BlockBuster: The Men & Moments Behind Its Rise and Fall

Morning folks, and welcome to today's episode called "BlockBuster: The Men & Moments Behind Its Rise and Fall." There are so many great characters in this story — I dig into the founder, David Cook, a guy who sold the business for $12 million but could have made $300 million if he'd stayed on for just a few more years. And then Wayne Huizenga, the guy who turbo-charged the business, after building his first fortune in the rough and tumble of the waste management business in the 70s and 80s. There's the now legendary meeting where Blockbuster's executives had the chance to buy a fledgling company called Netflix for $50 million but more or less laughed the Netflix founders out of the room. And then, as I've come to expect, Carl Icahn makes an appearance and bullies his way into the business, but makes a complete mess of it. It's a cracking story — enjoy.

The story of Blockbuster starts with David Cook, a data analyst, who back in the late 70s, early 80s, was the owner of a company called Cook Data Services, a software and data company based in Texas, and he developed complicated software that helped oil and gas companies make sense of their data. And he was doing pretty well. By 1982, the company was pulling in over $6 million dollars in sales.

In 1983 he took the company public. The IPO brought in $8.4 million, and flush with cash, Cook was going to use the money to fund his expansion. But then the oil market collapsed due to a combination of things — massive new oil production coming from places like Alaska and the North Sea, and at the same time a global recession killed demand. So Cook's customers started cutting costs and cancelling contracts, and he was left with practically no customers, but he did have the $8.4 million dollars he'd just raised.

So he had to pivot.

Being the data analyst that he was, he started researching potential opportunities, and in his own words: "We had three criteria… a fragmented market without dominant players, a business that could be set up locally and easily replicated… and finally a business where we could throw up some competitive barriers."

Around this time home video was taking off, with industry revenues climbing from about a billion dollars to nearly four billion in just two years.

Cook's research told him that most stores were small, independent "mom-and-pop" operations with limited stock, clunky checkout systems, and a poor customer experience. Each video cassette cost about seventy dollars from distributors, so stores could only afford a handful of new releases.

Cook's initial instinct was to join an existing franchise called Video Works, a growing regional video rental franchise in Texas. Like almost all video stores of that era, their locations were small, dimly lit, not very user-friendly. And when Cook's wife suggested that their outlet be painted in a bright blue-and-yellow color scheme, Video Works wouldn't allow it. So Cook decided to go out on his own.

On October 19th, 1985, he opened the first Blockbuster Video store in Dallas, Texas. And it's fair to say that he got it pretty much right from the get-go. The store had over 10,000 tapes, more than three times what even the largest stores at that time carried. Each tape and membership card had a barcode, scanned at checkout, feeding into a live database, so they could track what people rented, and so predict demand. To prevent theft, each tape had a magnetic strip linked to sensors at the door. It sounds ordinary now, but in 1985, in the video rental market, it was revolutionary.

The design of the store, with the bright yellow and blue colours, clean, well-lit, with rows of tapes displayed openly so customers could easily browse — again, so different to the little pokey outlets that dominated the sector everywhere. I remember it well — in my local town, in Abbeyfeale, just across the Kerry border, we had three small pokey video shops with a tiny selection, and the chances of getting a new release were slim to none.

Cook kept the store open until midnight, seven days a week. Rentals ran on a three-day cycle, which encouraged people to take a few movies at a time. And crucially, there were no adult films. That was very deliberate — it created a family-friendly environment, and it gave Blockbuster instant credibility with mainstream America.

On the first day of opening, they were so mobbed they had to lock the doors to stop more people coming in. The demand was clear, and so within two years he had 15 company-owned stores and 20 franchised locations, and he spent $6 million building a central distribution warehouse.

To fund further expansion, Cook planned a public offering in September 1986. Everything was lined up until a financial journalist published a piece questioning the company's prospects and also highlighted Cook's background in the collapsed oil industry, saying he lacked experience in the video rental business. It was very unfair — Cook had done nothing wrong, and when you consider that the video rental business was an entirely new sector, nobody could claim to have sector-specific experience — but it was enough to scare investors away. The IPO was cancelled, and so Cook had to look for outside investors — and it was then that he was introduced to the second important person in the Blockbuster story: Wayne Huizenga.

