Netflix, Blockbuster, and Gandhi

GandhiYou can learn a lot from reading famous quotes.  A quote is usually inspirational in and of itself, but it will often times also lead you to learn about the person who said it.  And, learning about great people in history leads to even more inspiration and knowledge.  A lot of great quotes are analogies or metaphors for things you can relate to.  Some of the best resonate because of that fact.  The best analogies and metaphors relate to things that are observable in nature; this makes them universal because anyone can relate that has observed a natural phenomenon.

Gandhi once said “First they ignore you, then they laugh at you, then they fight you, and then you win”.  This phenomenon can be observed again and again.  It is a standard natural process that happens all the time.  It happens in sports.  You can see it in business.  You can see it everywhere.  One thing about this quote and process is how you can see it unfold over time.  Spot it in the early stage and you can make predictions that might not come true for some length of time.  Then when they do, the affirmation serves to reinforce your beliefs and remind you to stay true to your convictions.

The latest reminder of this famous quote happened just the other day as I was driving by two BlockBuster Video stores near my house.  They’re both closing.  It’s sad in this down economy to see more stores closing and knowing that more people are going to be out on the street here in Michigan and all around the country.  But, you could see it coming.  The decline of Blockbuster was a classic example of this Gandhi quote in action.

blockbusterWhen Netflix came on the scene, they were ignored by Blockbuster.  Blockbuster had just built an empire of brick and mortar stores that were shuffling with business.  Why would they concern themselves with Netflix. They were making money hand over fist because VCRs were hot and VHS tapes were being cranked out by the thousands still.  Hell, it seemed to me that they didn’t even think they needed DVD’s – they could convert their inventory to DVDs on their own time.  The DVD selection at Blockbuster was very limited even while Netflix had already seized the opportunity that the DVD market had provided.  Blockbuster was huge and it didn’t seem to matter to them that the ground was shifting.  They didn’t need to pay any mind to these fools at Netflix and their silly idea of mail delivered DVDs.  They ignored them.

netflix_logo_1As Netflix grew, they could no longer be ignored.  They had to be at least acknowledged by Blockbuster.  But, they were acknowledged as a joke.  This is where you could really see it coming.  It was still years off, but I just knew it because “we hold these truths to be self evident”.  Gandhi’s wisdom was prepared to prove itself true for the millionth time.    So out came the commercials that demonstrated acknowledgment and at the same time the fight was started that would ring Blockbusters death knell.

When Blockbuster finally had been served a loud enough wake up call and had slowly awakened from their slumber, it was really too late.  They started a campaign to incorporate a copy cat scheme of mailing DVDs that could be returned to the stores or returned by mail.  This may have looked good in a TV commercial, but it was fatal error because of its timing.  It costs money to implement anything.  Further, all implementations go through an evolution which costs more money.  Netflix had grown from nothing to develop an elaborate distribution network and had made money along the way.  Most of that money was money that was being diverted from Blockbusters former revenue stream.

This was a double whammy I’m sure.  I don’t have access to their books, but having been an accountant for 13 years for a large company, I could almost sense what was happening to their books and their cash flow:  Money from their revenue stream is being lost to Netflix, money from their reserves and operations was being diverted from profit to their copy-cat mail order implementation.  Compound that with the fact that they’re incurring heavy fixed costs for building leases, property taxes, and utilities at their physical stores.  We also can’t forget they were probably paying some fat cat salaries at the corporate office too.  Because everyone knows that where there are piles of money, there are corporate fat cats that could justify their bloated salaries to god himself, even as the company burns.  I’m sure that it was hellish to work as an accountant for Blockbuster over the past few years.

DVDObviously, I’m making some educated guesses about how it went down at Blockbuster’s corporate office, but it can’t be too far from true.  They were asleep at the wheel and lost their way.

So here we are today seeing the final chapter of what was once a giant healthy company.  A company that could have squashed Netflix if they had they had their finger on the pulse of their market.  If they were studying their market instead of counting their money they could have adapted.  They had plenty of time to do so.  But they didn’t.  And here we are today.  More empty stores and more people out on the street padding our unemployment numbers.  But, such is capitalism.

Where one fails, another can rise up.  And if Netflix can adapt to the next change, maybe they can survive.   They need to see the down-loadable movie taking shape.  Netflix needs to see the approaching obsolescence of the DVD and adapt as well.  If Netflix falls asleep at the wheel, the same thing will happen to them.

As Blockbuster makes their last ditch effort at the SD card kiosk, we’ll see if it’s not too little too late.

SDCARDKIOSK

2 Replies to “Netflix, Blockbuster, and Gandhi”

  1. hey, good post as such and good posts in general. Been a fan for some time now.

    Just a small point – It is spelled as Gandhi, not Ghandi. I know I come of as a nit-picker but he is someone i respect so i figured no harm in politely pointing it out.

  2. Thank you very much Vinayak. Gandhi is someone whom I respect as well and I really appreciate you pointing that out to me. I have made corrections. I also corrected the permalink out of respect knowing that the post’s URL will fall off of Google’s radar, not be re-indexed for a couple months, and lose its Google ranking. But that is okay, it is worth it to get it right; Gandhi deserves more deference than the Google bot.

    My mom was a school teacher and she taught my brothers and I about Gandhi when we were children. I am glad she did, he was a great man. Thank you for reading and pointing out the error.

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