[SPEAKER_01]: Dallas, Texas, September, 2000.
[SPEAKER_01]: Three men from California are sitting in a conference room that costs more per square foot than their entire office back in Scotts Valley.
[SPEAKER_01]: They're wearing clothes, you'd wear it to a barbecue.
[SPEAKER_01]: One of them, the co-founder, is wearing flip-flops.
[SPEAKER_01]: 12 hours ago, they were at a corporate retreat.
[SPEAKER_01]: Now, they're in the headquarters of a $6 billion empire about to ask for $50 million.
[SPEAKER_01]: On the other side of the table, sits a man whose loafers cost more than the co-founders car.
[SPEAKER_01]: He's tanned, relaxed, and confident.
[SPEAKER_01]: He runs 9,000 stores.
[SPEAKER_01]: He employs 84,000 people.
[SPEAKER_01]: He has just taken this company through an IPO that raised $450 million in cash.
[SPEAKER_01]: The man doing most of the talking is weed hay sticks.
[SPEAKER_01]: Tall, precise, a mathematician by training.
[SPEAKER_01]: He lays out the pitch.
[SPEAKER_01]: What if we join forces?
[SPEAKER_01]: Netflix.
[SPEAKER_01]: This scrappy little DVD by mail startup would run blockbusters online brand.
[SPEAKER_01]: Become blockbuster.com.
[SPEAKER_01]: In return, blockbuster would promote Netflix through its massive store network.
[SPEAKER_01]: Together, they'd own the future of home entertainment.
[SPEAKER_01]: Ed Steatt, Blockbuster's General Council, cuts through the pleasantries.
[SPEAKER_01]: He wants a number.
[SPEAKER_00]: Hastings doesn't flinch.
[SPEAKER_00]: $50 million.
[SPEAKER_01]: and that it happens.
[SPEAKER_01]: The corner of AntioCo's mouth twitches.
[SPEAKER_01]: He fights it.
[SPEAKER_01]: He tries to hold it in.
[SPEAKER_01]: But the laugh is already there, pulling at the edges of his composure.
[SPEAKER_01]: The CEO of the largest video rental company on Earth is struggling not to laugh in the faces of the men who just offered to sell him the future.
[SPEAKER_01]: He doesn't buy.
[SPEAKER_01]: He doesn't negotiate.
[SPEAKER_01]: He tells them that dot com bubble is overblown.
[SPEAKER_01]: Stead piles on.
[SPEAKER_01]: These internet businesses will burn cash forever.
[SPEAKER_01]: The meeting is over before it really even started.
[SPEAKER_01]: Mark Randolph, the co-founder and flipflops slumps in his seat on the chartered flight home.
[SPEAKER_01]: Nobody talks.
[SPEAKER_01]: Hastings has already moved on mentally, chewing on some other problem.
[SPEAKER_01]: Barry McCarthy, the CFO, is running numbers at his head.
[SPEAKER_01]: How many months of cash they have left, what rabbits he might pull from which hats?
[SPEAKER_01]: They'd come to Dallas looking for a lifeline,
[SPEAKER_01]: That meeting, that laugh, would become the most expensive joke in the history of American business.
[SPEAKER_01]: Within a decade, Blockbuster would be bankrupt, sold for scrap, Netflix would be worth $13 billion and climbing.
[SPEAKER_01]: Today, Netflix is worth over $400 billion.
[SPEAKER_01]: One single blockbuster store remains on Earth in a strip mall in Bend Oregon where tourists take selfies next to the last surviving relic of a fallen empire.
[SPEAKER_01]: This is the story of how a company that owned the world refused to spend $50 million to keep it.
[SPEAKER_01]: You're listening to corporate wars.
[SPEAKER_01]: I'm Tom and this is the $50 million dollar
[SPEAKER_01]: Act 1.
[SPEAKER_01]: The house that garbage built.
[SPEAKER_01]: Before we get back to that conference room in Dallas, we need to understand how blockbuster even became blockbuster.
[SPEAKER_01]: Because nobody starts a video rental empire on purpose.
[SPEAKER_01]: It starts with oil and garbage.
[SPEAKER_01]: The year is 1985, a man named David Cook runs a company called Cook Data Services out of Dallas, Texas.
[SPEAKER_01]: They make software for oil and gas companies.
[SPEAKER_01]: It's a solid business right up until the oil market collapses and his customers stop paying their bills.
[SPEAKER_01]: Cook's wife Sandy suggests he'd look into the video rental business, it's booming.
[SPEAKER_01]: Americans are buying VCRs like crazy, and every strip mall in the country has some dinghy little video store with sticky floors and a curtain-dough-back room.
[SPEAKER_01]: Cook, being a data guy, spends six months studying the industry.
[SPEAKER_01]: He builds a barcode based inventory system.
[SPEAKER_01]: Cutting edge for 1985 at a time when even grocery stores were still figuring out how to use scanners.
[SPEAKER_01]: And opens the first blockbuster video on October 19th, 1985.
[SPEAKER_01]: The store has 8,000 VHS tapes and 2,000 Betamax tapes, three times more than any competitor.
[SPEAKER_01]: It's clean, it's bright, there's no porn section, and here's a detail I love.
[SPEAKER_01]: Cook puts the actual tapes on the shelves for customers to pick up and carry to the counter.
[SPEAKER_01]: Most video stores kept them behind the register.
