the financial publication Barron's decides that Blockbuster is overrated and they're not even hiding their disdain for it. So Lauren, could you please read from the 1986 column up and down Wall Street and use your best erudite Ben Stein voice if you got one.

Yeah. Blockbuster intends to use the proceeds from the new offering, which should, at the present rather elevated price of the stock, bring in around 13 million dollars or so to really get its show on the road. That show at first glance might

seem, how shall we put it, fairly pedestrian. We have to wonder if this is the greatest thing since home shopping networks, as some of Blockbuster's froth-flect fans insist. Froth-flect? That was disgusting.

What? That's a disgusting description. I've never heard that in my life. What does that mean? Are they frothing in the mouth and so they have like flecks of froth? Like spit coming out of their mouth? Dried flecks? That doesn't make sense.

Are people frothing on them and then it's on their face? Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. have like flecks of froth, like spit coming out of their mouth? Dried flecks? That doesn't make sense.

Are people frothing on them and it's on their face? Right. Blockbuster situation is precarious. On the one hand, the video rental business is booming. Between 1981 and 1987, it goes from a $76 million industry to a $5.6 billion that's with a B industry. Even though by 1987, there are 19 blockbuster locations and the company has brought in $8.1 million, it has spent $11 million to open the stores. So it's $2.9 million in the red. So it's those opening costs that are killing them.

Yeah. And then they have to pay everyone who works there like $10. So that's going to take some of the money away. Well, how would you solve this little dilemma? I mean, I guess I feel like my instinct would be like, let's just keep opening more. Is that terrible? Just double down, triple down. Yeah. Do we know what the highest cost of opening a new store was?

It has to be the movies. There's so many movies. What was really exciting was you would go in and there would be new releases on the shelf, and they would line up the same movie a hundred times, like different copies. So the whole wall would be like all Terminator or something. And you'd just be like, great. And then you'd go and see if you could get one from behind the main DVD cover.

And then there would be no more because they'd all be taken immediately. I feel like it was always like the second you get there when there's a new thing, like people snatch those things up. I totally forgot about the place cards until you just said that. Yeah. Well, enter our next key player, Wayne Huizenga,

a shady entrepreneur and waste management mogul. Hi. Yay. Now, he's a man who's loved the smell of trash since childhood when his father worked in landfills. No, really. He says it's, quote, a smell I grew to love. Oh.

Okay. I bet he'd be froth-flect. Yeah. For sure. But despite his love of garbage, Huizenga has a nose for treasure. He thinks these blockbuster late fees are a scam and a pretty good con. Sidebar, he also ironically invests in bottled water, creating more garbage for future generations. Oh my god, what a shithead. Ironically invests in bottled water, creating more garbage for future generations.

Oh my god, what a shithead. In 1987, Huizenga gets a group together to buy 1.2 million shares of Blockbuster for just over $18 million. This gives him outsized decision-making power. But is he a good fit for the company? Well, unlike David Cook, who's in his 30s, Wayne is 50. So not exactly enthusiastic about stuff the kids are into. He's never made films and he rarely watches movies for fun. But that's okay because David Cook still has that starry-eyed optimism to add to the pot, right?

Well, Cook sours on the business pretty quickly. That same year, after a dispute with one of Hisenga's top guys, the introverted problem solver exits Blockbuster and takes a $20 million buyout. That's like all their money. All their money. All their money. I mean, let me do some quick math. That's $666,666 VHS tapes. Oh my God. He could have so many movies. That would be amazing. He's still watching them today. So from that point on, Huizenga can do anything he wants. And to start, he intends to open 500 blockbusters over the next three years.

