Who's laughing now, Blockbuster?

Once formidable video-rental king spurned partnership offer from Netflix a decade ago

This post from CNET News is a few days old, but what Greg Sandoval writes about is so amusing, I had to pass it on to ITworld readers. On Monday I wrote about how major media companies and broadband providers are becoming increasingly resentful of video-on-demand star Netflix, which is growing revenue, profit and mindshare at a dizzying rate. But just a few years ago, hardly any of these companies took then-upstart Netflix seriously. (Also see: Resentment of Netflix by carriers, media companies grows)

Including, much to its ultimate dismay, former video-rental market leader Blockbuster, which filed for Chapter 11 bankruptcy in September, its business ravaged by nimbler competitors such as Netflix and Redbox, the emergence of video-on-demand (which Netflix is now heavily betting on), strategic missteps and about $900 million in debt. As Sandoval writes: Blockbuster CEO John Antioco was approached in 2000 by Netflix CEO and co-founder Reed Hastings about forming a partnership, recalled (Netflix chief financial officer) Barry McCarthy in an interview he gave to the Unofficial Stanford blog two years ago. ... "I remembered getting on a plane, I think sometime in 2000, with Reed [Hastings] and [Netflix co-founder] Marc Randolph and flying down to Dallas, Texas and meeting with John Antioco," McCarthy said in the (podcast) interview. "Reed had the chutzpah to propose to them that we run their brand online and that they run [our] brand in the stores and they just about laughed us out of their office. 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." There's an understatement for you. By the way, Antioco came under fire from financier and new Blockbuster board member Carl Icahn in 2005 for his outrageous compensation, which topped $51 million in 2004 alone. The dispute between the two men spelled the beginning of the end for Antioco, who left Blockbuster just two years later, probably with a bruised ego and definitely with a $24.7 million severance package, which would render any bruised ego slightly more tolerable. Since then, of course, things have only gotten worse for Blockbuster. But Sandoval's post takes us back to a time when laughter (and arrogance) filled the conference rooms and corner offices of the now-humbled video rental chain. Boy, was that a long time ago. Weird (but somehow fitting) coda: I bought a Motorola Droid 2 smartphone about three weeks ago (note to self: mail in that rebate!). One odd thing that jumped out at me when the Verizon salesperson was explaining the device was the pre-installed Blockbuster Android App. An app from a seemingly doomed company? Why would I want that? But since I don't travel much and have absolutely no interest in watching a movie on a tiny smartphone screen, I didn't let this minor blemish sway me from the Droid 2. Then I thought, just for laughs, I'll try it out sometime (since laughter is such as big part of Blockbuster's legacy). That is, until I read this review of the app by Sahas Katta on skatter tech: When I first heard that BlockBuster had an Android app for the Motorola Droid X during the Verizon Wireless press conference, I was excited. Sadly, after taking it for a test run, I found that it is one failure stacked on top of another. How appropriate.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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