John Antioco is the former CEO of Blockbuster and he must get chills every time he remembers what he decided at a meeting in Dallas back in September 2000.
Yes, Blockbuster, the video and DVD rental chain that passed away between 2013 and 2014, when they closed their last stores (although there is one lost in Oregon, United States, which is now an AirBnb "experience").
It turns out that in his book That Will Never Work: The Birth of Netflix and the Power of Great Ideas (Paidós, 2019), Marc Randolph -one of the co-founders of Netflix-, describes a meeting he attended with Antioco together with the other Company co-founder Reed Hastings and then-CFO Barry McCarthy at Blockbuster headquarters in Dallas, United States, according to Inc. magazine.
The movie rental company could have bought Netflix that day for $50 million, but Antioco didn't even bother to consider the possibility.
The night before the meeting, Randolph, Hastings and McCarthy were at Netflix's first corporate retreat - somewhere in California - when McCarthy got word that Blockbuster wanted to meet with them.
At the time, Netflix was in trouble . The dot-com bust had made its once bleak future look even bleaker. What happens is that back then,
Netflix was doing something else: It was a mail-order DVD rental service , which was all you could do in those days of slower download speeds. It was becoming a fad but it was still not enough for the company to be profitable.
Two years earlier, and at a time of increased economic dynamism, Hastings and Randolph had turned down the opportunity to be bought by Amazon. Now an acquisition by Blockbuster seemed like the perfect solution and the perfect lifeline to keep Netflix afloat.
With this in mind, Netflix executives had been requesting a meeting with Blockbuster leaders for months . Now word came that Blockbuster wanted to meet them, at 11:30 the next morning in Dallas, which was less than 12 hours away.
Hastings, who has described entrepreneurship as jumping out of a plane confident of catching a passing bird, said they could get there if they chartered a plane by 5 a.m. the next day.
McCarthy objected: That would cost at least $20,000 when the company was about to run out of money to continue operating . "We've waited months to get this meeting," Hastings replied.
"We're on track to lose at least $50 million this year. Whether we make it or not, another $20,000 won't make any difference." The logic of this was inescapable so they chartered the plane.
Seesaw
At Blockbuster's Dallas headquarters, everything seemed designed to impress visitors with the company's wealth and power, from the building, which Randolph describes as "an unbroken cube of steel and glass," to John Antioco's loafers. .
"His loafers probably cost more than my car at the time," Randolph writes.
Antiochus had reason to treat himself to luxury footwear. He had come to Blockbuster two years earlier , when the other successful company was in decline due to some poor business decisions, like trying to sell clothes.
Not only had Blockbuster's fortunes turned around, but it had led to a successful IPO that raised $465 million the year before.
"I'm sure he felt sure of himself," Randolph writes. "He was willing to listen to us, but it was better that what we said was good."
For them, the sales pitch was strong. Hastings quickly reviewed Blockbuster's strengths, then pointed out that there were areas where it could benefit from Netflix's market position and expertise. "We should join forces," he said.
"We will run the online part of the combined business. You will focus on the stores. We will find the synergies that come from the combination, and it will truly be a case of the whole being greater than the sum of its parts."
Antioco's response should be framed as those phrases that go down in history as wrong: "The dot-com hysteria is completely overblown."
Blockbuster General Counsel Ed Stead went on to explain that the business models of Netflix and almost every other online business were not sustainable and would never make any money.
Netflix execs debated this point with him for a while, and then Stead cut to the chase: "If we were to buy them, what are they thinking? I mean, a number."
"Fifty million," Hastings said.
Randolph reports that he had been watching Antiochus carefully during this conversation. Throughout, Blockbuster's CEO came across as a polished professional, bowing and nodding and giving every indication of someone that he was listening intently.
Now Randolph watched as a strange expression crossed Antioco's face, lifting the corner of his mouth. It lasted only a moment, he writes. "But as soon as I saw it, I knew what was going on: John Antioco was fighting not to laugh."
Obviously, Blockbuster did not accept Netflix's offer or make a serious counter offer. "The meeting went downhill pretty quickly after that, and it was a long, uneventful drive back to the airport," Randolph writes.
Blockbuster General Counsel Ed Stead went on to explain that the business models of Netflix and almost every other online business were not sustainable and would never make any money.
Antioco left Blockbuster after a protracted dispute with board member Carl Icahn over compensation later, and Blockbuster ultimately filed for bankruptcy in 2010.
The last store closed in 2014, except for the aforementioned one that is still open today, in Oregon.
The story has a lot of morals: about arrogance and about not throwing in the towel too soon. Netflix executives learned theirs. Antioco... has he learned something? His decision was one of the kisses of death for a company that once had 25,000 employees distributed throughout the world.