So what do you think? Does Huizenga's business plan pass the smell test or is it rubbish? This smells stinky stinky actually because isn't the whole thing that opening stores like keeps putting them in the red. So we just like kept opening more and more and more stores. And so then they're just like that much more in the red. Yeah, but he does have this late fee idea. And that thing really does screw you over because if you are like, you could drop it

in the in like the hole outside, you know how they had those like little like return slots and you would like drop I remember like getting out of the car like rushing to like drop it in there just to make it in time. And like, how much was the late fee like five bucks or something? I mean, it was kind of a lot if you have like if you're returning it costs like five bucks to rent it. So then you're getting you're paying double just to return it late, even if it's like an hour late.

Yeah, it was crazy. Wayne Huizenga sees unlimited potential in the Blockbuster brand. By the mid-90s, Blockbuster is expanding at breakneck speed with a new store opening up every 24 hours. Oh, my God. Yeah. Real quick.

And Huizenga achieves this by buying up other video rental chains. Oh. Huizenga really seems to want to dominate every corner of entertainment. He buys some music retail chains and rebrands them as Blockbuster Music. Yes, I love Blockbuster Music. Oh, my God, I just had a total flashback. That was so fun, because you can walk around and listen to CDs. Like they would have like stands where you could stand

and put the headphones on and like click a track and like hear the CD before you buy it. So fun. He starts publishing Blockbuster themed magazines featuring exclusive interviews with movie stars. He sponsors a college football game and brands it the Blockbuster Bowl. He even tries to open a Blockbuster theme park.

I mean, I guess you could use every movie as your IP, right? I mean, I don't know if that was allowed. But what would it be otherwise? You're just sliding down like video tapes. Well, theme park is a strong word, but he is opening it in Florida, a theme park hotspot. But it's nothing like the kid-friendly Disney World or Universal Studios. It's more like a business compound. So the proposed project includes movie, music, TV, and radio studios, a marine stadium for water sports, a VR amusement center, facilities for golf, tennis, and roller skating, movie

and dinner theaters, a 45,000-seat baseball park, and a 20,000-seat hockey arena for his sports teams. Yes, he owns sports teams too. The Florida Marlins and Florida Panthers. Whoa. And also owns a bunch of auto dealerships. You know, business stuff. He's all over the place.

I mean, he must be like the richest person though. I feel like if you're owning sports teams, that's like a really good sign for how you're doing. Real good sign, I think so. But is he brilliant or is he overextending himself? I mean, it sounds like he's got his hand in too many things. Like, it just feels like you'd want to focus on the stores, but I guess by making it sort of like a big name like that, it spreads the word about the stores.

Like, oh, and it makes it look like everything's doing really well. Yeah. But like, there's blockbuster everything. But it's also kind of like not the point of what blockbuster is, so we don't really need it to do that. Yeah, solving a problem that doesn't exist. Yeah, it's like you're putting, I mean, diversifying a little bit, but putting a little more into the store experience, because that's what people go to.

Yeah. Well, Heizenga is an extremely shrewd businessman. And he does start to realize Blockbuster's business model is on the brink of failing. Video technology is changing very quickly at the time, so will the VHS be replaced by something better? Will pay-per-view cable make renting videos unnecessary? Heizenga's killer instinct kicks in, and he sells the brand while it's still hot. And in 1994, Viacom buys Blockbuster and uses its capital to buy a Paramount, which will be important later. Now Viacom has lots of folks who know about entertainment.

Because in 1994, they also own MTV, VH1, Nickelodeon, Showtime. So, I mean, at least Blockbuster will have a film buff at the helm now, right? It's probably better. Yeah, that's really interesting. I didn't know that they got bought by somebody. But then I'm like, how did that fail? I can't wait to find out. They install a man named John Antiochus.

Now, to be fair, his experience is parallel to the industry of movie rentals. Late night munchies. Because he comes from 7-Eleven and Taco Bell. How could that be relevant to Blockbuster, do you think? Like, what were their thoughts? Well, you said that a lot of Blockbusters turned into 7-elevens. So in the long term, really good. Yeah, I know they were always like attached to them to like, like a lot of them in my town, at least there were a couple of video stores that were like right

next to a place like that. So it's you you get your snacks, then you get your movie. Right. Snacks and a movie, name a more iconic duo. Well, despite his media inexperience and Yoko, he takes a big swing. From now on, it's no longer Blockbuster video. It's Blockbuster entertainment. We're going to give him an experience, everybody. It's what you wanted, Laura. Yes. There we go.