So let's take a look at Huizenga — fascinating character.

He was born in 1937 in Chicago but was raised in Fort Lauderdale, Florida, and by all accounts he had a tough upbringing — his father was physically abusive, his mother emotionally fragile, and in his own words his childhood was "miserable, chaotic, and dangerous." In his teens, Huizenga worked in construction, attended college but dropped out, served six months in the military, and then began selling trash-hauling services door-to-door. Waste was a business that was in the family — his grandfather and other relatives had waste businesses in Chicago. And in 1962, when he was 25, he saw a local waste collection business come up for sale — it was a small business, just one truck.

Huizenga approached the owner and said he wanted to buy it but didn't have the money. And the owner must have seen something in him, because he agreed to sell Huizenga the business on credit.

And Huizenga worked like a demon. He'd get up at two in the morning. He'd run his route until noon, go home for a quick shower, put on a suit, and then spend the rest of the day knocking on doors and pitching new customers.

By 1969, seven years into business, he had forty trucks and revenues hit three million dollars. But to grow bigger he needed partners, so he teamed up with a few other waste businesses in Chicago — one of them run by a guy called Dean Buntrock, who was married to one of Huizenga's cousins. They renamed the business Waste Management Inc., or WMI. Buntrock and Huizenga made a great team — Buntrock was the methodical and strategic one, while Huizenga was a relentless deal-maker.

From the outset their goal was national scale, and for that they'd need capital, so in 1971, WMI went public, and with the money from that they went on a buying spree — and their timing was really good, because a lot of strict new regulations were brought into the waste sector in the early 70s, and unlike a lot of the smaller waste management companies, which were family-owned, WMI had the resources to build state-of-the-art landfills and chemical-waste facilities, and they also had the resources to buy these smaller, local businesses. They quickly acquired 133 smaller operations in 19 states, and revenue hit $82 million within just two years of the IPO.

Now, of course, when I say family-run waste businesses, the Sopranos jumps into my mind, and there were plenty of unproven rumours back then about WMI's links to the mob.

Now, these rumours were unproven, but there's little doubt that as Huizenga built the WMI business he would have had a lot of dealings with people who had ties to the mob, so Huizenga would have had to be a pretty formidable character to navigate his way through this business.

And WMI weren't squeaky clean themselves. In 1976, the SEC accused the company of making improper political payments in Florida. The case was settled. Also, despite WMI's investments in state-of-the-art landfills, they continued to get into trouble with authorities for disposal of dangerous chemical waste and other infractions. And they had to settle various cases linked to overstating profits and fiddling expenses — again, a lot of this can be traced back to the fact that many of the businesses they bought had been operating in the shadows. And none of it slowed its momentum — by 1984, WMI had become the largest waste company in America.

Huizenga was 47, at the absolute peak of his career, running a $3 billion company he'd built from nothing. And then, suddenly, he quit.

Officially he said he was tired of commuting between his home in Fort Lauderdale and the Chicago headquarters. But the real reason was two-fold — he wasn't happy with how much he was making from WMI. I could only find one source that mentioned Huizenga left WMI with $23 million in stock and options, so wealthy, yes, but not as much as you'd expect from someone who had helped build what was now a $3 billion company.

Here's another quote from his WMI partner, Dean Buntrock: "Wayne always keeps the carrot far enough out in front of him and he never really wants to catch it. He's never satisfied."

But the second reason he left WMI was because after years of buying companies and doing deals all over the country, the company had plateaued — his work now involved reports, bureaucracy — he'd gotten bored. Because what Huizenga loved more than anything else was doing deals, as can be seen from this kind of disturbing quote from Huizenga: "A deal is like chasing a girl. You work at it until she says yes. And then you keep putting the pressure on them. Hit 'em right between the eyes… you kill 'em." Jesus, Wayne — what the hell?

