POINT TO PONDER
"The highest form of ignorance is rejecting what you don't know."
In 2000, a one year old company with a growing subscriber base called NETFLIX approached the video goliath BLOCKBUSTER VIDEO with the offer of a partnership. Netflix was hoping to offer DVD delivery to Blockbuster's clients while Netflix would promote in house rentals at Blockbuster store locations.
At the time, Blockbuster was the leader in store video rentals and Netflix had a unique market share that offered customers the chance to have their movies delivered right to their homes. Netflix eliminated the need to get in your car and drive to the store to get your entertainment as well as eliminating the late fees that often accomanied having to return DVDs to store locations.
At the time, Blockbuster couldn't understand the model of a home delivery system. Barry McCarthy (Netflix's former CFO) claims that Blockbuster representatives, "just about laughed us out of their office. At least initially, they thought we were a very small niche business."
It turns out the rejection was a good thing for Netflix. McCarthy claims that, "gradually over time, as we grew our market, his (John Antioco, Bluckbuster's CEO) thinking evolved but initially they ignored us and that was much to our advantage."
It allowed Netflix to grow unburdened by the decline of Blockbuster's quickly outdated service. Blockbuster, however, was locked into a model where customers had to visit their stores in order to get their DVDs, where Netflix understood that customers wanted to have their entertainment delivered right to their homes and without fear of the late fees that Blockbuster enforced. Blockbuster had simply lost touch with what their customer base wanted - an easy way to get their entertainment, free from any penalities or late fees.
Incidentally, Netflix's founder Reed Hastings was a former Blockbuster customer. In 1997, Hastings returned a copy of Apollo 13 six weeks late and incurring a $40 late fee. It was this experience that motivated him to start Netflix because he understood, as a customer, that there was a better way to receive and return movies. Netflix saw the need and eventually filled it. Blockbuster couldn't see that.
The result? Blockbuster filed for Bankruptcy in 2010 with reported losses around 1.1 billion. At the same time Netflix's worth rose to approximately 13 billion according to Variety's senior editor, Marc Graser. And Netflix has no signs of slowing. The company continues to grow, now offering streaming (and eliminating the need for DVDs altogether) as well producing their own hit shows such as HOUSE OF CARDS and ORANGE IS THE NEW BLACK that can only be accessed on their online subscription service.
It appears Blockbuster has proved that the old adage is true, "what you don't know can kill you."