[SPEAKER_01]: Cook understood something basic about retail psychology.
[SPEAKER_00]: Once something's in your hand, you're far less likely to leave without it.
[SPEAKER_00]: opening night.
[SPEAKER_01]: The store is so moored they have to lock the doors to stop more people from getting in.
[SPEAKER_01]: Two years later a man named Wayne Huzanga shows up and this is where the story really begins.
[SPEAKER_01]: The Garbage King.
[SPEAKER_01]: Harry Wayne, who's anger, wasn't college dropout from a Dutch American family of trash hollers from Chicago.
[SPEAKER_01]: His grandfather had started a garbage collection business with a horse and wagon in 1894.
[SPEAKER_01]: Wayne, following the family trade, bought a single garbage truck in 1962 with a $5,000 loan from his father and started picking up trash in Fort Lauderdale.
[SPEAKER_01]: By the early 1980s, he'd rolled that truck into waste management ink, the largest garbage disposal company in the world valued at $3 billion.
[SPEAKER_01]: When his associate, John Melk, pitched him on blockbuster, was Ingres' response was, I don't own a VCR.
[SPEAKER_01]: But Wayne Huzinger didn't need to love movies.
[SPEAKER_01]: He loved acquiring things.
[SPEAKER_01]: He loved the rhythm of it, find a fragmented industry, buy up the little guys, consolidate and scale.
[SPEAKER_01]: He'd done it with garbage that he could do it with video tapes.
[SPEAKER_01]: In 1987, Huzengum and two partners invested $18.5 million for 60% of Blockbuster.
[SPEAKER_01]: Cook, whose vision was cautious franchise growth, clashed with Huzengu's appetite for acquisitions, and walked away.
[SPEAKER_01]: Huzengu took the wheel.
[SPEAKER_01]: What happened next was one of the most aggressive expansion campaigns in retail history.
[SPEAKER_01]: At its peak, Blockbuster was opening a new store every 17 hours.
[SPEAKER_01]: By 1994, it had 3600 locations, was pulling in $4 billion a year, and was larger than its next 375 competitors combined.
[SPEAKER_01]: inside the company, there was a phrase they used to describe their strategy, and I think it tells you everything you need to know about the culture.
[SPEAKER_01]: They called it, managed dissatisfaction.
[SPEAKER_01]: Here's how it worked.
[SPEAKER_01]: On a Friday or Saturday night, the new releases would fly off the shelves.
[SPEAKER_01]: You drive to Blockbuster, wanting the latest action movie, and it'd be gone.
[SPEAKER_01]: but Blockbuster carried far more back catalog titles than anyone else, and those older titles were cheap.
[SPEAKER_01]: Studios charged a fraction of what they charged for new hits.
[SPEAKER_01]: So most customers were shrug, grab something else, and have a decent enough evening.
[SPEAKER_01]: Nearly 70% of Blockbuster's rental revenue came from titles that weren't new releases.
[SPEAKER_01]: The customer was slightly disappointed.
[SPEAKER_01]: The company was extremely profitable, and that was the plan.
[SPEAKER_01]: Managed dissatisfaction.
[SPEAKER_01]: Remember that phrase, because one day, someone would come along and build an entire company on the principle of not disappointing customers, and Blockbuster would have no idea how to respond.
[SPEAKER_01]: The $8 billion exit,
[SPEAKER_01]: By the early 1990s, Huzanki could see storm clouds.
[SPEAKER_01]: Cable television was expanding.
[SPEAKER_01]: Paperview was emerging.
[SPEAKER_01]: The idea of video on demand movies piped straight into your home wasn't science fiction anymore.
[SPEAKER_01]: He tried to diversify, bond into Viacom, considered buying a cable company, even floated the idea of a 2,500 acre blockbuster theme park in Florida.
[SPEAKER_01]: None of it felt right.
[SPEAKER_01]: So, in 1994, unable to figure out how to future-proof the business, he did what dealmakers do.
[SPEAKER_01]: He sold.
[SPEAKER_01]: Viacom Bod Blockbuster for $8.4 billion.
[SPEAKER_01]: Huzengah step down to CEO that September.
[SPEAKER_01]: He went on to buy the Miami Dolphins, the Florida Panthers, and the Florida Marlins, because when you're Wayne Huzengah, sports teams
[SPEAKER_01]: After he left, Blockbuster went through CEOs like a revolving door.
[SPEAKER_01]: Stephen Barard lasted about 18 months.
[SPEAKER_01]: Bill Fields tried turning stores into many entertainment centers, selling t-shirts and toys alongside the tapes.
[SPEAKER_01]: He relocated the headquarters from Fort Lauderdale to Dallas, slashed two thirds of the staff, then left.
[SPEAKER_01]: The company was drifting.
[SPEAKER_01]: Then, in July 1997, a turnaround specialist from Brooklyn walked through the door.
[SPEAKER_00]: His name was John Antioceo.
[SPEAKER_00]: The Fixer.
[SPEAKER_00]: Antioca was the son of a milk man.
[SPEAKER_01]: He'd grown up in Brooklyn, earned his degree from the New York Institute of Technology, and spent twenty years at 7-11 working his way up from a management trainee at a stockroom.
[SPEAKER_01]: After that, he made his name parachuting into dying companies and dragging them back to life.
[SPEAKER_01]: When he arrived at Blockbuster, Casflow was down 70%.
