How Blockbuster Actually Built a Netflix Killer Before It All Fell Apart

Everyone assumes Blockbuster just sat on its hands and did absolutely nothing while Netflix slowly destroyed it. But that's not what happened. Blockbuster actually built a genuine Netflix killer, and for a moment it looked like it might actually work.

This matters because Blockbuster's collapse gets held up as the textbook case of a company failing to adapt. But the real story is stranger than that, and it explains why so many people still argue about what actually killed the company.

Blockbuster Online launched in 2004 to directly copy Netflix's model

By 2004, Blockbuster finally recognized the existential threat that Netflix posed to its business. In response, it launched Blockbuster Online, a DVD by mail subscription service built to compete directly with Netflix. The service offered a larger catalog than any individual physical store could hold, charged a flat monthly fee that was less expensive than Netflix's, and dropped due dates and late fees entirely. Within less than a year, Blockbuster Online had already attracted a million subscribers.

Total Access let customers swap DVDs in store for free, and subscribers nearly doubled in five months

In 2006, Blockbuster pushed further with Total Access. This let customers walk into any participating Blockbuster store, return their mail order DVD in person instead of mailing it back, and immediately exchange it for another movie at no extra cost. Customers loved it. Blockbuster's online subscriber base nearly doubled in just five months.

The pressure on Netflix was real and immediate. Netflix was suddenly forced to cut its prices to compete, and the company experienced its first quarterly subscriber decline in its history. For one brief moment, it genuinely looked like Blockbuster was going to beat Netflix.

The strategy was working with customers, but it was bleeding Blockbuster's finances

There was one massive problem underneath all of this success: Blockbuster was bleeding money. The company was spending heavily to convince customers to abandon the traditional in store rental model in favor of a cheaper subscription service that produced much lower immediate returns per customer.

Total Access also created a costly side effect. While it succeeded in driving customers back into physical Blockbuster locations, many of those customers were walking in only to exchange one DVD for another without paying anything at all. The stores still had to cover rent, pay employees, and maintain inventory, all while giving away one of their core products for free in the process.

Do you think Blockbuster could have survived if it had found a way to make Total Access profitable, or was the financial bleeding always going to catch up with it?