BlockBuster: The Men & Moments Behind Its Rise and Fall

**Caemin** (0:10)
Morning folks, and welcome to today's episode called Blockbuster, the men and moments behind its rise and fall. And 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 just held onto it for a few more years. And then Wayne Huizenga, the guy who turbocharged the business after building his first fortune in the rough and tumble waste management business of the 70s and 80s. Then there's the legendary meeting where Blockbuster's executives had the chance to buy a fledgling company called Netflix for just $50 million, but they more or less laughed the Netflix founders out of the room.
And then, as I've come to expect and probably we've all come to expect, Carl Icahn makes an appearance and bullies his way into the business, but makes a complete mess of it. It is a cracking story. Enjoy. So, the story of Blockbuster, it starts with David Cook. He was a data analyst who, back in the 70s and early 80s, was the owner of a company called Cook Data Services. It was a software and data company based in Texas, and he developed complicated software that helped oil and gas companies, I suppose, make sense of their data. And he was doing pretty well. By 1982, the company was pulling in over $6 million a year in sales, and then in 1983, he took the company public. The IPO brought in $8.4 million, and now with all this cash, Cook was going to use it to fund his expansion. But then the oil market collapsed. Due to a combination of things, there was a lot of new oil production coming in from places like Alaska and the North Sea, and at the same time, a global recession just killed off demand. So Cook's customers started cutting costs really, really quickly and cancelling contracts, and he was left with practically no customers, but he did have the $8.4 million from the IPO he just raised. So he needed to pivot.
And being the data analyst that he was, he started researching potential opportunities. And in his own words, we had three criteria. One, a fragmented market without dominant players. Two, a business that could be set up locally and easily replicated. And three, a business where we could throw up some competitive barriers.
And around this time, the home video market was taken off, like industry revenues had gone from about a billion to nearly 4 billion in just two years. And Cook's research told him that most stores were small, independent, mom-and-pop type operations with limited stock, clunky checkout systems and a poor customer experience. Each video cassette cost about $70 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. This was a growing regional video rental franchise in Texas. And like almost all video stores of that time, their locations were small, badly list, not very user friendly. And then when Cook's wife suggested that their own franchise be painted in a bright blue and yellow color scheme, Video Works wouldn't allow us. 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. Like the store had over 10,000 tapes. That was more than three times what even the largest stores at that time carried. Each tape and membership card had a barcode scanned at the checkout, which then fed into a live database so they could track what people rented and predict demand. To prevent theft, each tape had a magnetic strip linked to sensors at the door. And I know all of this sounds ordinary now, but in 1985, in the video rental market, this was all pretty revolutionary.
And the design of the store, with bright yellow and blue colors, it was clean, well-lit, with rows and 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 Abbeyfield, just across the Kerry border in Ireland. We had three small pokey video shops with a tiny selection. Like the chances of getting a new release was slim to none.
Cook kept the store open until midnight, seven days a week. Rentals ran on a three-day cycle, and that encouraged people to take a few movies at a time. A lot of people would rent out three or four movies at the same time. And crucially, there were no adult films, and that was very deliberate. It created this 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 from coming in. So the demand was pretty obvious, and within two years, Cook had 15 company-owned stores and 20 franchise locations. And as a result, he spent $6 million building a central distribution warehouse.