[SPEAKER_01]: He shut down the music stores, killed the apparel experiments, got the company back to what it did best, renting movies.
[SPEAKER_01]: In 1999, he took Blockbuster through an IPO that raised $465 million.
[SPEAKER_01]: But here's the number that mattered more than any IPO.
[SPEAKER_01]: 800 million dollars.
[SPEAKER_01]: That's how much blockbuster collected in late fees in the year 2000.
[SPEAKER_01]: 16% of total revenue.
[SPEAKER_01]: If you returned to movie a day late, you were charged the full rental price again.
[SPEAKER_01]: Customers hated it.
[SPEAKER_01]: Survey said so.
[SPEAKER_01]: Common Sense did too.
[SPEAKER_01]: Everyone knew this.
[SPEAKER_01]: But $800 million is a powerful and aesthetic.
[SPEAKER_01]: When that much money is flowing in from customer penalties, you don't fix the problem.
[SPEAKER_01]: You manage around it.
[SPEAKER_00]: You tell yourself, it's the cost of doing business, and you keep caching the checks.
[SPEAKER_01]: This was Blockbuster at the dawn of the new millennium, nine thousand stores, six billion in revenue, 84,000 employees, the undisputed king of home entertainment, and completely structurally addicted to its own customers frustration.
[SPEAKER_01]: Meanwhile, in a converted bank building in Scott's Valley, California, two men were running
[SPEAKER_01]: a company that was bleeding money and running out of time.
[SPEAKER_01]: Act 2.
[SPEAKER_01]: The Carpool In 1997, Reed Hastings at Mark Randolph are commuting together from their home in Santa Cruz to the offices of Pure Aetria, a software company in Sunnyvale.
[SPEAKER_01]: It's a long drive.
[SPEAKER_01]: They fill the time the way a certain type of California fills the time by pitching business ideas.
[SPEAKER_01]: Randolph is an entrepreneur and a marketing guy.
[SPEAKER_01]: He admires Amazon and wants to build the Amazon of something.
[SPEAKER_01]: The problem is figuring out what that something should be.
[SPEAKER_01]: The ideas are terrible, personalized baseball bats, customized dog food, a shampoo by mail service.
[SPEAKER_01]: Hastings, who has cash from the $750 million sale of pure software, listens patiently and shoots them down.
[SPEAKER_01]: Then, DVDs enter the picture.
[SPEAKER_01]: The format has just launched in the US in early 1997.
[SPEAKER_01]: The discs are flat, light and nearly indestructible.
[SPEAKER_01]: And here's the test.
[SPEAKER_01]: Randolph and Hastings mail the CD, not even a DVD.
[SPEAKER_01]: They can't get their hands on one yet.
[SPEAKER_01]: To Hastings House, in a standard greeting card envelope.
[SPEAKER_01]: The next day, it arrives.
[SPEAKER_01]: No damage, no scratches.
[SPEAKER_00]: That's their proof of concept.
[SPEAKER_00]: Hastings puts in two and a half million dollars.
[SPEAKER_01]: They incorporate on August 29, 1997.
[SPEAKER_01]: The company's briefly called Kimball, a name that thankfully does not survive before their renamed Netflix.
[SPEAKER_01]: Now, there's a famous origin story you've probably heard.
[SPEAKER_01]: Read Hastings, rents Apollo 13 from Blockbuster.
[SPEAKER_01]: Returns it late, gets hit with a $40 fee, and has his eureka moment.
[SPEAKER_01]: It's a perfect little narrative.
[SPEAKER_01]: Hollywood could film it.
[SPEAKER_01]: Randolph later called it a convenient fiction, a marketing story they told because it explained it one clean sentence, why Netflix was better than the competition.
[SPEAKER_01]: The truth was messier, the way the truth usually is.
[SPEAKER_01]: Two guys in a car throwing spaghetti at the wall, waiting for anything to stick.
[SPEAKER_01]: Fun fact, Blockbuster actually asked Hastings to stop telling the
[SPEAKER_01]: They couldn't even find the transaction to their records.
[SPEAKER_01]: Netflix launches its website in April 1998 with 30 employees at 925 titles, nearly every DVD in print.
[SPEAKER_01]: The first disc mailed to a paying customer is Tim Burton's Beetlejuice.
[SPEAKER_01]: At first, they charge parental, just like a digital version of the local video store.
[SPEAKER_01]: That changes in September 1999 when they introduce a flat B monthly subscription.
[SPEAKER_01]: No late fees, no due dates.
[SPEAKER_01]: Keep the disc as long as you want.
[SPEAKER_01]: Send it back when you're done, and another one shows up.
[SPEAKER_01]: This is a bigger deal than it sounds.
[SPEAKER_01]: The subscription model doesn't just eliminate late fees.
[SPEAKER_01]: It eliminates the anxiety of renting.
[SPEAKER_01]: There's no ticking clock, no penalty.
[SPEAKER_00]: You're not being managed into dissatisfaction.
[SPEAKER_00]: You're being invited to relax.
[SPEAKER_00]: But the business is not relaxing.
[SPEAKER_01]: Netflix is burning cash.
[SPEAKER_01]: They're requiring customers but not fast enough.
[SPEAKER_01]: The dot com bubble is inflating and everyone can feel the air getting thin.
[SPEAKER_01]: Before the blockbuster meeting even happens, there's another near miss that deserves a mention.
