Blockbuster CEO "Laughed Netflix Out of the Room" During Meeting

In 2000, the two co-founders of Netflix, Reed Hastings and Marc Randolph, set up a meeting with Chairman and CEO of Blockbuster, John Antioco.
The Netflix duo had a proposal to make - did Blockbuster want to buy 49% of Netflix for $50 million?
Legend has it that Antioco laughed Hastings and Randolph "out of the room".
Netflix now has a market capitalization of $416 billion and Blockbuster is out of business.
It's easy to look back, with the benefit of hindsight, and say that Blockbuster made a terrible mistake by not buying Netflix.
There was also a time when it looked as though Amazon may not make it as a company, and a time when Apple needed a key investment from Microsoft to survive.
In 2000, Netflix was operating a business model that is much different than their model today.
There was no custom content. Netflix was not spending billions of dollars developing their own intellectual property.
Instead, Netflix was operating a direct-to-consumer DVD rental business. You'd rent DVDs from their site and the DVDs would arrive in the mail.
It was costly and clunky and wasn't really working.
At the time, Blockbuster was doing just fine as a company, with well over 5,000 stores. The CEO of Blockbuster didn't believe that Netflix was a threat - in fact, he thought that Netflix was a waste of money and would not succeed as a business.
$50 million for 49% of Netflix? You would have had trouble finding ANYBODY willing to do that deal at the time - there was just not a great deal of confidence that Netflix would survive.
Blockbuster could have been more gentle in their decline of Netflix, though the result would have been the same, as Netflix just did not have an enviable business model back in those days.
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It's interesting to note that Blockbuster unveiled their own online DVD rental service in 2004, four years after turning down Netflix and two years after Netflix went public.
Blockbuster's service did well and was pulling subscribers away from Netflix. In fact, Netflix had to respond to Blockbuster by lowering their fees in 2007.
Netflix ultimately launched a patent infringement lawsuit against Blockbuster, which the two sides ultimately ended up settling out of court.
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Netflix took its quantum leap as a company in 2007 when they announced their streaming service. While the service was initially panned, the company started to develop momentum once they got into the business of developing their own content. Netflix soared in popularity thanks to hits such as "Orange of the New Black" and "House of Cards", and the rest is history.
Blockbuster ultimately was stuck in an outdated business that couldn't keep up with modern times, and the company eventually went under due to declining revenues and a high debt load.
Did Blockbuster ultimately cause their demise by not buying Netflix in 2000? It's hard to make that argument, as Netflix's originally business model had an expiry date and it was only when they pivoted into streaming/original content that they took off.
Would Blockbuster have made that pivot if they had purchased Netflix in 2000? Probably not.
It's important to note that practically nobody would have thought that Blockbuster purchasing 49% of Netflix in 2000 was a good idea, especially given that the dot-com bubble was starting to implode.
It's an interesting urban legend that Blockbuster turning down Netflix ultimately resulted in their demise but there was much more to the story than that.
Filed under: General Knowledge