How Netflix Took Down Blockbuster and Physical Media.

It was a cold winter morning in 2004 in Stanley, Idaho, a small town with just 101 residents and a temperature of -17 degrees. My boyfriend, who had convinced me to come from London, handed me a shiny red envelope and asked me to drop it in the mailbox as we entered the town. “What is Netflix?” I asked, looking at the white letters printed on the envelope. “It’s a DVD rental service by mail,” he replied. “They send you movies, and you return them when you’re done. Then, they send you another.” It was a shocking discovery. Although Netflix had been growing in the United States since its launch in 1998, it would take another eight years to reach the UK. In 2004, elsewhere in the world, movie night still meant a trip to the video store.

As a child of the 90s, I spent countless hours sitting on the floor of my local video store, searching for VHS tapes to feed my obsession with film. However, dreaded late fees consumed my little money. This new system, where I could keep a movie for as long as I wanted without penalty, felt revolutionary. Little did I know that an even greater revolution was underway.

Fast forward to 2024, there is more "content" available on a device than in all the Blockbuster stores in London. I can access virtually any show or movie ever made at the push of a button (and possibly enter a credit card number). This stands in stark contrast to the pre-streaming era, characterized by multiple trips to the video store, intense battles with the VHS player to record every episode of Buffy the Vampire Slayer, and the need to decipher TV listings in magazines and newspapers. This shift from physical to digital media opened up a wealth of options for movie lovers like myself. Almost everything is available instantly. However, a sense of nostalgia lingers for the way things used to be. Sometimes, a little more effort makes the reward more gratifying.

The birth of video and streaming changed the way we watch and even what we watch. However, I would argue that the moment video stores and physical media began to decline was in 2004, with the launch of Blockbuster Online, another DVD rental service by mail. Blockbuster, the largest video rental chain, was a cultural icon in the 90s and 2000s, much like Netflix is today. Just as Barnes & Noble stripped independent bookstores, Blockbuster dominated small local stores by negotiating with film studios to offer multiple copies of the latest movies at affordable prices. Meanwhile, Netflix was a startup that had tried to sell its mail-order movie rental business to big companies but was dismissed.

By 2004, Blockbuster had more than 9,000 physical stores in the U.S. and generated $5.9 billion in revenue. However, it was aware of the growing competition from Netflix, which had a million subscribers. That year, Blockbuster launched its online service and made a risky decision: it eliminated unpopular but profitable late fees. These two initiatives cost the company $400 million. Within just a year, it had lost 75% of its market value, and within six months, it declared bankruptcy.

There are many theories about why this happened, but John Antioco, former CEO of Blockbuster, argues that it wasn’t the competition from Netflix that brought Blockbuster down; rather, the company self-destructed. Worry about competition began to cause internal problems, though Antioco believes Blockbuster could have succeeded even in a world with Netflix. Unfortunately, Blockbuster’s main investor, Viacom, disagreed and sold its majority stake, leading to its downfall.

This raises questions about what could have been: if Blockbuster had not rushed to react to the arrival of the internet and had adapted to streaming, perhaps it could have kept the physical format alive. Its decline left a void in movie consumption that both new and established companies sought to fill, accelerating the shift to digital. Netflix launched its streaming service in 2007, quickly followed by Hulu and the arrival of Amazon Instant Video in 2011, marking the beginning of the streaming era.

While physical media still existed, they adapted to more economical options, like using the postal service. The Disney Movie Club, launched in 2001, gained popularity by offering DVDs with bonus features. When I had kids around 2008, I fell into the trap of this service with a package of free Disney DVDs, becoming tied to a monthly purchase. Through rough calculations, I estimate I spent nearly $600 on Disney movies during my children's formative years.

The Movie Club eventually closed earlier this year, and those DVDs now gather dust in a drawer as I can stream almost everything on Disney Plus. Although its streaming service didn’t launch until 2019, its transition to digital marked the end of an era for physical media. With Disney's entry into streaming, the game was effectively over. However, the internet didn’t have to mean the end of video stores. If Blockbuster had managed its transition more effectively, those in-store searching experiences could still exist in the 2020s.

Obviously, like everyone else, I have traded the inconvenience of late fees and return reminders for an extensive library of content accessible from my home. This convenience would have surprised the version of myself on that frozen winter day in Idaho. But couldn’t we have had both? We’ll never know. Now, the former location of my local Blockbuster is a wine bar.