Why Blockbuster busted

Long before he became leader of the Green Party, Jim Harris was a business writer and strategist. His best-selling book Blindsided was one of the first great expressions of the new disruptive economy, in which established businesses can be skunked almost overnight by aggressive new competitors with innovative approaches.

Now that he’s a former politician, Harris is back to writing/speaking/disrupting. In the latest issue of Backbone magazine (which covers business and technology), he looks at how the once-mighty Blockbuster chain has been squeezed by video-rental upstart Netflix.

“One day in 2000, a tiny start-up company met with the Blockbuster execs. It offered to sell a majority of the company for a US$50-million investment. And the Blockbuster execs looked at the little company’s business model and decided it was deeply flawed. Instead, the wise Blockbuster execs signed an exclusive 20-year video on demand (VOD) deal with Enron.

"The little rejected company was Netflix, and it soon grew up: as of May 2008, it was worth US$1.9 billion. Blockbuster is valued at US$345 million.”

(I love the little dig about Enron. Enron! Who knew?)

Netflix is an online movie rental service with 8.2 million subscribers who can access more than 100,000 movie and TV titles. Its most popular subscription plan lets customers rent three titles at a time, with no due dates, late fees or shipping charges (on an unlimited number of rentals), for just $16.99 a month.

With Blockbuster now closing many of its stores and Netflix gaining market share in the video download market, Harris declares, “Blockbuster can’t survive in its current form.”

For the full story, click here.

(In Canada, Zip.ca does much the same thing as Netflix. This year it wil ship its 10 millionth DVD.)