Antiochal, he also cancels that Blockbuster Park, although we really wish he hadn't because we'd love to cover that flop on a future episode. But he gets stores to start renting video games as well, which was big. And the brand pens exclusive deals with movie distribution companies. And there's even a new award show, the Blockbuster Entertainment Awards. Now, just three years into Viacom's owning of Blockbuster, the entertainment landscape changes forever. To learn why Antioch is about to be completely overwhelmed, let's play a game. I'm going to ask you some multiple choice questions. Whoever gets the most correct gets

all their late fees forgiven. Oh my god. Perfect. I'm so excited. First question. In 1996, an innovative video format premieres in Japan, threatening to disrupt VHS's dominance. It's called the DVD. What does DVD stand for? Is it A, digital viewer disc, B, digital vivid disc, C, digital versatile disc, or D, digital vivid disc. C, digital versatile disc. Or D, digital video disc. My heart says C.

I'm going to go with D. Oh my gosh. I don't really know what to say here. Ding, ding, ding. Because actually C and D are correct. What? Oh my God. Yeah.

Yeah, digital versatile disc and digital video disc. Oh, that worked out great. So DVDs are DVD DVDs. I guess so. DVDs. Second question. What is the first movie commercially released on DVD? Is it A, Space Jam, DVD? Is it A, Space Jam, B, The Mask, C, Twister, or D, Cliffhanger? I'm going to go with Twister with the argument that it was like, and now in high definition or something. They were trying to sell it like it was cooler looking. I'm going to go with The Mask. Lauren, ding, ding, ding. You were correct. It was Twister. Oh, very good.

But all of them were released in the year 1997. OK. One more question. How much storage capacity does a single layer DVD have? A, 4.7 megabytes, B, 4.7 gigabytes, or C, 4.7 terabytes? God, I have no idea what any of those really are. I feel like I'm gonna go with terabyte because it feels like...

No, it's gotta be gigabyte. I'm gonna go with gigabyte. I'm gonna also say gigabyte because one hour of movie... is that. ALL LAUGH Ding, ding, ding! You're both correct! Oh, my God. Yes, 4.7 gigabytes, which is a lot even today.

Now this means DVDs can store high-res files and there's enough room for all of the important DVD extras like bloopers. Oh, those are so fun. We love a blooper. I miss like a main menu plus deleted scenes. It was just such a like treat at the end of watching a movie. It sure was. I know, you could really soak up what they created,

get into every nook and cranny of the DVD. Now we just move on to Vest. Now you finish a Netflix movie and it starts playing season four, episode one of a show you've never seen, you're like, what? You didn't even get to process what happened. And it's always a totally different vibe.

Like, the totally different, like, audio sensory experience. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.

Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. So, by 2000, 60% of American households live within three miles of a blockbuster.

So Antiochus is flying high, raising almost half a billion dollars. But DVD players are about to become cheaper, which means peddling VHS tapes is no longer an option. That's fine. DVDs are great for Blockbuster. Think of all of the inventory space they're about to save. Of course, what's good for Blockbuster is also great for other companies. Enter Netflix. The story goes that the founder of Netflix, Reed Hastings, forgot to return his copy of Apollo 13 to his local blockbuster and is slapped with a $40 late fee.

Ugh! Fed up, he decides to start Netflix, a company that sends movies by mail with no late fees. I love it. I love being fed up and being like, I'm just gonna start a huge company. Yeah. One of the biggest in the world. Now the subscription is $40, so like, come on, we've come from several.

Yeah. Now, Netflix co-founder Mark Randolph says that story's all BS. In 1997, according to Randolph, he and Hastings just want to create an Amazon.com, but for something easier than books, and they settled on DVDs. That's right, for anyone who forgot, Amazon used to only sell books. In college, that was like the cool way to get books suddenly. It came out of nowhere and it was like, oh, you can get them on Amazon.

