Everyone knows the Blockbuster story. Netflix killed it. Streaming killed it. It did not move fast enough. That version is clean. It is also wrong. The real story is that Blockbuster almost won. It had the strategy, it had the subscribers, it had a CEO who understood exactly what Netflix was doing and built a product to beat it. And then a single decision — made by one activist investor — reversed everything. That is the story this week.
— The Vulture
THIS WEEK'S AUTOPSY
In the year 2000, Reed Hastings flew to Dallas. Netflix had fewer than 300,000 subscribers and was burning cash. He offered to sell Netflix to Blockbuster for fifty million dollars. The Blockbuster executives laughed him out of the room. That is the famous moment. But here is what most people do not know: four years later, Blockbuster was actually winning.
CEO John Antioco launched Blockbuster Online — a direct Netflix competitor. DVD by mail, no late fees. And then he built something Netflix could not match: a hybrid model where you could rent online, return in store, and get a new one free. Netflix stock dropped ten percent. Blockbuster Online hit two million subscribers in its first year. Reed Hastings later admitted that if it had not been for Blockbuster's debt, they could have killed Netflix.
The debt. That is the other part of this story. In 2004, Viacom spun Blockbuster off as an independent company and strapped $905 million in debt onto its balance sheet — not because of bad decisions or falling revenue, but because Viacom needed the cash on the way out. So Blockbuster entered the most critical competitive period in its history carrying a billion dollars it never chose to borrow.
Then Carl Icahn arrived. The activist investor decided Antioco was spending too much on the online business. He pushed Antioco out in 2007. The new CEO, Jim Keyes, reversed everything — reinstated late fees, shut down the online strategy, refocused on brick and mortar, and in 2008 said publicly that he was frankly confused by the fascination everybody had with Netflix.
Two years later Blockbuster filed for Chapter 11. Dish Network bought the wreckage for $320 million — a brand Viacom had paid $8.4 billion for. The last corporate Blockbuster stores closed in 2013. Today one store remains, in Bend, Oregon, as a tourist attraction.
That is the Blockbuster autopsy. Not a story about a company that missed the future, but a story about debt, a board that chose the wrong CEO, and a man who understood the future but was not allowed to build it.
Full episode is on YouTube now. Link below.
THE WATCHLIST
Three companies showing distress signals right now. Not financial advice. Do your own research.
AMC Networks. Not the theatre chain — the cable network. Watching subscriber decline across linear TV, debt load relative to declining cash flow, and whether streaming can offset what is being lost on traditional cable.
iHeartMedia. Radio and podcast company carrying heavy debt from its pre-bankruptcy days. Filed Chapter 11 in 2018, emerged, and is still carrying leverage. Watching advertising revenue trends and whether podcast growth can offset the structural decline of terrestrial radio.
Envision Healthcare. Physician staffing group that filed Chapter 11 in 2023. Watching whether the restructured entity can navigate the reimbursement pressures that put it there in the first place.
THE VULTURE'S PICK
Every issue I share one tool or resource I actually use in my research. Coming in the next issue. — The Vulture
NEW ON YOUTUBE
This week's episode is live now. Blockbuster Had 9,000 Stores. One Phone Call Ended Everything. How Viacom loaded it with $905 million in debt, how Carl Icahn removed the one CEO who had a strategy to beat Netflix, and how a $50 million offer became a $200 billion missed opportunity. Watch it here: https://www.youtube.com/@thewallstreetvulture
BEFORE YOU GO
Next Tuesday I am releasing the next autopsy. This one is about a brand worth $1.65 billion that private equity firms bought, loaded with debt, and then — before the bankruptcy — moved the most valuable asset offshore to the Cayman Islands, out of reach of every creditor who thought they had a claim on it. That is the J.Crew autopsy. Tuesday July 14 at 9:00am Eastern.
— The Vulture