He set up Huizenga Holdings, a private investment firm, looking for opportunities. And when one of his executives came to him with the proposal to invest in Blockbuster, for Huizenga it was a perfect business, because in many ways it mirrored the waste business when he first got started, in that it had recurring revenue and customers, it was in a fragmented industry where most owners were small and local, so he knew that, with enough money and the right vision or formula, the sector was ripe for consolidation. He could also see that Cook had exactly the right idea, with his large, well-branded, family-friendly stores.

So, in 1987, a year after Cook had to pull his planned IPO, Huizenga, with a few other investors, put in $18.6 million for a controlling stake, and Huizenga became Chairman and CEO.

Huizenga wanted to go big much faster than Cook. He wanted to borrow heavily and open tons of company-owned stores, blitzing new markets before anyone else could catch up.

Cook was more cautious by nature, and so within two months of Huizenga's investment, Cook sold his remaining shares for about $12 million and left the business.

Now, of course, if Cook had held onto those shares, they would have been worth almost $300 million within a few years, but Cook did alright for himself.

In 1998 he founded a company called ZixCorp that focused on email security, and his investors included Bill Gates, Jack Welch, and Michael Dell. In 2021 that company was sold for $860 million. Now Cook keeps an extremely low profile, it's difficult to find any information on him, so I've no idea how much Cook earned from this, but it's fair to say that he did pretty well for himself.

What's also really interesting about Cook is there doesn't seem to be any bitterness, and here's a quote from him after Blockbuster had taken off nationally: "I haven't found anybody who doesn't think Blockbuster did a whole lot better under Wayne — including me."

And Huizenga, to his credit, praised Cook for laying the foundation of Blockbuster's success — here's a quote from him: "David Cook came up with a wonderful concept. All we did was take that concept and build a cookie-cutter system to copy it over and over again."

And that's exactly what he does — at one point they're opening a new store every 24 hours. Within just over a year they have 400 stores nationwide, and Blockbuster is by far the biggest video rental chain in America.

They hit the market at just the right time with just the right product.

By 1990 it had 1,200 stores in the US. By 1993, it's gone global — over 3,600 stores, including in Canada, the UK, Australia, Japan, and across Latin America.

Annual revenue is pushing $3 billion — it diversifies into video games and music, because in 1992 and 1993, Huizenga went on a retail spending spree, buying over 500 standalone music stores, and in doing so, Blockbuster became the third largest music retailer in the world.

And then Huizenga goes and buys himself a trophy case of sports teams — the Florida Marlins baseball team, the Florida Panthers national hockey team, and then the Miami Dolphins football team. For a time, he's the only person in history to own teams in three major U.S. sports.

So by 1993, Blockbuster was the most talked-about and lauded business in the financial press, while Huizenga himself became this media darling. Forbes, Fortune, Time are all over him — he is this billionaire who is at the very top of his game, and to all intents and purposes Blockbuster was here to stay. That blue-and-yellow store becomes part of suburban life, as familiar as McDonald's golden arches, and for families all over the world Blockbuster becomes a Friday-night ritual.

And that's probably why, to a lot of people my age, there is a lot of nostalgia linked to Blockbuster — Friday nights, the smell of the popcorn machine, arguing with your siblings over which movie to pick. I can still picture it.

But the thing is, while Blockbuster was at its pinnacle, Huizenga was looking at emerging technologies. Cable companies, telecom giants, and early satellite providers were all beginning to pilot early blueprints for video-on-demand (VOD). And he started to get nervous, because if these technologies actually took off, the brick-and-mortar video store would be in deep, deep trouble.

So, very fortuitously for Huizenga, enter stage right, Viacom — this was Sumner Redstone's media company that owned MTV, Nickelodeon, and Showtime. And of course Redstone also owned National Amusements, a private theater company controlling nearly 1,000 screens.

If you go back and listen to our episode on Redstone, you'll know that in September 1993 he had gotten into this huge and very public bidding war with Barry Diller to buy Paramount Studios. It's a cracking story, but the long and the short of it is that Redstone was under big pressure — he needed more cash to sweeten the deal. And Blockbuster was a cash cow.

So Redstone swooped, buying Blockbuster for $8.4 billion. The deal was done quickly and quietly, and it caught everyone in the media business by surprise. With Blockbuster's cash in hand, Redstone upped his bid and won the battle for Paramount.

