Say Goodbye to Physical Media

Netflix without Netflix

As I have noted somewhere on this site... somewhere before... I used to work at Blockbuster Video. This was way back in the day, back before they were even close to going bankrupt (although I could still tell the signs of their collapse were coming). I served three different stints at "Big Blue", at the time when calling them "Big" wasn't ironic, and I worked both for the corporate company as well as one of their largest franchises. For the record, none of those store exist now, and they've been gone a very, very long time. It was sad, I still haven't recovered.


I mention this because the dawn of Blockbuster's downfall came from, at the time, one little company with a big idea: what if we disrupt how people rent movies. That company was, of course, NetflixOriginally started as a disc-by-mail service, Netflix has grown to be one of the largest media companies in the world (and one of the most valued internet companies as well). With a constant slate of new internet streaming-based programming that updates all the time, Netflix has redefined what it means to watch TV and films (as well as how to do it). and their big idea was sending people DVDs by mail. If you haven't ever been to a video rental store, let's take a moment to discuss why that was such a big deal, and to do that we have to first touch upon DVDs, those little discs that, increasingly, people seem to ignore completely.

At the height of Blockbuster's dominance, when there was a video rental store in every shopping center and even grocery store chains had their own little rental kiosks in the store (and not just a Redbox outside), VHS was king. These big, bulky tapes would hit rental stores six months before they came out for sale, and you still had to wait three months or so from when a movie left theaters before it hit VHS. That was a long window where the only way to see a movie was to go to Blockbuster (or Hollywood Video, Family Video, etc.) and grab a tape from the wall... if it was even there. You couldn't buy the VHS tapes early because (a) the video companies wouldn't sell them directly to users and (b) they were prohibitively expensive (as anyone that ever lost a new release tape from Blockbuster quickly found out).

Before DVDs came along, Blockbuster was already fighting off its competitors, trying to find a way to get ahead of the Hollywoods and the like. Their big innovation was "Guaranteed In Stock" which said that if you wanted a movie that was marked "guaranteed" and Big Blue didn't have it in at the store you wanted to rent it from, you'd get a coupon for a free rental of it the next time the tape (and you) were in. This cut the legs out from under other companies because they couldn't buy at the volume Blockbuster could. But it also meant the stores had hundreds of new movies taking up space, bought at that prohibitively expensive price (at least $100 per tape), all so Blockbuster could fuck everyone else. And then, once the buzz for that movie died, the employees would then have to go out and cull the tapes down to sane levels, selling off "pre-owned" tapes at discount prices. As someone that went to that wall to pull completely unrented copies of Titanic can attest, it was a lot of wasted money.

DVDs shifted this. Yes, they weren't as bulky, which was nice, but the big difference between VHS and DVD was that price per unit. For whatever reason (and I wasn't management, nor did I work in the sell-through industry, so I don't know the answers here) DVDs were sold at a reasonable price when they first came out, $20 a pop. Compare that to the $100 bucks for VHS and that's a lot of money saved. They also had a much shorter window from rent to sell-through, meaning customers could get new DVDs of the movies they wanted quickly. This didn't hurt rentals at the time, largely because DVDs were still a nascent market, growing its user base, but it did allow a new threat to rise up from an unexpected vector. That threat was, of course, Netflix.

If you'd wanted to challenge Blockbuster before the advent of DVDs you had to do it with a brick-and-mortal store. How else were you supposed to do it? Spend a bunch of money on expensive tapes, and then more money on expensive packages, all so you could send them to customers and maybe get your stock back at some point? And then, when the tapes did come back, you'd have to rewind them (because customers never did) and then queue them up for the next customer. That kind of model would have required a lot of time, expense, and manpower to do for VHS. DVDs cut much of that out.

Operating a DVD service was much cheaper since DVDs were cheaper to purchase. You could buy five for the price of one VHS (and the price on VHS rental tapes remained high even after DVDs came out), so a start-up could buy a bunch for lower overhead. You could get little envelopes to send out the discs, which was much cheaper than sending VHS tapes, practically to the point of standard postage. And you didn't have to rewind DVDs, which meant the second a disc came in it could immediately get shoved into a new envelope and sent right back out again. In comparison to VHS, that's fantastic, and it allows you to make a completely disruptive rental model with low overhead.

The rental stores that Blockbuster operated were expensive. Brick and mortar just costs more than a website, that's easy to understand. Even with development costs on the site, and having to get a warehouse, and employees to walk around and pick discs, that's still cheap overall for a nationwide product than all those stores Blockbuster ran. Netflix could easily set themselves up and get running without all the expense Big Blue had to carry. And, that doesn't even get into their biggest draw: no having to go to a store, no late fees.

What's funny is that soon after Netflix started up and proved their business model was viable, there was an opportunity for Blockbuster to buy the smaller rent-by-mail company. Instead they ignored them as a clearly inferior product, not a threat at all. Within a couple of years they'd regret that as Netflix took out a big chunk of their business. Blockbuster had to play catch up, and their idea was to launch their own rent-by-mail service but make it so you could also go to the rental store. This was, to be blunt, stupid.

