What Happened to Blockbuster

Great video Jon it was interesting to hear about the social aspect that existed in the commodity relation that was renting movies.

For you it was a a family affair, for me it was almost always a drag because arguments with friends over which game we were going to rent, or which wrestling event we were going to rent. Fortunately with my girlfriend a the time we had little difficulty in choosing movies together. I honestly had forgotten about the familial social aspect of move night that I used to share with my mother and sister all those years ago; those were good times. Back then Pizza Pizza had this deal where you bought a large three toping pizza you got a coupon for a free new release rental at Blockbuster. That was our Friday night tradition.

Although it’s not at all surprising that such a thing would happen to Blockbuster. I mean the filing for bankruptcy, or as they publically called it a “prearranged recapitalization”. Blockbuster was pretty hard on its customers with late fees which were pure BS. However it’s pretty much an aspect of the capitalist system; after all competition leads to concentration and monopoly. Marx put it very well that while capitalism claims to be the defender of private property, it was in fact the destroyer of it.

“In general, the greater the organic composition of capital in an industrial branch, the greater is the concentration of capital, and conversely, the smaller the organic composition of capital, the smaller is the concentration of capital.”

Each individual capitalist in each branch of production, or service for that matter, must come up with a way of defeating its competition. This (in the industrial sector specifically) takes the form of a technological innovation. A capitalist finds a technique or trick to made production cheaper. This “technique” lowers the price of the commodity and thusly the capitalist sells the commodity more cheaply undercutting his competitors. Now all other capitalists will have to do the same in order to compete and the price of the commodity drops all around. Now there is less profit to be made in this industry. This process happens over and over again as manufacturers begin to drop out of the market because there is not enough money to be made. Eventually you end up with two maybe three very large manufacturers. This process is exactly what led to the domination of Wal-Mart, which no one can compete with.

A good example would be the auto industry. The automobile industry had a hundred or more manufacturers at the beginning of the 1900s in countries like the United States and England, where today the number has been reduced to four, five or six manufacturers at the most.

Blockbuster while less a commodity producer, more a service has suffered the same thing in a different way. Netflix got this (if you’ll allow me to use the word) revolutionary innovation on Blockbuster. It found a way to rent movies with a much lower expenditure. They literally have as few employees as they could possibly have. So their expenses on wages are drastically lower than Blockbuster. Instead of having 3,500 stores, they have a few distribution centres. Basically they have a few big warehouses which they ship DVDs out from. Now they pay drastically less in leases/mortgages. Netflix made the innovation in the industry that others now had to do as well in order to compete.

This innovation had a two-fold effect. The added convenience of never having to actually go to the rental store or bring the movies back was a huge advantage for Netflix. This means there was not only a quantitative, but qualitative change as well. We don’t usually see these two together in the retail industry.

It seems that Blockbuster was unwilling or unable to apply this model to their own business. Either they thought the idea wasn’t going to catch on, or they had invested too much in each individual store for it to be profitable to make the switch. I really don’t know because I don’t have access to their books. The DVD rentals became 9$ of unlimited rentals a month versus like 7 dollars to rent a single new release at Blockbuster. They were able to undercut them tremendously in price as well.

This inability to adapt to the new innovation in movie rentals is what killed them really. A few blame illegal downloading, but that really isn’t the case given the huge success Netflix and other online or mail order providers. Blockbuster had pretty much cornered the movie rental market much in the same way Wal-Mart has dominated retail. Unfortunately for them there was a technical innovation they couldn’t or wouldn’t adapt to.

This is all part of the capitalist concentration of capital.