[SPEAKER_00]: The Amazon offer.
[SPEAKER_01]: In the late 1990s, Hastings had ran off, sit down with Jeff Bezos.
[SPEAKER_01]: Amazon offers to buy Netflix for somewhere between $14 and $16 million.
[SPEAKER_01]: Randolph thinks it's fair, they're small, they're struggling, and Amazon is a fright-ray.
[SPEAKER_01]: But Hastings, who owns 70% of the company, kills the deal on the flight home.
[SPEAKER_01]: to rejected acquisition offers in two years, Amazon at 16 million, Blockbuster at 50.
[SPEAKER_01]: Netflix kept getting told no, but kept surviving anyway.
[SPEAKER_01]: There's something almost comic about it.
[SPEAKER_01]: A company nobody wanted to buy, becoming the company nobody could compete with.
[SPEAKER_00]: Act 3.
[SPEAKER_00]: The meeting.
[SPEAKER_00]: We're back, September 2000.
[SPEAKER_01]: And I want to slow this down because this is where the whole story turns.
[SPEAKER_01]: Netflix is in serious trouble.
[SPEAKER_01]: The dot con crash has arrived.
[SPEAKER_01]: Their stock price, if they were public, would be cradering along with everyone else's.
[SPEAKER_01]: Their on track to lose $50 million this year.
[SPEAKER_01]: They have maybe 300,000 subscribers, which sounds like a lot, until you remember that blogbuster has 65 million registered customers.
[SPEAKER_01]: Netflix is a rounding error.
[SPEAKER_01]: For months, they've been trying to get a meeting with Blockbuster.
[SPEAKER_01]: Calls, emails, intermediaries.
[SPEAKER_01]: Nothing.
[SPEAKER_01]: Blockbuster is just not interested in talking to a startup that sends DVDs through the mail.
[SPEAKER_01]: Then, the call comes.
[SPEAKER_01]: Blockbuster will see them.
[SPEAKER_01]: Tomorrow, 1130 a.m. in Dallas.
[SPEAKER_01]: It's evening.
[SPEAKER_01]: Hastings Randolph at CFO Barry McCarthy are at Netflix's first corporate retreat somewhere in rural California.
[SPEAKER_01]: Dallas is across the country.
[SPEAKER_01]: The meeting is in less than 12 hours.
[SPEAKER_01]: Randolph looks at the others.
[SPEAKER_01]: This is insane.
[SPEAKER_01]: Hastings does the math.
[SPEAKER_01]: If we charter a jet and leave it 5am, we'll get there in time.
[SPEAKER_01]: Probably even have enough time to grab an espresso.
[SPEAKER_01]: McCarthy raises the obvious objection.
[SPEAKER_01]: A charter jet isn't cheap.
[SPEAKER_01]: Hastings doesn't blink.
[SPEAKER_01]: They've been trying to get this meeting for months.
[SPEAKER_01]: They're on track to lose $50 million this year.
[SPEAKER_01]: Another 20,000 for a plane isn't going to change anything.
[SPEAKER_00]: The logic is hard to argue with.
[SPEAKER_00]: They book the flight.
[SPEAKER_00]: The next morning, they landed Dallas and walk into Blockbuster's headquarters.
[SPEAKER_01]: Glass, concrete, steel, corporate polish.
[SPEAKER_01]: Air conditioning turned up high enough to remind you that somebody here has money.
[SPEAKER_01]: Randolph, who packed for a retreat at not a boardroom, is wearing a t-shirt, shorts, and flipflops.
[SPEAKER_01]: He's the co-founder and first CEO of a company asking for $50 million, and he's dressed like he's about to order a smoothie.
[SPEAKER_01]: John Antioca walks in.
[SPEAKER_01]: No suit, but every piece of clothing communicates money.
[SPEAKER_01]: He's relaxed, he's confident.
[SPEAKER_01]: He's been running turn around for 20 years, and he just pulled this company through a half a billion dollar IPO.
[SPEAKER_01]: He has every reason to feel like the most important person in the room because he is.
[SPEAKER_01]: With him is Ed Stead, Blockbuster's General Counsel,
[SPEAKER_01]: Now, Randolph wrote about this moment in his memoir, and there's a detail that I keep coming back to.
[SPEAKER_01]: Before the pitch even starts, he notes something about the room, about the dynamic.
[SPEAKER_01]: He describes it like going into a negotiation where the other side holds almost all the cards.
[SPEAKER_01]: The key word being almost.
[SPEAKER_01]: Randolph knew this.
[SPEAKER_01]: Blockbuster knew this.
[SPEAKER_01]: The company had, as he put it, managed dissatisfaction as a central pillar of its business model.
[SPEAKER_01]: People didn't go to Blockbuster because they loved it.
[SPEAKER_01]: They went because there was nowhere else to go.
[SPEAKER_01]: That was Netflix's card.
[SPEAKER_01]: Not technology,
[SPEAKER_01]: Hastings makes the pitch.
[SPEAKER_01]: It's elegant.
[SPEAKER_01]: Netflix would become blockbusters online arm.
[SPEAKER_01]: They'd rebrand is blockbuster.com.
[SPEAKER_01]: Blockbuster would promote the online service through its 7,700 stores.
[SPEAKER_01]: At Netflix would handle the digital side of the business.
[SPEAKER_01]: Each company plays to its strengths.
