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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]