We are all familiar with the story of Blockbuster’s decline: Once a prominent presence on every high street, the American video rental store chain plummeted when it declined the opportunity to buy Netflix for just $50 million at the beginning of the century.
By 2010, Blockbuster had declared bankruptcy, and today only one store remains in Oregon. In contrast, streaming giant Netflix has surged in value to $268 billion—and this story is often cited as a cautionary tale about the repercussions of not adapting to modern times.
“I think the more important lesson—a lesson that Blockbuster learned too late—is simply this: If you are unwilling to disrupt yourself, there will always be someone willing to disrupt your business for you,” said Marc Randolph, who co-founded Netflix with Reed Hastings in 1997, last year.
But now, the former CEO of Blockbuster wants to correct the record. In an interview with Management Today, James Keyes claims that it was the media trial that ultimately led to the demise of the iconic company—not Netflix.
“When spin gets out there, it can create a run on the bank,” he said.
“There’s some kid on the couch, eating popcorn, saying ‘This is the guy that screwed up Blockbuster’,” he added. “I just think you have no idea what it took at the time to be able to withstand that storm.”
A ‘killer headline’ put the nail in Blockbuster’s coffin
Blockbuster’s financial situation was precarious when Keyes took over as CEO in 2007.
Coming from his successful stint at reviving 7-Eleven, where he was chief from 2000-2005, Keyes wasted no time in turning around Blockbuster.
Within a year, he had controversially reintroduced late fees that his predecessor had eliminated and acquired a video streaming company, Movielink, giving Blockbuster access to one of the largest online movie libraries at the time.
“We were well positioned to succeed over Netflix because we had arguably a better offer,” Keyes told Management Today.
The company’s cash flow crisis had been averted, and it had an exciting deal with Google in the works.
But everything fell apart when the media got hold of a damning Moody’s press release.
After the collapse of Lehman Brothers in 2008, the credit ratings agency reported that uncertainty in the financial markets increased Blockbuster’s likelihood of default.
A third of Blockbuster’s $1 billion debt needed refinancing in 2009, and Moody’s warned that the company might not be able to refinance its debt.
“The probability to fail just was a killer headline,” Keyes said. “All of a sudden, the press started saying Blockbuster was going to file for bankruptcy. We had no intention of doing so.”
The New York Post ran a half-page photo of him with a Pinocchio nose and the headline “Blockbusted” when Keyes denied that the company was going bankrupt.
“We had strategic partners that could have been game changers. I had a very strong board. I had Carl Icahn, who was very supportive early on. I had reason to have confidence at the time,” he added.
“But when spin gets out there, it can create a run on the bank.”
Ultimately, the bankruptcy headlines spooked the movie studios, leading them to shorten Blockbuster’s credit terms to cash payment, draining nearly $300 million from the Blockbuster system in a few weeks. On September 23, 2010, Blockbuster filed for Chapter 11 bankruptcy protection.
Keyes still haunted by the failure
Looking back, the public downfall of Blockbuster still haunts Keyes.
“When I google my name today, I’m still plagued with being the guy that failed to keep up with technology,” he said. “That hurts given the fact that my great purpose of being there was to embrace technology and take it to the next level.”
His lesson from the fallout? It’s not personal.
“That’s the number one lesson you have to take,” Keyes said, while noting that he has embraced a lesson from Nelson Mandela: “I never lose, I win or learn.”
“You run into obstacles, and it seems they are dire at the time and that you’ll never make it through,” he added. “Then you get to the other side, and you learn from the experience.”
Now that he’s overcome that hurdle, he would “absolutely do it all over again if I had the chance.”