[SPEAKER_01]: Blockbuster keeps its empire.
[SPEAKER_01]: Netflix gets a lifeline.
[SPEAKER_00]: Together, they future-proof the entire industry.
[SPEAKER_00]: He pauses.
[SPEAKER_00]: He looks at AntioCo, that it's dead, then back.
[SPEAKER_01]: He's made the sandwich as Randolph with later describe it.
[SPEAKER_01]: Now, he just needed them to take a bite.
[SPEAKER_00]: What are you thinking?
[SPEAKER_00]: A number.
[SPEAKER_00]: Hastings?
[SPEAKER_00]: 50 million dollars.
[SPEAKER_00]: Silence.
[SPEAKER_00]: and there it is.
[SPEAKER_00]: Antio goes face shifts.
[SPEAKER_01]: The corner of his mouth lifts.
[SPEAKER_01]: Not quite a laugh, not quite a sneer.
[SPEAKER_01]: It's something more involuntary.
[SPEAKER_01]: Something his body does before his brain can even stop it.
[SPEAKER_01]: He fights it, but anyone watching knows exactly what he's thinking.
[SPEAKER_01]: The dot com hysteria is completely overblown, he says.
[SPEAKER_01]: Stead backs him up.
[SPEAKER_01]: The business models of most online companies, Netflix included, aren't sustainable.
[SPEAKER_01]: They'll burn cash forever.
[SPEAKER_01]: McArthur and Randolph push back, pairing the objections.
[SPEAKER_00]: But the air has gone out of the room.
[SPEAKER_00]: The pitch is dead.
[SPEAKER_01]: McCarthy would later say they were laughed out of the room, Randolph wrote that he slouched in his seat on the plain home.
[SPEAKER_01]: Nobody talked.
[SPEAKER_00]: The silence of three men running out of options.
[SPEAKER_00]: The other side of the table.
[SPEAKER_01]: Now, to be fair, and this is important, because the story, as commonly told, makes Antioco look like a fool, and the truth, as it often is, is a lot more complicated than that.
[SPEAKER_01]: years later, Antiochopushed back.
[SPEAKER_01]: He wrote on LinkedIn that the meeting has been sensationalized.
[SPEAKER_01]: He said he wasn't even in the main part of the meeting.
[SPEAKER_01]: He'd stopped by briefly to greet the visitors as was his custom.
[SPEAKER_01]: He said there were never serious acquisition talks.
[SPEAKER_01]: He acknowledged that Netflix visited and apparently offered to self for 50 million.
[SPEAKER_01]: But he described it as in, off the cuff remark during a broader licensing discussion and not a formal
[SPEAKER_01]: And he made a point that nobody likes to talk about.
[SPEAKER_01]: At the time, nobody, including Netflix, believed the company was worth $50 million.
[SPEAKER_01]: Netflix was unprofitable.
[SPEAKER_01]: It was a DVD by mail service in a world where DVD players were still a luxury item.
[SPEAKER_01]: The Dot Com bubble was actively bursting.
[SPEAKER_01]: Antioco skepticism about internet business was, in hindsight, correct for about 90% of the companies it applied to.
[SPEAKER_01]: The problem is, that Netflix turned out to be in the other 10%.
[SPEAKER_01]: Clayton Christensen, the Harvard professor who literally wrote the book on disruptive innovation, later used this exact case study.
[SPEAKER_01]: His argument was that Blockbuster's decision to ignore Netflix was actually rational at the time.
[SPEAKER_01]: Netflix served at niche, movie buffs, early adopters at DVD players, habitual online shoppers.
[SPEAKER_01]: It wasn't surfing blockbusters core customer.
[SPEAKER_01]: It only became an existential threat later when new technology, streaming, allowed it to move from the fringe into the mainstream.
[SPEAKER_01]: That's how disruption works.
[SPEAKER_00]: It looks harmless right up until it isn't.
[SPEAKER_00]: But here's what I keep thinking about.
[SPEAKER_01]: Antiochos read on the dot com market was right.
[SPEAKER_01]: His read on Netflix wasn't.
[SPEAKER_01]: And the gap between those two things between being corrected in general and catastrophically wrong in the specific is how empire's die.
[SPEAKER_00]: Act four, the deal with the devil.
[SPEAKER_01]: Here's an irony so thick you could choke on it.
[SPEAKER_01]: In the same year that Blockbuster laughed at Netflix's $50 million offer, they signed a different deal, a 20 year exclusive partnership, the partner, and Ron.
[SPEAKER_00]: Yeah, that and Ron.
[SPEAKER_01]: In July 2000, and Ron brought band services at Blockbuster announced a deal to bring video
[SPEAKER_01]: the vision was ahead of its time.
[SPEAKER_01]: Streaming movies over the internet, straight into your TV.
[SPEAKER_01]: Seven years before Netflix would actually do this, and Ron was trying to build the infrastructure and blogbuster would supply the content.
[SPEAKER_01]: At the time, Enron was the darling of Wall Street, on the cover of every magazine, named the most innovative company in America by fortune.
[SPEAKER_01]: Nobody questioned Enron, if you did, their CEO Jeff Skilling would call you an exploitive on a shareholder earnings call, which he actually did.
[SPEAKER_01]: but the deal was a mirage.
[SPEAKER_01]: Blockbuster couldn't deliver the content.