One of my stints at Blockbuster was during this period. I'd been at a store for Blockbuster Rewards, which was a program I believed in. You would get free "core" films (stuff not on the wall) for free with the rental of any other film (I think it was ten bucks a month for a membership, and core movies cost $2.50 to rent). Thus if you were a regular customer and you rented a couple of movies at a time (which most people did), you'd pay for your membership by renting two a week. At the time, going to the rental store once a week and picking up a couple of flicks was standard behavior (unlike me, who'd rent five or so a week beyond the free five I got for being am employee; there's a reason I got their "power user" Gold account for free at one point). I liked the program, but management wanted us to push the rent-by-mail subscription program. Here's how that worked:

You spend $20 a month and you can rent all the movies you want, Online or from a store, but there was a cap of five movies at a time. Five movies, mind you, would only approach 20 bucks if you rented nothing but new releases (at $3.50 a pop). If you got a few, kept them around your house, and didn't get back to the rental place in time, you'd lose money on the deal. In comparison to Rewards, which basically paid for itself if you rented normally, there was a real chance you could get lazy and waste money on the subscription service. And that doesn't touch upon the fact that the store customers weren't the same people that wanted to rent-by-mail. Latching one onto the other felt like a misunderstanding of their user bases. It felt desperate.

And it was. It was totally desperate. Blockbuster needed to find a way to compete with Netflix but they somehow couldn't come up with a superior product despite all those stores, all those discs, and all the time on the market. When they launched their rent-by-mail service, they somehow couldn't populate it with the depth and breadth of titles that Netflix had. When someone got a disc, it usually wasn't any of the prime titles they wanted to watch, but one of the deep cuts they threw on there just because. And if you were watching a series you could bet that Blockbuster would send you the disc out of order so you couldn't even watch what you wanted properly. It was, in short, a shitshow, and for those that wanted rent-by-mail, the service pushed people to Netflix.

Of course, then Netflix launched their streaming service and, at that point, Blockbuster was a dead company walking. They couldn't just put up their own streaming service because that would undercut their rental business (which was already failing, contracting, and on life support). Bankruptcy came around that same time, Big Blue was snatched up by Dish Network, and that was basically the end of Blockbuster as we knew them. Corporate went under and cleared out the last of their main stores. A few franchise stores held on, without the support of the main chain any longer, and as of this writing there is only one Blockbuster left, in Colorado. The last vestige of not just the biggest video rental corporation in the world but the whole industry. It's all gone, replaced by digital streaming.

This is not to begrudge Netflix at all as they had the superior product. Blockbuster was stupid for not recognizing the changes in the market, for not buying Netflix, for not getting out ahead of what Netflix was doing and, at every turn, failing to learn the lessons that the change of the market was teaching. Blockbuster was too big to succeed, in effect, and it dragged them under. And the market has continued to shift since. When it started up its streaming service that was just one part of the Netflix model. It was support for the disc-by-mail part of the company. But then streaming kept growing and growing, devouring the user base of the disc renters. Now streaming is what Netflix is known for, to the point where they tried to spin off the disc-by-mail service into its own thing (tried and failed, mind you).

And the streaming market has become fractured. First it was just HuluOriginally created as a joint streaming service between the major U.S. broadcast networks, Hulu has grown to be a solid alternative to the likes of Netflix and Amazon Prime, even as it learns harder on its collection of shows from Fox and FX since Disney purchased a majority stake in the service. tat came along to leech on the market without really providing a direct threat to Big Red. But then came CBS All Access (now Paramount+), DC Universe (now MaxThe oldest and longer-running cable subscription service, HBO provides entertainment in the force of licensed movies along with a huge slate of original programming, giving it the luster of the premiere cable service. Now known primarily for its streaming service, Max. and soon to be just Max), Disney+Disney's answer in the streaming service game, Disney+ features the studio's (nearly) full back catalog, plus new movies and shows from the likes of the MCU and Star Wars., Amazon PrimeWhile Netflix might be the largest streaming seervice right now, other major contenders have come into the game. One of the biggest, and best funded, is Amazon Prime, the streaming-service add-on packing with free delivery and all kinds of other perks Amazon gives its members. And, with the backing of its corporate parent, this streaming service very well could become the market leader., and so many more that I could writer long lists of just all the services (and have, in fact). And that fracturing of the market is putting pressure on all of them. Who knows in one, two, three years how many of them will still be around or what the streaming market will even look like. I wouldn't be surprised if, three years from now, Netflix isn't even a thing anymore, gobbled up by a competitor to make some other mega-streamer. Anything is possible.

But one thing will be clear: the age of the DVD, which ushered in this sea change to the rental market, will be over. Physical media sales have been declining for years, and now we have Netflix announcing that, by October of 2023 the company's rent-by-mail division will be shut down. The very thing that put the stake through Blockbuster's heart is going away, just like Blockbuster did before it. Tech moves on, things change, but it's clear that you can't rest on the video rental market. It doesn't look anything like it used to, but it's still managing to push past and kill all its darlings as it continues to evolve.

Still, let's pour one out for Netflix rent-by-mail, and another for Blockbuster and all that came before. You had your time, and you will be missed by many. The market can't support you anymore and, yes, that is a little sad.