Did You Know That Blockbuster Once Had a Chance to Buy Netflix for a Mere $50 Million?

You've probably heard that Blockbuster has closed its remaining 300 company-owned stores (what? They still had 300 stores?), which marks an end of an era of what used to be the dominant player in the video rental industry.

Blockbuster, which at its height had 9,100 stores around the world - more than half of that in the United States, became a dinosaur almost overnight. Its business of renting video tapes, then DVDs and video games, suffered from the rise of Netflix's rental-by-mail (which then evolved to streaming over the Internet) and cheaper competitors like RedBox.

But did you know that the once-mighty Blockbuster had a chance to buy Netflix for a mere $50 million but passed? And if you thought that was a bad decision, just wait till you find out what Blockbuster did instead. Boy, don't they wish they could rewind time.

Here's the story.

In 1997, Reed Hastings rented a copy of Apollo 13 in his local Blockbuster store. He returned it late and was socked with a $40 late fee. "It was six weeks late and I owed the video store $40. I had misplaced the cassette," Hastings said, "It was all my fault. I didn't want to tell my wife about it. And I said to myself, 'I'm going to compromise the integrity of my marriage over a late fee?'" Later, on his way to the gym, Hastings realized that there's a much better business model: a flat-rate rental service with unlimited due dates and no late fees, and Netflix was born.

Fast forward a couple of years. Hastings' fledling Netflix was growing but like many startups, it had cash flow problems. So it tried to sell itself to none other than Blockbuster. A former high-ranking Blockbuster executive told Jill Goldsmith of Variety, "We had the option to buy Netflix for $50 million and we didn't do it. They were losing money. They came around a few times."

And what did Blockbuster do instead of buying Netflix? In 2000, they signed a 20-year exclusive video-on-demand agreement with Enron, as the energy company tried to launch into telecom. Yes, that Enron that failed spectacularly because of the 2001 accounting scandal. Blockbuster canceled the pact after only 9 months.

Netflix solved its problems and went on to go public in 2002. It currently has over 36 million subscribers worldwide and is worth nearly $20 billion.

And Blockbuster?

You already know how that movie ends.

See also: Blockbuster's Very Last Movie Rental (and man, is it appropriate!)

Image: Chris Green / Shutterstock.com


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Not just low cost Internet - but also a change in the medium itself: from cassette to DVD to streaming. Blockbuster did try to do their own streaming service, but half-heartedly because that meant cannibalizing their own stores. Ultimately, when they decided to do it full bore, it was too late.
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Another brick and mortar company killed by low cost internet. What saddens me is the loss of local, low education needed jobs : those are my neighbors' jobs...
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