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Blockbuster: Video Entertainment of the Past
Christopher Belizaire and Daniella Hurtado
Gwynedd Mercy University
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Abstract
Blockbuster Entertainment Company was a large-scale video rental company that had a
humble beginning, climbed to the top of the industry, then failed miserably when newcomers
entered the video rental market. We were able to track Blockbuster’s early and late successes
along with its failures. Consequently, we found that Blockbuster had a strong hold on the rental
industry, however, failed in the customer service industry when the time came to make
adjustments. Blockbuster had multiple opportunities, throughout its time in business, to change
with the market but the company did not make the necessary changes. In this paper, we identified
the timeline along with the decisions that ultimately killed the Blockbuster brand. We found that
Blockbuster’s lack of foresight and strategic planning in a timely manner, directly lead to the loss
of revenue, large amounts of debt, and eventually bankruptcy. This was a textbook example of
why strategic planning in the business world is critical to the success of any company in any
industry.
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Blockbuster: Video Entertainment of the Past
In October of 1985, the very first Cook Data Services outlet was opened in Dallas, Texas
by a gentleman named David Cook (“Blockbuster Inc.,” n.d.). David Cook used the money that
he acquired from selling the computer software business he had created, to invest in this video
outlet that was set to be different than the average video store that was in business at the time.
With the money from the sale, and the knowledge he had in the realm of barcodes and
computerized inventory, Cook was able to build a large stock of movies and streamline the
operations aspect of the business to greatly improve the customer experience. Blockbuster Inc.,
had an inventory much larger than its competitors when it first opened up – with 8,000 VHS
tapes displayed on shelves around the store, similar to a bookstore (“Blockbuster Inc.,” n.d.). By
the year 1986, Cook had expanded his concept to three additional stores. He and his wife Sandy,
changed the company name from Cook Data Services to Blockbuster Entertainment Corporation
on June 1, 1986 (“Blockbuster Inc.,” n.d.).
The following year was important in the history and expansion of Blockbuster. In
February of 1987, Cook sold one third of the company to a group of investors from Waste
Management Inc. Alltogether the group invested over $18 million into Blockbuster’s stock and
Cook soon left the company (“Blockbuster Inc.,” n.d.). Not long after Cook left the company, the
new leaders moved Blockbuster’s headquarters to Ft. Lauderdale, Florida. By the end of the year
1987, Blockbuster had 133 stores, six regional offices and had become the country’s fifth largest
video store chain – with revenue just over $43 million (“Blockbuster Inc.,” n.d.). That very same
year, Blockbuster also won a court case against Nintendo thence paving the way for video game
rentals (Oxford, 2005). In 1989, Blockbuster owned and operated 700 stores and the company’s
stock had risen exponentially. The following year in 1990, Blockbuster really began to branch
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out – it acquired 250 stores from its mid-Atlantic rival Erol’s (Conn, 1990). By the end of the
1990’s, Blockbuster video rental stores could even be found overseas in the United Kingdom
(Bloom, 2013).
After a decade and a half of expansion and incredible financial and network growth,
Blockbuster was a market giant. By the end of the 2004 calendar year, Blockbuster employed
about 84,300 employees world wide; included in that amount about 58,500 were American
employees and about 25,800 were outside of the United States (Blockbuster Inc., 2005). Out of
the 58,500 employees within the United States, approximately 21,500 were full-time, around
35,600 were part-time, and roughly 1,400 were seasonal employees (Blockbuster Inc., 2005).
Much different from its very lucrative history, Blockbuster Inc., does not exist as it was
once known. Beginning from the creation and growth in popularity of companies like Netflix in
2004 and Redbox soon after, Blockbuster Inc., really began to see continued revenue loss.
Shareholders sold, stores closed, and collapse was imminent. From incredible debt and the lack
of further sustainability, Blockbuster filed for Chapter 11 bankruptcy protection on September
23, 2010, declaring $930 million in debt (“Blockbuster Inc.,” n.d.). In 2011, it was bought by
Dish Network for $320 million (“Blockbuster Inc.,” n.d.). However, there is currently one
Blockbuster that remains open in Bend, Oregon. Otherwise, it is used and marketed as Dish
Network’s On-Demand experience – as it continues to utilize Blockbuster’s catch phrase “Make
It A Blockbuster Night” (Dish, 2017).
Stated by Hitt, Ireland, and Hoskisson (2015), research has shown that organizational
structure and the controls that are a part of the structure can greatly affect a firm’s performance.
