Sad news today: Blockbuster Video has filed for bankruptcy. This doesn’t necessarily mean the end for the former market leader, but considering its downward spiral over the last few years, the state of the economy, and a broadening gap between its business model and the way people actually consume movies nowadays, let’s just say that it doesn’t bode well for its future.

Here are some bits of pieces from an article I wrote back in 2006, when the writing was already on the wall:

Once upon a time, Blockbuster was as big as Starbucks in the US. Strong brand, great customer service, unrivaled market ownership. Blockbuster was virtually untouchable.

Admit it: You had a card too. You rented stuff there. We all did.

But then, something happened. The world changed… and Blockbuster found itself completely unable to deal with those changes. VOD (video on demand) and Netflix, more than anything else, shanked Blockbuster silly while it was looking the other way. The model started to change. People no longer needed to leave their homes to rent movies.

Sure, it tried to hold on to its fleeing customers by abolishing late fees… kinduv… but it was too little, too late. Driving to a Blockbuster was still a pain. Rental fees had doubled since we had all first become members there, and we weren’t happy about it. Somehow, we all got the sense that Blockbuster could have – should have – done a whole lot more.

The issue was mainly one of convenience. Why should I drive to a store twice (rent and return) and spend thirty minutes picking out a movie, when I could just order one right from my living room? Cable and high speed internet access made movie rentals a commodity. Blockbuster failed to anticipate the change and respond to it. It got left behind.

Sure, adding video game rentals to the mix was a good idea, but poorly executed. Blockbuster stores became a weird hybrid. The brand lost some of its relevance. The smell of desperation was in the air, and we all caught a whiff.

But here’s what sealed Blockbuster’s fate: It never reached out to us, the old core of once loyal customers. It never made us feel at home there. It never worked on making the Blockbuster experience a great one… or even a half-way decent one, at that. Actually, for the most part, it wasn’t all that pleasant at all.

No, instead, what Blockbuster did was try to sell us an additional membership. A club within a club. The opportunity to “earn” a free rental each month.  (Give us more money… and we’ll give you “free” rentals.) Uninspired with a dash of insulting. The whole thing made me seriously consider the possibility that Blockbuster was actually run and operated by Uncle Scrooge.

Now, I want you to look at the photo of my neighborhood Blockbuster (top of post). What do you see?

1) One car in the parking lot.

2) What happened to the movie posters in the windows, and the promos on the door, and all of the things that made the store inviting? They’re gone!!! Why?

3) Not only that, but the windows are covered by ugly rack butts and the backsides of posters. Beautiful and enticing, isn’t it?

4) You can’t actually see it in this photo, but the “gaming” section of the store has its windows completely obscured from the inside by some kind of wallpaper. From the outside, it looks like someone duct-taped giant rolls of dollar-store giftwrap paper over every inch of glass on that side of the store. Just beautiful.

Here’s a tip: It’s pretty basic, but I guess the marketing folks at Blockbuster must have been sick when we covered this in class – The outside appearance of your retail outlet is as important as the inside. Maybe more so. If your store looks like a crack house, nobody is going to want to come inside.

Blockbuster used to do a great job of promoting to the outside world what was inside the store. Now, it just looks like a cross between a project in antisocial behavior and a foreclosure. Foreshadowing never looked so grim for a retail outlet.

Something else you can’t see in this photo: The obnoxious staff.

My last trip to Blockbuster basically involved the following experiences:

Three clerks playing pencil-tag (yes, it’s fun to throw pencils at each other when you’re bored). Even more so when customers are waiting in line and opening a second register might not be a bad idea. Extra-credit for hitting a customer in the head, and then just laughing at the fact that you did.

17 minutes in the checkout line. (Hey, at least there were customers there.) Note: This was in 2006.

The couple ahead of me finally got tired of waiting and left without renting anything. Never mind. So did the family in line behind me.

The sales pitch for Blockbuster’s special rebate club deal at the checkout:

The clerk: “Let me tell you about a super sweet offer blablabla…”
Me: “Um… no thank you.”
The clerk: “But you haven’t even heard what it is.”
Me: “I have. Several times. It’s a cool program, but not today.”
The clerk: “Pffft. Whatever. Your loss. Pay full price for your rentals then.”

Nice.

Sticker shock. Although… maybe if I had spent the extra nine bucks for the rewards program, the $5 rental fee and the entire hour I wasted driving there, picking a movie and waiting in line might have been easier to swallow. I don’t know. Maybe.

Having to drive the movie back to the store a few days later was just the cherry on top. You have no idea.

And now, Blockbuster has finally decided to become a clone of Netflix. Better late than never? I don’t know.

