Movie Adaptations

5 years ago, Blockbuster Video was given a chance to install DVD kiosks outside its stores when Greg Meyer wrote to the company proposing the idea. Blockbuster didn’t listen to Mr. Meyer’s idea at the time and now finds itself on the verge of bankruptcy as it faces competition from both Netflix and Redbox; two companies that unlike Blockbuster, were forward thinking.

I wrote about creative destruction here. Blockbuster has long dominated the movie rental market; however, it has not been very good at adopting new ways to keep itself competitive.

Netflix took advantage of a valuable resource, the internet, that Blockbuster ignored. The concept was quite simple; make renting movies simple for people by mailing them the movies. Netflix now streams movies online, which is just as convenient because renters do not have to wait for the movies to be mailed to them.

Redbox set up a bunch of DVD kiosks allowing people to rent movies cheaply and conveniently with the use of their credit cards; no membership is required and if your movie is late, you are only assessed an additional $1 for every day that you keep the movie.

In Institutional Economics, institutions that survive are the ones best able to adapt to the environment. Mr. Meyer, who owns about 650,000 shares of Blockbuster, the same man who Blockbuster ignored in 2005, still believes the company can turn itself around. Unless Blockbuster Video adapts to this new environment, it may end up going the way of Hollywood Video.

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