And like, that was it though. You would get like a used copy of like your textbook. It wasn't like anything cool. And now I can get anything. Literally, literally. Tomorrow, tonight. Sometimes I feel sad when they drop it off like anything cool. And now I can get anything. Literally, literally. Tomorrow, tonight. Sometimes I feel sad when they drop it off so fast. I'm like, I didn't need it that fast.

It's like, I don't need it at all. Like... They're like, this will be delivered at 332 a.m. Well, unlike VHS tapes or books, DVDs are super easy to mail. Were you an early Netflix subscriber? Because I was, and I remember those DVDs constantly showing up in their little paper sleeves,

completely scratched up and unplayable. It was like all scratches. Yeah. It was like a full scratch on the back, and you're like, okay, like it's been scrubbed into this, like people would like put it into the envelope and like wipe it up and down or something. Like it was like, it was abrasive. I don't know what was happening, but it was so true.

They were in terrible condition. In 2000, after losing a bunch of money, Netflix bad boys, Randolph and Hastings try to sell their business to Blockbuster for a tidy sum of $50 million. Antiochus refuses. He thinks the dot com bubbles bound to burst. He's not actually wrong about that, but he is wrong about Netflix, as we'll see in a little bit. For now, Blockbuster feels pretty good about rejecting this new startup, but they're still threatened by an old foe.

Cable television. In-home entertainment is a booming industry projected to be worth $20 billion in 2000 alone. So, Intioko takes action. He inks a 20-year deal with Enron broadband services to sell movies on demand powered by Enron's DSL-type cable. What do you remember about Enron? I remember it was bad. There you go.

That's all we need. Yes, they're absolutely shady. And the reason we know that is because of this deal. Long story short, Enron and Blockbuster are excited to move forward. But movie studios pipe up and refuse to license their content for video on demand. So the deal falls apart and analysts get a peek inside of Enron's books for just a sec, turns out they're fudging numbers by a lot. So they end up going bye bye. So that's right, Blockbuster may have caused the downfall of Enron.

Oh my god. They had their hands in everything. To turn down they must have felt so dumb. Right? Well, Blockbuster swings and misses, but unlike their failed partner Enron, they at least avoid major legal troubles. Except now, they get an even bigger threat from a giant conglomerate. In 2002, McDonald's gets into the rental game. What? What do you think they could have done? Did they like a red box thing?

Yes! But was it like a Happy Meal? It would be so cute if they put a little M on it. No, in the early 2000s, someone at McDonald's notices that with DVDs, you can fit a whole video store into a box, a red box, if you will. So McDonald's backed the rental company. Wow. McDonald's had its hand in red box. Wow. You never think they're doing all these things behind the scenes. I just, I take companies for their face value, what they're offering me, and I don't think they're up to anything. But what about brand loyalty and those cool membership cards? Those are obviously drawing

people in, right? Well, Redbox offers $1 rentals and a nice price always beats loyalty. Yeah. It's true. Yeah. Really spewing some business. We're also not loyal. Yeah. It's true. Yeah. Really spewing some business. We're also not loyal. Yeah. That's true.

If it's cheaper from you, I'll get it. So meanwhile, by 2004, Blockbuster has 9,000 stores worldwide, but Antioch is starting to regret not buying online DVD borrowing service Netflix, which in just four short years has gone from being worth virtually nothing to having a valuation of half a billion dollars. Yeah. So what's an alternative evil move Antioco can make? How about he copies Netflix's idea? Oh, good. Oh my god.

This guy. This guy. So silly, this silly little man. He's silly. He's so silly. Yes. In August of 2004, Blockbuster Online goes live. Now, this isn't a streaming service. Neither Blockbuster or Netflix are in that game yet.

