Blockbuster Bankruptcy: Survival of the Fittest

In 2010, Blockbuster filed for bankruptcy when they nearly had $1 billion in debt with $170 million being in liabilities for customers, suppliers, employees, and movie studios. The article that I read said bankruptcy was due to “mounting losses, rising debt and competitors”, but I believe there were more factors behind the bankruptcy. Perhaps the actual problem wasn’t from competitors and technological advancements, but from the company’s internal and external decisions, and Blockbuster’s inability to adapt.

Since the advancement of Netflix and online movie streaming, peoples’ demand to rent out movies is decreasing. The hassle to go out to the store and pick up the movie was not favorable compared to viewing movies with Netflix that has a better value proposition of either video-on-demand services or delivering the DVD right to your doorstep through mail. So why didn’t Blockbuster follow in the footsteps of Netflix? At the same time, Blockbuster had too much retained earnings, opening 6,500 stores across the world. If the company was $1 billion in debt by 2010, wouldn’t Blockbuster’s managerial and financial accountants have noticed the decrease in revenue, and tried to cut expenses instead of investing money on all the fees to run a store, and all the payment for every employee, manager, and distributor? Blockbuster had the resources; however they refused to change their business model to one that included a multi distribution channel to make it more convenient for the customers.

Image:http://www.bitterwallet.com/wp-content/uploads/2010/03/Blockbuster_Video_eps.png