[SPEAKER_01]: Studios were terrified of releasing films for streaming before digital rights management was figured out.
[SPEAKER_01]: Only two studios, Universal and MGM signed on, and only for a handful of films.
[SPEAKER_01]: The technology wasn't ready.
[SPEAKER_01]: The trial reached 300 households.
[SPEAKER_01]: The actual revenue was, and I'm not making this up,
[SPEAKER_01]: Meanwhile, Enron used Mark to market accounting to book $110 million in projected future profits from this deal, immediately.
[SPEAKER_01]: When Blockbuster pulled out in early 2001, Enron didn't write down the losses.
[SPEAKER_01]: They kept claiming the money.
[SPEAKER_01]: This deal became one of the threads that unraveled the Enron scandal.
[SPEAKER_01]: Two Enron broadband executives were later charged with fraud, conspiracy, and false statements related to the blockbuster partnership.
[SPEAKER_01]: The code name for the deal inside Enron was Braveheart.
[SPEAKER_01]: so to recap.
[SPEAKER_01]: In the year 2000, Blockbuster was presented with two options.
[SPEAKER_01]: On one hand, a scrappy DVD company that understood the internet and wanted $50 million.
[SPEAKER_01]: On the other, the most fraudulent corporation in modern American history, offering a 20-year fantasy
[SPEAKER_00]: Act 5, the comeback that almost was.
[SPEAKER_01]: Now, here's where the story takes a turn that most people don't even know about, because Blockbuster didn't just sit there and die.
[SPEAKER_01]: For a brief, remarkable window, they nearly won.
[SPEAKER_01]: After Netflix went public in May 2002, opening on the NASDAQ at $15 a share, Antioch
[SPEAKER_01]: The subscriber number's Netflix was reporting were real.
[SPEAKER_01]: The growth was real.
[SPEAKER_01]: This was no longer a niche curiosity.
[SPEAKER_01]: He appointed a team to build an online competitor.
[SPEAKER_01]: They were given a $25 million budget until to figure it out on their own.
[SPEAKER_01]: They weren't allowed to use Blockbuster's existing customer database.
[SPEAKER_01]: They couldn't bother store managers.
[SPEAKER_01]: They were, essentially, a startup operating inside a company that didn't want them there.
[SPEAKER_01]: This is textbook innovators to lemma.
[SPEAKER_01]: The existing business takes all the resources, the new venture gets the scraps.
[SPEAKER_01]: But then, following an intense management blow up in 2004,
[SPEAKER_01]: $200 million for an online DVD subscription service.
[SPEAKER_01]: Another $200 million to eliminate late fees.
[SPEAKER_01]: Killing late fees was a grenade thrown into blockbusters' own balance sheet.
[SPEAKER_01]: The move produced a 5% bump at rental volume, but vaporized $600 million in annual revenue overnight, $600 million.
[SPEAKER_01]: God.
[SPEAKER_01]: Shareholders were furious.
[SPEAKER_01]: Then came the stroke of genius.
[SPEAKER_01]: In 2006, Antiocholonched Blockbuster Total Access.
[SPEAKER_01]: And this, this was the thing that Netflix couldn't match.
[SPEAKER_01]: Total Access was a hybrid.
[SPEAKER_01]: You'd sign up for online DVD rentals, just like Netflix.
[SPEAKER_01]: But when you were done with a disc, you could return it to any physical blockbuster store.
[SPEAKER_00]: And when you did, you'd walk out with another movie immediately for free.
[SPEAKER_00]: So think about that.
[SPEAKER_01]: Netflix nails you a disk, you nail it back, wait a few days, get another one.
[SPEAKER_01]: Total access lets you walk into a store, hand over the disk, and leave with something new right now.
[SPEAKER_01]: It was the best of both worlds, the convenience of online with the immediacy of physical.
[SPEAKER_01]: And Netflix had no stores.
[SPEAKER_01]: This was something they couldn't copy.
[SPEAKER_01]: By early 2007, the numbers were extraordinary.
[SPEAKER_01]: Blockbuster Online was adding 800,000 subscribers in the first quarter alone, compared to Netflix's 487,000.
[SPEAKER_01]: And Netflix's growth was down 30% from the previous year.
[SPEAKER_01]: In one quarter, Netflix actually lost 55,000 subscribers.
[SPEAKER_01]: The trend was reversing.
[SPEAKER_01]: Mark Randolph Netflix's co-founder later admitted this had been a very scary moment.
[SPEAKER_00]: He called what happened next, one of the luckiest breaks in corporate history.
[SPEAKER_00]: Reed Hastings didn't delude himself.
[SPEAKER_00]: He could see the threat.
[SPEAKER_01]: In January 2000, just two and a half months after total access launched, he set up a meeting with Antioco, a serious one.
[SPEAKER_01]: The tables had completely turned since 2000.
[SPEAKER_01]: Netflix was now the one sweaty.
[SPEAKER_01]: Hastings was willing to pay a premium to make blockbusters online operation, go away.
[SPEAKER_01]: There were actual M&A discussions between the two companies, and then a man named Carl Iken, burned it all down.
[SPEAKER_01]: The Raider Carl Iken is one of the most feared activist investors in American financial history.
[SPEAKER_01]: In 2005, he acquired nearly 10% of blockbuster stock, launched a proxy fight, and won seats on the board for himself and two allies.