In the immediate aftermath, the press crowned Redstone the winner. But with hindsight — seeing how Viacom never reached its potential as a vertical model, making movies and then distributing them through its own cinemas, video stores, and TV channels — the real winner was Huizenga. He cashed in at exactly the right time and at exactly the right price, because in Redstone he'd found a buyer who didn't care about Blockbuster's long-term viability. Redstone just needed an immediate, cash-rich business to fund his fight for Paramount.

As one industry insider said about Huizenga's timing: "He's getting a price today that might not be there tomorrow."

Now, after the deal, Huizenga steps back as CEO of Blockbuster and becomes Vice Chairman of the Board of Viacom Inc. But as you'd expect, Huizenga by this stage is too big a player to stay second-in-command to anyone, so he leaves within a year, cashing out to the tune of $670 million.

And again, he follows the same pattern — looking to invest in a fragmented sector — and he finds it in the used car business. Lots of small dealers, underfunded car lots, full of dissatisfied consumers who hated the haggling. He bought into a tiny, fledgling used-car concept called AutoNation and scaled it aggressively — car superstores, fixed no-haggle pricing.

Wall Street loved it. He used the rising stock to buy up rival dealerships, rental car companies, and finance arms. Within just a few years, AutoNation became the fastest-growing company in America — by 1999 it was pulling in over $20 billion a year in revenue.

Huizenga stepped away from the business in 2003 and sold his shares. And today? AutoNation is still the biggest car dealership group in America.

His last remaining business by this stage was the Miami Dolphins, and he sold that in 2008 for $1.1 billion, seven times what he paid. By this stage he had a net worth of $3 billion, and he retired to his huge waterfront estate in Fort Lauderdale, Florida, playing golf, collecting antique cars and doing philanthropy, before passing away in 2018 at the age of 80. And what a legacy — he built three multi-billion-dollar businesses, a remarkable achievement. But this isn't his story, it's Blockbuster's. So back to the company.

After the Viacom deal, Blockbuster is still growing internationally, but the pace slows, and same-store rentals flatten out. Cable pay-per-view is nibbling away at the market.

There's a very obvious change in mood music from Huizenga's entrepreneurial style to Viacom's more stodgy corporate style.

Then in September 1997, two guys named Reed Hastings and Marc Randolph launched a new company called Netflix. Their idea was to rent DVDs by mail. Hastings said that the reason he started the company was because he really resented Blockbuster's late fee charges — and for our younger listeners, these late fees really were a pain in the ass to everyone who rented videos back then, but it was a huge earner for Blockbuster, estimated to bring in about $800 million annually. So Netflix's business model included no due dates, no late fees.

By the end of 1998, Netflix had around 250,000 subscribers, so compared to Blockbuster's tens of millions of weekly customers, it's tiny, it's a niche player.

Then in September 2000, Netflix's founders arranged a meeting with Blockbuster in Dallas to pitch a merger. The idea was simple. Netflix would run the online rentals, Blockbuster would handle the physical stores.

Hastings' price was $50 million. Hastings recalls that the Blockbuster CEO and his executives didn't take Netflix seriously at all, and here's a quote from Hastings: "They thought we were a joke."

Now, this is one of those moments that only becomes legendary in hindsight. And to be fair to Blockbuster, the Netflix guys weren't selling or pitching the future of media — they weren't pitching a streaming company, they were pitching an online DVD rental company with just 300,000 customers, $5 million in revenue, losses over $10 million, and no real proprietary technology to speak of.

So my take is, the mistake Blockbuster made wasn't really rejecting Netflix specifically. It was rejecting the direction the entire industry was heading in. Yes, Netflix at that time was just renting DVDs, but also, and crucially, what Netflix was selling was convenience.

And that thinking, making it as easy as possible for people to access movies, is exactly what led Netflix into streaming a few years later.

And by turning its back on the convenience model that consumers were moving towards, Blockbuster locked itself into a model that needed people to physically drive to a store.

And as a result, well before streaming was launched, online retailers like Netflix were eating into Blockbuster's dominance. And it's not surprising, because Blockbuster had become this slow, lumbering retailer. It took until 2004, four years after Netflix had proposed a merger, for Blockbuster to launch Blockbuster Online, basically copying Netflix's subscription model.