It's just a Netflix competitor offering online DVD rentals. Now Blockbuster members can rent unlimited DVDs three at a time, no return dates, no late fees, all for the tidy sum of $19.99, which is $2 less than Netflix. And they get two free in-store movie rental coupons per month. But I don't really remember this happening. Like, I feel like it must not have been that successful because I feel like it didn't enter my sphere.

Like, I was doing Netflix DVDs for, at least from college on. Same. But maybe that's because we were young and hip and cool and on the verge of innovative companies. Definitely. Definitely. Blockbuster Online, it does work.

And Netflix's stock drops almost 30%. But Blockbuster, they can't take all that credit to be fair. After all, content peddling is a highly volatile business. And that's why Viacom, Blockbuster's parent company, they start to get skittish. In October of 2004, despite Blockbuster pulling in over $5 billion in revenue annually, Viacom unburdens itself of Blockbuster, and Blockbuster goes independent. That seems bad. I mean, I don't know. Follow your instinct.

Yeah. Trust your gut. Yeah, trust. Okay. Now, Antiochco, he stays on and he likes being paid huge sums of money for making questionable business decisions. And two months later, he decides to take over Hollywood Video, which was Blockbuster's major competitor, with a $1 billion offer.

With that purchase, he can at least corner the market on brick and mortar rental stores once and for all. Now, does anyone know why possible monopolies are bad? I wish I did. I don't understand the board game, honestly. I don't understand what I play. I don't know. I just want to be the dog. That's all I know. They just control the price and there's no competition and then they just take care,

control of everything. Yeah. And you know who really doesn't like that? The government. The Federal Trade Commission. So Blockbuster pulls out of the deal because they're no longer confident that the FTC is going to let that slide. So let's ditch those pesky late fees. Let's watch a clip from that announcement. Someday you'll remember where you were when you first heard that there are no more late

fees at Blockbuster. That's a great commercial. I feel like I remember that. I guess I do remember where I was. I was watching TV. Yeah. So, how this worked. You don't get late fees for eight days.

But after that, you're charged the full price of the movie. You can still return it and get your money back, but then you do get charged a return fee. So it's a late fee. Okay. That's a disaster. Yeah. Also, like eight days, just say you can rent it for eight days, but then they don't want you to have it for eight days. So it's like you only do that if you forget. Like, what's the like, it's so it's a convoluted plan. It is. Needless to say, this does not go over well with customers.

And not just customers, but government officials in 47 states. And they investigate Blockbuster for false advertising. Blockbuster agrees to pay just over $600,000 to reimburse the government for investigation cost and promises to clarify their policy. From that point on, their ads adopt a less celebratory tone and become more explanatory.

Let's watch one. -♪ My man was like, no more late fees? That means you never have to return your movies. I'm thinking to myself, dude, I don't think you get the concept of rent. It's not a gift, but we can take an extra week to return them. What? That wasn't even a clear explanation. It feels like it just said in fine print at the bottom that if you are past seven days, it's a sale. So it's like that guy was like, why is it like that?

Is it like that? Because it is like that, but it's not like that. He didn't really say anything. That was weird. Such a dumb commercial. He didn't really say anything. That was weird. Such a dumb commercial. Well, Antiochco, he's a little shaken up, but he'll recover. And luckily, Blockbuster Online is going swimmingly, reaching 2 million subscribers by 2006. And then Antiochco ups the ante. He launches a plan called Total Access, which will allow online subscribers

to return their DVDs directly to brick and mortar blockbuster locations, a super convenient feature for folks who don't want to wait around for their new movie to arrive by mail. Because, remember, on Netflix, you could have three DVDs out at a time if you had that plan. But your next one wouldn't be mailed out until they received your returned movie. Oh. That's genius then. Because it's the same thing as dropping it in a mailbox. You just drop it in the blockbuster box,