More importantly, evidence suggests that a company’s performance declines when its strategy is
not paired with the most appropriate structure and controls. This is indeed what happened to
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Blockbuster – its organizational structure was ultimately to blame for the company’s demise.
Blockbuster’s organizational structure was multistory hierarchical structure, comprised of layers
of various leaders from managers to junior employees. Ultimately, the company did not have the
stable structure of management and leadership that it needed to sustain itself (Hanna, n.d.). Over
time, the leadership within the company failed to recognize and adopt new changes to
technology being used – a strategic planning failure on Blockbuster’s part.
Blockbuster’s future could have been very different, if it had a secure hierarchy of leaders
and management, as well as a strategic and continuously adapting organizational structure.
However, the company was not considered a sound practice due to its many years of losses and
mergers. If Blockbuster would have adopted new technologies and introduced a cost-effective
movie delivery option to its consumers’ homes, Blockbuster stores would possibly still be around
today. Although the company was deeply nested in its dying organizational structure,
Blockbuster’s unwillingness to change procedures, controls, and decision making processes,
allowed its competition (Netflix) to take over the video rental market (Hanna, n.d.).
From the first store opening, to the closing of the company, Blockbuster has had an
interesting story of leadership. Blockbuster Inc., began with a single owner-creator named David
Cook. Cook began his journey founding Cook Data Services Inc., which was a company that
provided computer software services to companies in the oil and gas industry (Harress, 2013).
When that industry lost its luster, and after much research and family planning, Cook and his
wife decided to invest in the video rental business (“Blockbuster Inc.,” n.d.). His skill in
technology and software is what set up Blockbuster Inc., to take over the industry, as the first of
its kind to streamline the rental and storage process through technology (Hyatt, 2003).
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After some expansion that included three stores and several staff members, Cook sold
one third of his company to a group of three investors who were former leaders of Waste
Management (WM) Inc., (“Blockbuster Inc.,” n.d.). The former president of WM, John Melk, the
former CFO of WM, Donald Flynn, and co-founder, Wayne Huizenga, purchased shares of the
video business for $18.5 million (Harress, 2013). This sale and addition to leadership proved to
be a very important move for the company. The $18.5 million allowed for David Cook to leave
the company just two months after the sale, and the new and experienced leadership personnel
allowed for fresh ideas and a new drive for expansion (Harress, 2013). Under this leadership
regime, Blockbuster began to grow at a very high rate. By 1992, Blockbuster Inc., was opening
up stores at a rate of one per every 24 hours.
John Melk began his career as a simple garbage truck salesman in the midwestern United
States. In 1972, Melk partnered with Wayne Huizenga and together the two developed Waste
Management Inc. WM went on to become the largest garbage disposal company in the world.
Donald Flynn, on the other hand, was a South Side of Chicago native and received his education
from Marquette University (Bryson-York, 2011). Flynn’s career started as an accountant but
later turned into a 15 year run with WM – where he met his co-buyers. While at WM, Flynn held
positions such as Chief Financial Officer, Senior Vice President, and Director (Bryson-York,
2011). The third co-buyer, Wayne Huizenga, was raised in South Florida. Huizenga made the
attempt to earn a college degree, however he never graduated. Nevertheless, that did not stop him
from amassing a fortune estimated to be around $2.8 billion (Strahler, 2018). Huizenga has been
a very successful businessman throughout the years, from having key roles in the growth of
businesses such as Waste Management Inc., and Blockbuster Inc., to owning multiple major
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sports teams such as the Florida Marlins, Florida Panthers, and the Miami Dolphins (Strahler,
2018).
In the year 1994, Blockbuster Inc., had yet another large scale change in leadership. The
company was sold to Viacom Inc., an American mass media company for $8.4 billion (Harress,
2013). Since Blockbuster and Viacom Inc.’s separation in 2004, Blockbuster has had multiple
short term CEOs and different unsuccessful business strategies, until it filed for bankruptcy in
2010. With that said, since the company filed for bankruptcy, it has gained new leadership under
Dish Network in 2011 (Harress, 2013). Blockbuster’s filing for Chapter 11 bankruptcy in 2010,
as well as its purchase by Dish Network in 2011, ultimately marked the end of the road for the
once behemoth movie rental company (“Blockbuster Inc.,” n.d.). Since Blockbuster Inc., first
