The Blockbuster Bankruptcy

Day-to-day occurrences are one thing, but the things we manage to accomplish through our daily work are quite another. I define strategic management as managing the future. We use it to analyze trends and positions, jumping from static models to dynamic ones — such as game theory — to establish situations that permit advancement.

Blockbuster indicated that it was declaring bankruptcy because of piracy and Internet video rental and purchase. But couldn’t it have foreseen this changing trend? Yes, categorically. Piracy did not appear with the unforeseen force of a new fashion; it was more of a known and predictable trend, which expands and contracts depending on communicational and legal efforts. If the objective of strategic management is long-term planning, the analysis would have shown this threat.

The excuse only worsens the crime, because there are businesses that have succeeded in gaining the upper hand over piracy. So why didn’t Blockbuster diversify its portfolio? If its analysis revealed the future direction of movies, why didn’t it invest in it? Its financial statements reveal that five years ago it could have afforded to do so. Why did it go bankrupt? This is a question that leaves the responsibility with management and a series of lessons that ends with the story of the fall of the colossus which shook the world of the small- and mid-sized store and marked its arrival in Chile by buying one of the most innovative companies of the early ‘90s — Errol’s — which penetrated the supermarkets.

Blockbuster stores used to double as Citibank branches in the late ‘90s, and the company was able to negotiate on an equal basis with what was then the largest bank in the world. Their fall seems inexplicable, but in contrast to banks, which fail because of bad investments, this is a case of bad management. But it does not end here, because new management is coming. Blockbuster will go on, but in the hands of whomever would like to purchase its brand, its branches, its clientele and its knowledge of the retail rental market. Will it be Apple? Vimeo? Citibank? Time will tell how the second part of the story is managed.