But by then, Netflix already had a serious head start — 2.6 million customers and over $500 million in annual revenue — and there were other similar services like Redbox, and Lovefilm in Europe.

Blockbuster, meanwhile, had long lost its spark — franchisees were complaining that the stores felt tired because there was no investment being made into them. Its retail revenue was dropping, profits were way down.

Then, in late 2004, Carl Icahn — the famous, or infamous, corporate raider — became Blockbuster's biggest shareholder, and he immediately started to fall out with Blockbuster's leadership over strategy.

One of the big issues was the late fees. As mentioned, at its peak, Blockbuster's late fees had pulled in $800 million a year in gross revenue. But by now the market had changed significantly — the very idea of penalising your customers, the people who were paying for your service, no longer flew. Customers simply weren't willing to put up with it anymore.

So when Blockbuster's leadership pushed to kill off late fees and pour money into fighting Netflix online, Icahn went ballistic, because to an old-school Wall Street activist like Icahn, those late fees were high margin, pure gold. To him, it looked like financial madness.

But in January 2005, they finally killed off late fees. It was the right move, but it came far too late — and at exactly the moment they could least afford to lose those profits.

Icahn eventually forced out the leadership, brought in a new CEO — the strategy was to stop the expensive digital expansion, bring back the lucrative late fees (I mean, that horse had already bolted), cut corporate overhead to the bone, and milk the retail stores for immediate cash flow to boost the stock price.

The result was an unmitigated disaster, because by focusing on the retail outlets only and having no digital plan, Icahn left Blockbuster completely defenseless just as high-speed broadband arrived and Netflix launched streaming.

And then 2009 hit — the economy's in recession, DVD sales are tanking, and Netflix's streaming numbers are soaring, with over 12 million subscribers and $1.6 billion in revenue. By the end of the year, Blockbuster shares are trading at 50 cents.

On September 23rd, 2010, Blockbuster filed for Chapter 11 bankruptcy, with Carl Icahn saying: "Blockbuster was the worst investment I ever made."

Dish Network bought Blockbuster out of bankruptcy for $320 million, liquidating all of the assets and closing all of the stores — except for one independent franchise in Bend, Oregon. The owners simply refused to close. Today it's essentially a pop-culture pilgrimage site — people fly in from all over the world just to stand under that blue-and-yellow sign and take a selfie, and it's also an Airbnb, so fans can book a 90s-themed sleepover inside the store.

As for the rise and fall of Blockbuster, it's a pretty obvious cautionary tale of how technology and disruption can kill even the biggest businesses in a remarkably short space of time. But it also shows just how important leadership is. It was obvious then, and it's even more obvious now, that Blockbuster needed to cannibalise its own business if it wanted to survive. But that takes a strong leader — someone with real conviction and vision — a leader willing to say "this is going to hurt us in the short term, but if we don't do it, someone else will." Steve Jobs did exactly that with the iPhone, which cannibalised the iPod, Apple's best-selling product at the time. Netflix did the same thing, cannibalising their own DVD-by-mail business to launch streaming.

But what I really loved about this story was learning about David Cook and Wayne Huizenga — two brilliant entrepreneurs who, between them, built something that was of its time, and for a lot of people my age, Blockbuster is such a nostalgic business. I still remember my first trip to a Blockbuster — the selection was huge compared to what I was used to, the size of the store, just slowly working my way down the aisles with this huge wall of choice in front of me, and I love movies, I used to buy Empire magazine every month, so Blockbuster, in its early years, was for me a place of joy. It was brilliant.

And it's those memories, together with the founders' stories, Cook and Huizenga, that make it such a great story.

And that brings us to listeners' emails, and this one comes from Jim, who'd love me to cover the life and times of Edmond Safra — he's the Lebanese-Brazilian billionaire banker who died in a mysterious fire in Monaco in 1999. Excellent suggestion, Jim, thanks so much, and also thanks for listening.

And remember, if you've any comments, corrections, or story ideas, email me at info@gbspod.com.

All the best, folks.