and then you're like, now it's going to be checked in today, and I get to get my next film. Yeah. Very smart. Mm-hmm. Very, very smart. So, this move absolutely rocks Netflix to its core. In just one quarter of 2007, Netflix loses over 50,000 subscribers compared to the previous three quarters. But Blockbuster, it's still number one. Netflix only has one fifth of the market share that Blockbuster has. So, I mean, are we surprised? Did we just assume Netflix

was going to waltz in and destroy Blockbuster so quickly? It was a huge pillar in our culture at the time. I am surprised. I thought it was like Blockbuster started going down and then it just kept going down, but I had no idea that it had these like ups as well in that whole thing and that Netflix was behind at some point. Very interesting. Yeah, it felt like they were really fighting for their life. Like, oh, you can return it to our store. They can't do that. Like any idea to like screw them over. Yeah. Well, Netflix founder Reed Hastings is terrified. Blockbuster can afford to lose a little money to knock Netflix off

the board. So, Hastings, for the second time, goes to Antioch. He asks him to sell Blockbuster online to Netflix. Customers could rent movies from Netflix and return them to Blockbuster. It's a win-win. Whoa. And this time, Antioch wants in. But it's not going to be that easy. Even though the total access program is a massive hit, doubling subscribers in less than two months, it's also a loss leader. It's like those bargain basement coffee deals at places that charge an arm and a leg for

a sandwich. But Antiochus crossing his fingers that the flood of noob subscribers will balance the books. This could work with some time, but Antiochus got a few immediate problems. Blockbuster franchises hate Blockbuster Online. They don't want the total access to make it better. Also, Viacom left Blockbuster holding the bag with a billion dollar debt after snatching up Paramount. So Blockbuster shareholders are desperate to recoup this money before spending any more. And finally, the board is upset that Antioch is collecting massive bonuses while the company is drowning in debt. What do you think they do about it?

Kill him? Yeah. Yes. The mafia comes in. They basically start railing against all of his ideas, even though they're actually pretty good. And they also squabble over his bonuses, and ultimately, he takes a buyout and steps away from the company.

I'm like his biggest defender now. I'm like, how could they? Yeah, how could they? He's just a silly guy. So just as Antiochus is getting the hang of things and is possibly about to bring Netflix to its knees, poof, he's gone. Enter James Keys, our final flopster of this story.

His experience is running food chains, not entertainment, and certainly not tech. With insistence by the Blockbuster board, Keyes decides to stop funneling money into their online presence. Blockbuster cancels the total access program and reinstates late fees. Like Antiochus a decade prior, the board makes the fatal mistake of looking back instead of forward. The leaders at Netflix breathe a sigh of relief

that Blockbuster's backed away from their turf and at the same time they pivot to the next big thing, finally streaming. Meanwhile, Blockbuster is losing bigly during the recession. The real estate market crashing certainly doesn't help a company that relies on physical locations. And Blockbuster power users, the folks keeping the business humming, try to save a little scratch by shifting to streaming. As a result, Blockbuster is unable to pay off its billion-dollar debt. In 2010, it files for bankruptcy while Netflix in the same year hits 20 million subscribers. Oh yeah. Yeah. Dish Network Corp, who makes and

sells satellite dishes, buys up Blockbuster's assets in the bankruptcy auction. Dish hopes to convert all of those retail spaces into Dish Network stores. Don't you just love going to the Dish Network store? What? That's so crazy that they thought that was a good idea. That's like a chore. Like it's like when you have to go return a satellite dish or I don't know when you have to go return like your like modem or whatever when you rent it from the company. It's like that's the worst chore. Also don't they have like 9000 stores? Yeah, it's every five feet. There's a blockbuster and they want to put dishes in all of them. That's like so crazy. That's very, very silly.

