How Netflix killed Blockbuster — and all of physical media

It was a chilly winter morning in 2004. The scene was Stanley, Idaho — a city with a population of 101 and a current temperature of negative 17. My boyfriend, who had lured me here from London, England, handed me a bright red envelope and asked if I could drop it in the mailbox on my way into town. 

“What’s Netflix?” I asked, peering at the white letters printed on the side. “It’s DVD by mail,” he said. “They send you movies in the mail. You send them back when you’re done. Then, they send you another one.” It was a revelation.

While Netflix had been growing in the US since its launch in 1998, it wouldn’t cross the pond for another eight years. For the rest of the world, movie night in 2004 still meant a pilgrimage to the video store. As a child of the ’90s, I spent countless hours cross-legged on the floor of my local video store, scouring the rows of VHS cassette tapes for something new to feed my filmic obsession. 

But those loathed late fees sucked up my limited pocket money as I hoarded cassette tapes for multiple viewings. This new system — hold onto a movie for as long as I wanted with no penalty — felt revolutionary. Little did I know, a much bigger revolution was brewing.

Fast forward to 2024, and there’s more “content” available to me on a stick than in all the Blockbusters in London. I can access practically any show or movie ever made anywhere with just the press of a button (and possibly a credit card number). It’s a far cry from the physical effort of the pre-streaming era: countless trips to the video store, regular battles of will with the VCR to record every episode of Buffy the Vampire Slayer, and deciphering TV listings in magazines and newspapers. (Much harder than it sounds.)

The shift from physical to digital media opened up a treasure trove for film nerds like myself. Almost everything, everywhere can be accessed instantly. Yet, a pang of nostalgia lingers for the way it used to be. Sometimes, a little more effort makes the reward that much more enjoyable.

The internet — and the birth of streaming video it enabled — changed everything about how we watch and even what we watch. But I’d argue that the moment the video store and physical media began to die came in 2004, with the birth not of streaming but of another mail-order DVD service: Blockbuster Online. 

The world’s biggest video store rental company, Blockbuster, was as much of a cultural icon in the 1990s and 2000s as Netflix is today. Much like Barnes & Noble did to the independent bookstore, Blockbuster blew small, local video stores out of the water by stocking dozens of copies of the latest movies through canny negotiations with the movie studios. (It convinced them to sell cassettes for $1 a copy instead of $65 each in return for a slice of the rental revenue.) 

Netflix, meanwhile, was a bootstrapped startup that had tried and failed to sell its movie-by-mail rental business to the big boys. In what has now become a cautionary tale taught in every business school, Netflix’s Marc Randolph and Reed Hastings were literally laughed out of the room by Blockbuster execs.

By 2004, Blockbuster had over 9,000 physical stores in the US and a revenue of $5.9 billion. But it was acutely aware of the increasing competition from Netflix, which now boasted a million subscribers. That year, it launched Blockbuster Online. Then, it did the unthinkable — it scrapped its widely unpopular but wildly profitable late fees. Combined, these two moves cost the company $400 million. Within a year, it had lost 75 percent of its market value; within six, it was bankrupt.

There are plenty of theories as to why this happened, but Blockbuster’s ousted CEO John Antioco says it wasn’t the rise of Netflix that caused the fall of Blockbuster; the company imploded from within. The trouble started because of fear of competition, but Antioco argues Blockbuster could have still succeeded in a Netflix world. Unfortunately, Blockbuster’s primary investor, Viacom, didn’t agree. It sold its 80 percent stake and set the company up for its downfall.

This leads to an interesting alternate universe theory: if Blockbuster hadn’t panicked about the internet and failed to pivot to streaming, could it have found a future where physical media remained relevant? As it went, Blockbuster’s death left a movie-watching void that companies new and established jumped into, hastening the shift from physical to digital. Netflix launched its streaming service in 2007, followed quickly by the founding of Hulu by NBC and News Corp – adding TV shows to the streaming mix. In 2011, Amazon Instant Video (the precursor to today’s Prime Video) arrived, and the rest, as they say, is streaming history.

Even what remained of physical media eschewed brick and mortar for the less expensive option of the US Postal Service. The Disney Movie Club (which launched in 2001) grew in popularity by offering discs packed with extra features, behind-the-scenes documentaries, and more for families to endlessly rewatch. When I had kids around 2008, I was lured into the cartel-like service with a bundle of free Disney DVDs, then tied down to a monthly purchase. 

A back-of-the-napkin estimate shows I dropped nearly $600 on Disney movies over my children’s formative years. (Anyone remember the Disney Vault? A genius concept that made me spend a lot of money I shouldn’t have.) The Movie Club finally shut down earlier this year, and those DVDs are sitting in a drawer gathering dust now that I can stream most anything on Disney Plus. While its streaming service didn’t launch until 2019, Disney’s belated pivot to digital was the final nail in the coffin for physical media. Once the House of Mouse gave in, the game was up.

But the internet didn’t need to kill the video store. If Blockbuster had managed its pivot with more grace, some semblance of that physical browsing experience might have lingered into the 2020s. Scrolling Netflix just doesn’t compare to wandering the aisles in search of a hidden gem or tapping into the experience of the classic video store clerk.

Obviously, like everyone else, I’ve happily traded late fees and reminders to rewind for a vast library of content I can access from my couch. It’s a level of convenience that would have truly blown my mind back in that chilly Idaho winter. But couldn’t we have had it both ways? I guess we’ll never know. My local Blockbuster is now a wine bar.