Blockbuster and the High Street -- Where Did It All Go Wrong?

By Chris Mills on at

The High Street as we know it is being brutally and violently gutted by a big bully called Administration. Household names are toppling like badly placed dominoes; what's to blame -- the recession, the internet, or all of us just being scrooges?

blockbuster administrator closing down

Blockbuster is a good case in point of a business model that got crushed by the internet. For those of you who've lived in a cave or something for the past 20 years, before it went bust (*sniff*), Blockbuster rented DVDs and games to people. If you're planning a date, a night in or a day skiving off work, you pop down to the local 'buster and pick up a DVD or three, and then return them five days later. Simples, really.

At the heart of this business model is convenience. Fundamentally, Blockbuster wasn't all that different from a tiny little corner shop -- it might not have the greatest product range, and it might not have the cheapest prices, but because it's close to home you go there anyway.

Sadly, when video-on-demand (and especially streaming services like Netflix and Lovefilm) became widely available, Blockbuster was stuffed. With the internet, Blockbuster's convenience advantage was well and truly nixed -- it's a lot easier to mash a couple of keys and get a video that way than trekking down to your local video store.

The problem is, that once Blockbuster lost its unique selling point (the convenience), it didn't really do anything to re-invent itself. Running a real bricks-and-mortar chain is expensive, but often worth it if you can get an advantage on your internet competitiors by running the aforementioned physical stores. Blockbuster didn't get an advantage; it was just pissing money down the drain, doing exactly what iTunes and Amazon were doing, but at far, far greater cost.

On the internet, there's no prize for second-best. No one uses MySpace, because Facebook is a better service with more people on it and better functionality. (And, cue the fanboy arguments.) Equally, there's absolutely no reason for eager movie-goers to use Blockbuster when there's a simple (and better alternative) in iTunes. Back to my analogy of the corner store, and the internet's moved my imaginary Blockbuster-corner-shop -- whereas before it had a nice little local monopoly because it was the only thing close to your house, now the corner shop is sitting right next to a couple of massive (virtual) supermarkets in the shape of Apple and Netflix. In this case, consumers have jack-all reason to go to the piddly little corner shop (Blockbuster) when they can just as easily go feast on the entertainment delights of iTunes or Netflix.

This is a concept that traditional businesses with internet competitors are failing to grasp. In the world of physical shopping, you can build a store, and even if it's not the absolute best, you'll still get at least some customers, because it's closer to their house or something, and they might be ignorant of the superior store down the road. On the internet, you've got easy access to every store and service, and services like Google Shopping finding the cheapest price for you. It's a cut-throat place, business on the internet. If you don't give customers a really good reason to use your service, you're screwed.

And this is what's happened to the physical stores. As they've started to experience competition from the internet, they haven't totally stood still -- Blockbuster launched a DVD-by-mail service way back in 2002, HMV launched a web store in 1999 and Jessops have been doing mail-order for zonks. But it just isn't enough for a physical chain to simply put an extension of itself online -- it's the worst of both worlds: the cut-throat world of internet retail with the massive overheads of running a chain of stores.

Sure, you can have stuff like "click and collect" that keeps some of the convenience of a brick and mortar store, but that doesn't work for places like HMV and Blockbuster, because most of the time they're not competing to put a physical product in your hand -- they're competing to get media onto one of your electronic devices, and like it or not, tacky high-street stores aren't the best way to do that anymore.

So, what should HMV and Blockbuster have done to stay afloat? Truth be told, I suspect Blockbuster would have been in a better place had it ditched physical stores and moved to purely online streaming. A few years back, it had (still has?) a reputable household brand, a fair bit of cash, and most importantly, good relations with the film studios. Had it busted out an awesome online store in the mid-Noughties, with the emphasis firmly on rentals of recent releases, it could well have survived. Apple, Lovefilm and the like might dominate video-on-demand now, but a few years back when Blockbuster moved into online services, there was still room for a competitor to the big bullies.

As for HMV, I reckon simple divide-and-conquer would’ve worked -- split into two parts: an online store, aimed at selling dirt-cheap CDs, DVDs and digital downloads; the physical stores would reduce their CD range dramatically, and move more towards a purveyor of audio technology, and all that quirky hipster stuff like posters and actual physical vinyl records (which are still awesome, by the way).

Although I’m a little bit sad to see HMV go (from a purely sentimental standpoint), the move towards online retail is good for the average chap. The internet allows the market to perform like a capitalist market should, with the sort of perfect competition that economics professors have wet dreams about. Sadly, if long-standing physical stores want to stay afloat, they’re gonna have to learn some new tricks real quick.

Image credit: Dominos from Shutterstock