Yeah. Well, the idea was so crazy and people caught on. So the idea was quickly scrapped, which is $320 million down the toilet. Wow. In 2013, Blockbuster announces it will close its 300 remaining company-owned storefronts and will sunset their rent-by-mail service within the year. Franchise stores can choose to remain open, but they will have no support from HQ. Dish continues to throw things at the wall and tries to pivot Blockbuster into an online streaming platform to rival Netflix called Blockbuster MoviePass. Much like MoviePass, it flops. By the way,

if you haven't already, please check out our episode on MoviePass. Blockbuster's demise cuts to the core. As storefronts close, customers end up in tears. Clerks too. In November of 2013, in Hawaii, the last movie is rented from a blockbuster corporate store. Any guesses what that movie was? What year was it? 2013. I feel like maybe it's an old movie. Maybe it was.

I'm just going to say Titanic. Nice. Lord of the Rings. It was a movie'm just gonna say Titanic. Nice. Lord of the Rings. It was a movie called This Is the End. Oh. An apocalyptic horror comedy. That's too much. So year after year,

the remaining independent franchisees continue to shutter until the very last one is left in South Bend, Oregon. And it does very well. So that's in Oregon like today? Yeah, it's still there today. So let's do a little where are they now? After leaving Blockbuster in 2007, Antioquo sold his shares and invested the money in Netflix, then priced at $20 per share. Unfortunately, he sold them when they got to $35 per share. That's why I'm...

Oh my God, he needs to stop. He needs to slow down. Yeah, because in 2024, the price of Netflix has fluctuated between $400 and $700 per share. Oh my god. Netflix CEO Reed Hastings is probably extremely grateful that none of the deals between Netflix and Blockbuster panned out. In lieu of a love letter, Netflix, which is also a film studio now, produced a documentary in 2020 called The Last Blockbuster.

I know it because I narrated it. It's almost like coincidence that you're here. It's almost like crazy that you guys actually put that together. So are they going to make an epic comeback? Well, in 2023, their website mysteriously came back online. And as of today, it says cryptically, we are working on rewinding your movie. Dun dun dun! Oh my gosh. Oh.

So, here on the Big Flop, we like to be positive people, or try to anyway, and kind of on a high. So, are there any silver linings that you can think of that came around from Blockbuster? Oh, man. The memories that all my friends have, not I, but like the people that had it. Sounds like it was very, very nostalgic. That's very selfless of you. You're happy that we have memories.

That's just my personality. Yeah, I mean, I guess the silver lining is this last blockbuster place gets to be really special and have a thing where normally they would just be one of a million and they get to stand out among a dead field of blockbusters that have fallen before them. I think it's fun. Other than that, I do think the nostalgia is the main takeaway. I also think we were so lucky to like grow up in that time because these days the entire media landscape is imploding thanks to streamers like Netflix and Amazon. I mean, we do get to watch great shows like Stranger Things and Bridgerton and Narcos and a ton of other fan favorites.

But sometimes the algorithms we don't exactly understand. Well, now that you both know the story of Blockbuster's series of terrible choices, would you consider this a baby flop, a big flop, or a mega flop? Oh, god. It feels pretty mega. Like it feels like there were a lot of mistakes that were made that especially at the end where like he just sold his Netflix shares too soon. It's like stop doing stuff like that. Just like, just let the money sit.

It feels like a mega flop also because they shot themselves in the foot by firing, because they shot themselves in the foot by firing, arguably their most successful head of company. So they did honestly have a real chance, but they just messed it up. Mega flop. Well, thank you so much to our fantastic guests, Lauren Lapkus and Laura Ramoso, for joining us here on The

Big Flop. And of course, thanks to all of you for listening. If you're enjoying the show, please leave us a rating and review. We'll be back next week to talk about a reality dating show that's royal fake out became stuff of TV legend. It's I Wanna Marry Harry. Bye. Oh my God.

Bye. Bye. Oh my God. Bye. Bye. If you like the big flop, you can listen early and ad free on Wondery Plus. Join Wondery Plus in the Wondery app or on Apple podcasts. Prime members can listen ad free on Amazon Music. Before you go, tell us about yourself by filling out a short survey at Wondery.com slash survey. ["Wonderful Music"] The Big Flop is a production of Wondery and At Will Media, hosted by Misha Brown, produced

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