[SPEAKER_01]: Icon in Antioco classed immediately.
[SPEAKER_01]: Icon thought eliminating late fees was reckless.
[SPEAKER_01]: A $600 million gift to customers funded by Shareholder value.
[SPEAKER_01]: He hated the money being poured into the online business.
[SPEAKER_01]: He wanted profits.
[SPEAKER_01]: He wanted dividends.
[SPEAKER_01]: He wanted blockbuster to act like the retail chain it was and not pretend to be a tech company.
[SPEAKER_01]: Antiochoo had a closet his contract.
[SPEAKER_01]: If Blockbuster fired him, he was owed $54 million.
[SPEAKER_01]: I couldn't afford to pull the trigger.
[SPEAKER_01]: So he did something worse.
[SPEAKER_01]: He ground Antiochoo down.
[SPEAKER_01]: Demanded board meetings at his own office.
[SPEAKER_01]: Second guest every strategic decision.
[SPEAKER_01]: Publicly criticized the CEO's compensation.
[SPEAKER_01]: It was psychological warfare, corporate
[SPEAKER_01]: The breaking point came in late 2006 when Antioca was owed a bonus of $7.6 million.
[SPEAKER_01]: Icon went ballistic.
[SPEAKER_01]: He wanted it cut in half.
[SPEAKER_01]: that dispute escalated into a proxy war over the entire direction of the company.
[SPEAKER_01]: Antioco exhausted, called Icon.
[SPEAKER_01]: Over a long-foned conversation, they hammered out a deal.
[SPEAKER_01]: Antioco would leave, taking roughly 3 million in bonus and 5 million as severance.
[SPEAKER_01]: He donated the full bonus to the Boys and Girls Club of America.
[SPEAKER_01]: And here's a detail that should haunt everyone involved in this story.
[SPEAKER_01]: After leaving Blockbuster, John Antioco sold his shares in the company.
[SPEAKER_01]: He took the proceeds and invested them in Netflix stock.
[SPEAKER_00]: At around $20 a share.
[SPEAKER_00]: The Man From 7-Eleven.
[SPEAKER_01]: Icon's replacement was Jim Keyes, the former CEO of 711.
[SPEAKER_01]: Keyes came from convenient stores.
[SPEAKER_01]: He thought in terms of foot traffic, store layouts, product mix.
[SPEAKER_01]: He had no background in digital, and he had a very specific mandate from the board and from Icon.
[SPEAKER_01]: Cut costs, grow revenue, pay down debt.
[SPEAKER_01]: Keys looked at Total Access, the program that was beating Netflix, and he saw a money pit.
[SPEAKER_01]: Every in-store exchange was a loss.
[SPEAKER_01]: The marketing budget was massive, so he did what the board wanted him to do.
[SPEAKER_01]: He slashed the total access marketing budget, raised prices for online customers, and redirected investment back into physical stores.
[SPEAKER_01]: Total access, withered.
[SPEAKER_01]: Subscribers stopped coming.
[SPEAKER_01]: Netflix, which had been genuinely afraid six months earlier, suddenly found itself alone again.
[SPEAKER_01]: in 2008, Jim Keyes gave an interview in which he said, and this is a direct quote, that neither Netflix nor Red Box was on his radar as a competitive threat.
[SPEAKER_01]: Netflix launched its streaming service in 2007.
[SPEAKER_01]: By 2008, the future of home entertainment was obvious to everyone except for the man-running blockbuster.
[SPEAKER_01]: In 2010, under keys, Blockbuster reinstated the late fees that Antioco had killed five years earlier.
[SPEAKER_01]: That same year, they filed for Chapter 11 bankruptcy.
[SPEAKER_01]: One billion dollars in debt.
[SPEAKER_01]: The company was valued at $24 million.
[SPEAKER_01]: Half of what Netflix had asked Blockbuster to pay for it a decade earlier.
[SPEAKER_01]: Netflix at that point was worth $13 billion.
[SPEAKER_01]: Carl Icon reflecting on the disaster later wrote something remarkable.
[SPEAKER_01]: He called blockbuster the worst investment I ever made.
[SPEAKER_01]: He admitted the board might have made a mistake in replacing Antioca with keys.
[SPEAKER_01]: And then he said this.
[SPEAKER_01]: To this day, I don't know what would have happened if we'd avoided the big blow up over Antioca's bonus at he'd continued growing total access.
[SPEAKER_00]: Yeah, they might have.
[SPEAKER_00]: Act six, the last store on Earth.
[SPEAKER_01]: On December 23, 2010, a few weeks before its 25th birthday, Blockbuster filed for bankruptcy.
[SPEAKER_01]: DishNetwork bought the remains in April 2011 for $320 million.
[SPEAKER_01]: They kept about 500 stores open at first.
[SPEAKER_01]: Then, they started closing them.
[SPEAKER_01]: By January 2014, the last corporate-owned location shut its doors.
[SPEAKER_01]: International operations had already folded.
[SPEAKER_01]: Canada in 2011, the UK in 2013.
[SPEAKER_01]: A handful of independently owned franchise locations clung on.
[SPEAKER_01]: By 2019, there was one.
[SPEAKER_01]: A store in a strip mall at the corner of Revere Avenue and Highway 20 in Bend, Oregon.
[SPEAKER_01]: It's still there.
[SPEAKER_01]: The store was opened in 1992 by Ken and Debbie Tischer and their two teenagers.
