Fast Company

Blockbuster's Largest Shareholder Calls Blockbuster Worst Investment Ever Made

Finally! Admission of wrongdoing!

After years as Blockbuster's largest shareholder, Carl Icahn, who at one point amassed some 17 million shares of the now-bankrupt company, has called Blockbuster "the worst investment I ever made."

In a candid piece written for the Harvard Business Review, Icahn opens up about the rental giant's struggles and failures in an ever-changing industry.

"[Blockbuster] failed because of too much debt and changes in the industry. It had too many stores, Netflix created a better business model, and then Redbox kiosks and the whole digital phenomenon eliminated the need for consumers to go to a separate DVD store," Icahn wrote. "Maybe the board did make a mistake in picking Jim Keyes as [John] Antioco’s successor—Keyes knows retailing and did an excellent job with the stores, but he isn’t a digital guy."

Icahn's comments are especially refreshing given Blockbuster's typical penchant for denial. In a series of interviews with Fast Company, Blockbuster CEO Jim Keyes (who replaced the company's former head John Antioco after a spat with Icahn over his bonus) held what we called an almost delusional optimism for the company. (Keyes once compared Blockbuster's potential for comeback to Apple in the late 1990s.) When asked whether Netflix was partly responsible for Blockbuster's financial troubles, for example, Keyes said, "No, I don't know where that comes from." And when asked whether Netflix could ever overtake Blockbuster as a global market leader, Keyes added, "I don’t even--we have such different business models ... I think we co-exist quite well with Netflix."

Of course, as Icahn essentially argues, Netflix and Blockbuster did not co-exist well at all. Netflx had a better business model, Icahn says, because Blockbuster strayed from its digital efforts.

"I also think Antioco did a good job in executing on Blockbuster’s Total Access program, which allowed customers to rent unlimited movies online and in stores," he wrote. "Over time it might have helped Blockbuster fend off Netflix. But Keyes felt the company couldn’t afford to keep losing so much money, so we pulled the plug. To this day I don’t know what would have happened if we’d avoided the big blowup over Antioco’s bonus and he’d continued growing Total Access. Things might have turned out differently."

But as any Blockbuster shareholder can attest, Blockbuster was unable to fend off Netflix. Competitors continues to pummel the stagnantly innovative company until its shareprice and valuation dropped so low that it was de-listed from the New York Stock Exchange and forced to file for bankruptcy.

Not that Blockbuster's head of digital strategy Kevin Lewis was too concerned. In the weeks before filing for bankruptcy, Lewis told Fast Company, "We're strategically better positioned than almost anybody out there ... if you asked me in 2009 whether we'd be the only one in the mobile space selling movies other than Apple and whether we'd have Blockbuster On Demand--never in my wildest dreams would I have aimed this high."

That type of echo chamber-management is exactly what led to Blockbuster's demise.

[Image by AMH]

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6 Comments

  • NicoleTee

    Despite this very strong article I’m glad that Blockbuster is not gone and will be keeping around for future generations. I work for DISH Network and when I heard that they brought onboard Blockbuster I could only think of the unlimited possibilities of their joined entertainment arsenal. I do know that DISH is already offering their new customers 3 months free of Blockbuster’s newest services. http://goo.gl/wuMrN

  • NicoleTee

    Despite this very strong article I’m glad that Blockbuster is not gone and will be keeping around for future generations. I work for DISH Network and when I heard that they brought onboard Blockbuster I could only think of the unlimited possibilities of their joined entertainment arsenal. I do know that DISH is already offering their new customers 3 months free of Blockbuster’s newest services.  <http: goo.gl="" wumrn=""> </http:>

  • x181

    Poor inventory management, disorganized shelf inventory, insufficient stock and obscene prices had nothing to do with it I suppose. It wasn't just the digital market takeover; walking into Blockbuster felt like walking into a Kmart store.

  • A.J. Horst

    Blockbuster is a very upsetting story about incompetent management driving a company into the ground.

    I actually had direct experience dealing with with blockbuster's upper management in 2007 when they were planning how to handle the "Netflix Problem." Back then, I was a salesguy for Internap...which had a content delivery network that would enable blockbuster to provide a Netflix streaming type experience. Upper management was adamant that streaming video over the Internet was too complicated for the customer, and that it would never catch on.

    The sad part is that Blockbuster employed some truly gifted and passionate engineers who were more than capable of building out a streaming service that would make Netflix look like it was put together by a bunch of amateurs. They also had the connections in the film and television industry to get content of far better quality than Netflix had at the time. I tried to stress to them that at the time (early 2007) it might be too difficult for a consumer to stream content to their TV via the internet, but Blockbuster themselves could make it easier. Most of lower level management agreed, but Keys and the people kissing his butt wouldn't listen. Their stance was that nothing can compete with their brick and mortar presence.

    The article was correct about Blockbuster being delusional. For the past 5 years they have been like a horse and carriage company trying to hang on to the way they do business. Its painful to see a Global 500 company based in Dallas (Where I'm from) fall like this, and it's 100 percent their fault.

    A.J. Horst
    President - 3Boost

  • Scott Byorum

    Finally! Admission of wrongdoing!

    After years as Blockbuster's largest promoter of its failed policies, Fast Company has produced an article that confirms that Blockbuster is "the worst investment of lead story time we ever made."

    (insert tongue firmly in cheek)

    I will forgive you based on that supurbly apocalyptic picture alone.

  • Max Yoder

    Give it time; Blockbuster will make a comeback. People will start missing their over-priced movies, lackluster service, and nifty identification cards.

    But seriously, who is this CEO? Publicly ignoring the obvious competitor makes you look loony. Admit that you've rested on your laurels, commit to building a leaner organization, and then get to work. Don't act like your competition is in a completely different space when they've been eating your lunch for more than a year. Act hungry, not half-witted.