Junto Boys

BLOCKBUSTER

Dude’s post below reveals some larger economic issues that can't be responded to in the comments section.

The Blockbuster situation is a good retort to those quasi-socialists that are more worried about capitalists than they are the growth of government. Here’s a mega corporation that is being made to change their whole business model due to an upstart business plan by a much smaller company.

Blockbuster was a real value when they began. Their prices were reasonable and their inventory was large. This was back when videocassette movies cost rental stores $80 per. Once they put the Mom and Pops out of business they got cocky and re-designed their business plan to raise prices and squeeze annoying late-fee money out of consumers that had no where else to go. They made sweetheart deals with the studios for cheaper videocassette copies for a split of the rental proceeds. It made it very difficult for the competition. Socialists would have used them as an example of every bad thing that happens when capitalism goes unchecked.

Only a funny thing happened, technology. Flat DVDs were invented and the costs were much less than the price for rental cassettes. Someone saw an opportunity to pick up market share by offering a better deal. Netflix brought back the value of the Mom and Pops by adding a larger supply than blockbuster and smaller per cost rental fee. The market solved the problem better than the government.

I started with Netflix in 1999 or 2000, but they were located in California and delivery was slow to Florida. I kept with them 6 months or so until I rented all of the obscure stuff I couldn’t get anywhere else and then cancelled. I re-joined in 2002 and was surprised that distribution points now existed in the East. The mail back addresses kept getting closer every few months – Georgia, then Fort Lauderdale, then Lakeland and finally Orlando. These days I get anywhere from 12-15 movies a month for 17.99.

Blockbuster is finally getting into the game of mail order rental and trying to use the 2 free store rentals per month to entice consumers back. I guess the late-fee drop is an indication that they have more ground to make up than they originally understood.

All of the Harvard Business School graduates in that company didn’t understand how Netflix was going to hurt their business. If they had reacted like this only 3-4 years ago, they would have stopped Netflix in its tracks. But big lumbering corporations are not good at anticipating market trends. Those kinds of CEOs are rewarded for playing it safe and driving up stock price in the short term. The result was that a company that would have been called a monopoly just a few years ago is losing market share today.

Contrast the video rental market with the shipping market. UPS and FedEx have ruined the Post Office’s business plan. The Post Office slowly adapted to the private sector model. Any real business at their speed wouldn’t have made it. These days we hear about how much better the Post Office is managed and that they actually make money with their short time package deliveries. What they don’t say is that their package deliveries were as unprofitable as first class mail before they had a private sector business model to copy. What’s further not said is that their monopoly on first class mail drives traffic into their locations and boosts their package delivery business. The monopolized first class mail is still just as unprofitable as the packages once were because they have no one’s business model to copy.

It’s the same with AmTrak that can only exist if the government pays them to exist. The airlines have long ago made most long train trips inefficient and yet here they are sucking up more than a billion tax dollars a year.

Consumers always benefit in a market full of people and companies competing to get their business. It results in lower prices and better services. If the government ran Blockbuster none of these changes would have been made. I suppose that would please our quasi-socialists just fine.