Blockbuster Passed On Partnership Offer With Netflix
According to Barry McCarthy, chief financial officer of Netflix (he recently resigned), in early 2000, Reed Hastings (Netflix CEO and co-founder) approached Blockbuster CEO John Antioco with a proposition that Netflix would run the blockbuster brand online, if Blockbuster ran the Netflix brand in store.
According to an interview that McCarthy gave to the Unofficial Stanford blog, Antioco “just about laughed them out of their office”. McCarthy’s interview goes on to say: “At least initially, they thought we were a very small niche business. Gradually over time, as we grew our market, his thinking evolved but initially they ignored us and that was much to our advantage.”
Blockbuster has recently filed for bankruptcy, but it seems that cable executives may be doing the same thing to Netflix today. They state that Netflix’s streaming service is a short lived product, and will eventually trickle down due to lack of content.
Netflix has recently signed a deal with Disney’s ABC family, and is in negotiations with other networks and studios for streaming content.
“It was Reed’s insight that the subscription model would resonate with consumers in a compelling way,” McCarthy said. “He re-engineered the Web site and software to support a subscription model…we began to grow exponentially overnight. In 1998, I think the business did $1 million in revenue. In 1999, we did $5 million, then $35 million and then $75 million and $150 million and then almost $300 million…We were I think five years to $500 million and another three years to a $1 billion, all because of the subscription model.”
McCarthy also told the Unofficial Stanford blog that Blockbuster ran into an innovator’s dilemma: “You end up competing with a business that you initially ignored.”
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