Why Blockbuster Was Right To Not Buy Netflix

Every now and then, you see people talk about how Blockbuster not buying Netflix was one of the worst financial decisions in history. That's arguable, but what people are usually trying to say is that Blockbuster made a stupid decision, and anybody with a brain would have taken the deal. I want to push back on that.

The deal in question was an offer to buy Netflix for $50,000,000 back in 2000. It's been quite a while, but I'm sure most people who were alive back then have some vague memory of dialup internet. If you don't, the key takeaway is that it was slow, very slow. You weren't watching any shows you got online unless you spent literal hours downloading it. Streaming requires downloading footage at least as fast as you watch it, so that wasn't an option at all. Even though it's now known for streaming, the business model for Netflix at the time was to mail out DVDs that were ordered on the internet. When the customer was done with them, they mailed the DVDs back. It worked well, but it wasn't the revolutionary change that made Netflix into a billion dollar company. At the time that the offer was made, the economy was in a recession because the dot-com bubble burst and countless promising internet startups were going under. From the perspective of Blockbuster, you have an internet startup with an easily replicated business model that had a massive chance of going under in a year offering to let you buy them so they won't become a competitor in case they survive. Even though they were wrong, it made perfect sense to think that Netflix wouldn't become an issue for them in the future.

As anybody who was alive at the time can tell you, Blockbuster didn't quickly die after passing up that deal. Shortly after this happened, Blockbuster entered the online DVD rental business themselves, even becoming a serious competitor to Netflix. They also started to offer streaming services in 2007 as soon as the technology was ready, just like Netflix. The reason why people don't mention this, I think, is because streaming was still rare back in 2007 and because Blockbuster was already starting to lose its popularity before streaming even became a thing. Either way, it's not like Blockbuster stubbornly sat still while Netflix (and nobody else) went ahead to pioneer movie streaming. If Blockbuster actually had purchased Netflix, there's a good chance that some other company would have beaten Blockbuster on streaming and killed the company themselves.

The real reason for why Blockbuster died isn't really clear. Some people say that it was bad leadership, other people say that it was because of excessive late fees, but I don't think anybody who wasn't there when it happened really knows. Personally, I think Netflix had fairly little to do with it. All I know is, the death of Blockbuster wasn't because of a small mistake that only seems dumb in hindsight.