[SPEAKER_01]: It's managed by a woman named Sandy Harding.
[SPEAKER_01]: The carpets are gray.
[SPEAKER_01]: The popcorn ceilings haven't been updated since 2006, 20 years ago.
[SPEAKER_01]: the fluorescent lights, hum the way they always did.
[SPEAKER_01]: The wire racks still hold DVD cases, and they give off that particular plastic smell that anyone over 30 will recognize immediately.
[SPEAKER_01]: They stock about 1200 titles and have roughly 4,000 members who still rent regular
[SPEAKER_01]: There's a small museum section with film memorabilia, Russell Crow's jog strap from Cinderella Man is on display, a gift originally donated to the last Alaska store during a segment on last week tonight with John Oliver.
[SPEAKER_01]: In 2020, the store was listed on Airbnb for $90 sleepovers on an air mattress in the middle of the rental floor, limited to local residents because of COVID.
[SPEAKER_01]: All three nights sold out.
[SPEAKER_01]: can t-shirt still pays dish net work in annual licensing feed to use the blockbuster name.
[SPEAKER_01]: The merchandise, t-shirts, hats, mugs, they keep the lights on.
[SPEAKER_01]: From 9,000 and 94 stores to 1, from $6 billion in revenue to a gift shop.
[SPEAKER_01]: from an empire that covered the earth to a tourist attraction in a central Oregon strip mall where people take selfies next to a sign that used to mean entertainment.
[SPEAKER_01]: And Netflix, they went public in 2002 at $15 a share, launched streaming in 2007, started
[SPEAKER_01]: Today, they have over 280 million subscribers in 190 countries.
[SPEAKER_01]: Their market cap sits above 400 billion dollars.
[SPEAKER_01]: In late 2025, Netflix agreed to acquire the studio and streaming divisions of Warner Bros.
[SPEAKER_01]: Discovery, the company behind HBO, for somewhere around $70 to $80 billion.
[SPEAKER_01]: The DVD by Mail start-up that Blockbuster laughed at for asking for $50 million is now buying the studio system itself.
[SPEAKER_00]: So, what's the lesson?
[SPEAKER_00]: Because they're hard of view, but they don't all point the same way.
[SPEAKER_01]: Now the easy story is that blockbuster was stupid and Netflix was smart.
[SPEAKER_01]: But that's not really true.
[SPEAKER_01]: John Antioca was not a stupid man.
[SPEAKER_01]: He turned the company around.
[SPEAKER_01]: He saw the online threat eventually.
[SPEAKER_01]: He built total access and it worked.
[SPEAKER_01]: He was making all the right moves.
[SPEAKER_01]: He was just making them inside a system that couldn't tolerate the cost of change.
[SPEAKER_01]: The harder story is about addiction, $800 million in late fees.
[SPEAKER_01]: The company built its revenue on the one thing its customers hated the most, and when the moment came to give that up, to take the short-term pain for the long-term survival, the shareholders would it allow it.
[SPEAKER_01]: Carl Icon didn't kill Blockbuster because he was stupid.
[SPEAKER_01]: He killed it because he was rational on a quarterly timeline.
[SPEAKER_01]: The hardest story is about timing.
[SPEAKER_01]: Antioco in 2000 was wrong to dismiss Netflix, but he wasn't wrong about the dot com bubble.
[SPEAKER_01]: It was overblown, and most of those companies did burn cash until they vanished.
[SPEAKER_01]: He was right about 90% of the market, and wrong about the 10% that actually mattered.
[SPEAKER_01]: and the difference between those two things, between a good general assessment, but a fatal specific one, is where the entire history of this industry pivots.
[SPEAKER_01]: One twitch of the mouth, one stifle laugh, fifty million dollars they never spent.
[SPEAKER_01]: The most common version of this story ends with Blockbuster's stupidity, but I think the real ending is something quieter and worse.
[SPEAKER_01]: It's a guy named John Antioco sitting at home in 2010 watching Netflix on his TV.
[SPEAKER_01]: The stocky bought at $20 a share, climbing to $100, $200, $500, a thousand.
[SPEAKER_01]: He had figured it out in the end, just not in time, and not in a room where it counted.
[SPEAKER_01]: That was the $50 million laugh.
[SPEAKER_01]: Netflix vs. Blockbuster.
[SPEAKER_01]: You've been listening to Corporate Wars.
[SPEAKER_01]: If this episode made you think, share it with someone who'd appreciate it.
[SPEAKER_01]: And if you haven't already, subscribe wherever you get your podcasts so you don't miss what's coming next.
[SPEAKER_01]: Because next time on Corporate Wars, we're telling a very different kind of story.
[SPEAKER_01]: It's not about boardrooms or billion dollar valuations.
[SPEAKER_01]: It's about a factory floor in New Jersey in the 1920s.
[SPEAKER_01]: About young women painting watch dials with radium-laced paint.
[SPEAKER_01]: Told it was safe, told to lick their brushes to get a finer point.
[SPEAKER_01]: about what happened to their bodies when the radiation set in, and about how they fought back against the corporation that poisoned them, and changed American labor law forever.
[SPEAKER_01]: Next episode, the Radium Girls, the horrifying negligence of the U.S. Radium Corporation, and the women who fought back.
[SPEAKER_01]: I'm Thomas Lev Krebsel, and I'll see you then.