As a child, renting a movie was something I looked forward to every Friday night. After spending five long days trapped in a classroom, my siblings and I were rewarded for our time served with the gift of being able to select any movie our hearts desired. As children, we loved browsing each aisle thoroughly, making sure we considered all our options before committing to one selection. It would be another week until we were back, so we had to choose wisely.
But the excitement didn’t end there; once we reached the checkout counter we were also permitted to pick out one sugary treat to eat while we watched our selections. This was pure bliss for a child and I looked forward to this routine every single weekend.
Now, video rental stores are a relic of the past as modern technology has replaced the need consumers once had for these establishments. Streaming platforms of all varieties have given consumers the ability to browse thousands of movies without ever leaving the comfort of their couches. And with only a click of a button, you have pretty much any film or series you could ever want. So, even though my childhood memories of visits to Blockbuster Video are precious to me, I most certainly do not mourn the closing of these businesses. Instead, I celebrate the innovation that has made these stores obsolete.
Creative Destruction
Economist Joseph Schumpeter first coined the term “creative destruction“ in the 1940s and explained it as:
“The process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new structure. This process of creative destruction is the essential fact about capitalism.”
An excellent example of this phenomenon can be found when taking a closer look at why companies like Blockbuster and Hollywood Video no longer exist.
Our world is becoming increasingly more digital. And video media is hardly the only sphere impacted by this innovation. With the rare exception of vinyl enthusiasts who have created a steady demand for physical records, music is now mostly purchased and listened to on digital platforms like Spotify and iTunes. The same can be said for physical books as well. Many consumers prefer to read their content on e-readers. By switching to digital books, consumers can now carry hundreds of books around them at all times on a relatively small device. The new will always replace the old, and this is truly miraculous and absolutely something to be celebrated.
As new technology emerges, there is always less of a need, and thus less consumer demand, for older and outdated models. The carriage was replaced by the car, manual labor was replaced by industrial machinery, the typewriter was replaced by the computer, and Blockbuster Video was replaced by Netflix. The key thing to remember is that with each of these innovative changes, the consumer won by gaining access to better goods and services.
The Netflix Effect
Thomas Sowell once said:
“The very thing that makes a modern industrial society so efficient and so effective in raising living standards–the constant quest for newer and better ways of getting work done and more goods produced–makes it impossible to keep on having the workers doing the same jobs in the same way.”
And that is exactly what Netflix has done. In fact, the disruptive impact it has had on the market has even been dubbed, “The Netflix Effect” by economists. This is because, in addition to replacing the need for rental stores, Netflix has also changed the way we consume other forms of media as well.
As Mark Perry from AEI says:
“After challenging Blockbuster, which filed for bankruptcy in 2010 and was subsequently acquired by Dish Network at auction in 2011, Netflix (along with other online viewing platforms like Hulu, Amazon and Apple TV) is now challenging cable networks, traditional network TV channels, and pay-TV services.”
Many people, and especially millennials, are opting to use streaming platforms instead of purchasing cable television. And while in the earlier days of Netflix streaming this meant waiting until a season of a show had ended before being able to watch it on the site or having to wait until a movie had been out for awhile, now other companies are competing with live television.
Hulu, for example, now offers a live streaming service that is only further incentivizing consumers to ditch their cable providers. And to make things even more enticing, the prices for streaming platform subscriptions are far less than what consumers pay for cable packages.
But Netflix, along with Hulu and Amazon, are also changing the way media is produced. Since each of these platforms now offers a plethora of original content, they are now directly competing with major Hollywood production companies. And, even more interesting, have even encroached on these production companies’ turfs by resurrecting canceled projects. When Fox canceled the Mindy Project, for example, Hulu picked it up and carried the series for several additional seasons. Likewise, Netflix has become known for resurrecting older classics, like Full House.
But while cable providers and production companies aren’t doing much to innovate and compete with streaming platforms, Blockbuster deserves a nod for at least putting up one last fight before shutting its doors.
Blockbuster’s Last Stand
Before digital media became as popular as it is today, Netflix began as a mail DVD rental service. Still more modern than video rental stores, which still offered VHS well after DVDs became the norm, Netflix appealed to consumers who were too busy or didn’t want to have to leave their homes to rent a movie. For a monthly fee, you were given a certain amount of rentals per week. Selecting which films you wanted to see in order of importance, Netflix would go down the list and send you a few selections at a time. Once you returned those selections by placing them in the mailbox, you would be sent your next selections.
This was truly revolutionary for its time and even back in the early 2000s when Netflix started rising in popularity, rental stores knew they were in trouble. Hollywood Video kept their model the same, relying on their “hip” brand to save them. Blockbuster, on the other hand, put up a fight.
Blockbuster saw the direction the market was taking and began offering a similar service, mailing DVDs to consumers in addition to having physical locations. This may have ultimately been what allowed the company to stay afloat for a few more years.
By 2010, the company that had acquired Hollywood Video in 2005 had filed for bankruptcy, signaling the final nail in the rental store’s coffin. Blockbuster would survive until 2013 when it finally decided to close its remaining stores.
Our world is ever-changing, but as the old way of doing things is replaced by the new, we should consider how lucky we are as consumers to be benefiting from creative destruction. And while kids today may not understand the wonders of visiting a video rental store, they will also never have to deal with the struggle of waiting for a video to rewind before having to return it to the store, and that is a worthwhile tradeoff.