It isn’t every day that you get to witness the death of a superbrand. It’s kind of sad in a way, because Blockbuster could have avoided all of this… and to be fair, it might bounce back. I guess anything’s possible… But… You know… I wouldn’t hold my breath or anything.

Here is what is interesting about the way the company’s bankruptcy decision is being presented. According to the Huffington Post:

In a submission to the U.S. Bankruptcy Court in the Southern District of New York on Thursday, the company said it reached an agreement with bondholders on a recapitalization plan.

Blockbuster plans to reduce debt from nearly $1 billion to about $100 million or less by swapping debt for equity in a reorganized Blockbuster with bondholders that hold about 80.1 percent of the company’s senior notes.

It has received commitments for $125 million in “debtor-in-possession” financing from senior noteholders to repay customers, suppliers and employees during the reorganization.

“After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model to meet the evolving preferences of our customers,” said CEO Jim Keyes.

It’s a good move. No question. But will it be enough?

Don’t get me wrong: A recapitalization plan is required here. Blockbuster was bleeding money and some kind of tourniquet had to be applied. But here’s the thing: Applying a tourniquet only solves one of Blockbuster’s many problems. Turning a business around is a little more involved than focusing on its balance sheet. Reducing debt and operating costs won’t get people to do business with you. It won’t win you market share or make you relevant again. It won’t build loyalty or preference. In other words, the tourniquet may keep you alive a little while longer, but it does not address what caused the bleeding to begin with. So what is Blockbuster’s answer to that piece of the puzzle?

For a fascinating look into what Blockbuster’s Jim Keyes has in mind for the future (or had in mind, rather), check out this June 2010 two-part piece by Fast Company. Just a few months ago, in other words. Some of the most interesting bits from the second part of the interview:

So you never see an instance where Blockbuster will fail?
Not if we’re able to respond to the changing needs of the customer. The customer used to get their content in physical stores, and then it changed to by-mail and kiosks. We’re building out all those platforms, and it doesn’t happen overnight. Like I said, it’s remodeling a house: it’s not easy, it’s not cheap, and it’s not fast.

This “remodeling” should have been in full swing five years ago and the platforms should already be built. Blockbuster’s management culture failed to produce leadership and innovation sometime after 1998, and this is the outcome. I hate to say this, but easy, cheap and fast have nothing to do with making the right decisions.

Here is what really matters: Companies that reinvent their markets win. Companies that hope for technology to stand still don’t. This is where corporate cultures can be either an organization’s biggest asset or its biggest liability.

What Mr. Keyes may not realize is that saying “now it’s changed” betrays the wrong attitude. Saying “we are going to change the way people do…” instead, would have indicated the right attitude. What we witness here is a leadership culture that is struggling to adapt to change it didn’t want or anticipate, rather than a leadership structure (like Apple’s, for example) that drives change in order to not only cement its continuing market dominance, but drive double-digit growth well into the next decade. Blockbuster failed in this regard, and given Mr. Keyes’ choice of words, continues to fail still.

What is the easiest way for you to rent a movie, personally?
Here is how my family uses it. I have a Blockbuster by-mail subscription. If I want a unique movie, I put it in my queue, and two days, it’s here. If a friend came over with his kids, I stop at a convenience store, and I go to Blockbuster Express, rent a movie, and bring it home. And then it’s Sunday night, and I don’t feel like leaving my couch. I pull up my Samsung Blu-ray player, and Blockbuster On Demand is a button on the remote control: 10,000 movies at my fingertips. Yes, it’s $3.99, but it’s still a heck of a lot cheaper than a movie ticket, and it’s no different than what you pay on Apple or Amazon. […] It is a lot easier than trying to route movies through my Xbox or Nintendo!

Of course, $3.99 is cheaper than a movie ticket. It’s a DVD. I can rent mine for $1 through a Red Box kiosk (or a Blockbuster Xpress kiosk) just down the street. Why would I want to spend 4x more than I have to?

As to the ease of renting through a device, it isn’t that complicated. I might be going out on a limb here, but Mr. Keyes seemed to be projecting his own lack of fluency with “new” technologies (like consoles) onto those of us who know how to use them. It is a dangerous rationalization to make, for a CEO, to assume that his experience is the same as his customers. Here is that argument again:

That is the second time you’ve brought up Nintendo. Does Blockbuster have no interest in connecting through the Wii or other consoles? What about other platforms? An iPad app?
Look, when I say it’s confusing, I’m talking about how confusing it can be for parents, our consumers. That is our core–for example, that family-oriented mom who is not as willing to figure out how to go to a console or a computer and load a movie into the queue. The mainstream consumer wants simplicity. But we could be on consoles tomorrow morning for subscriptions if we wanted to. The problem we see is that game consoles would just as soon sell their own movies. Keep in mind that the Blockbuster customer wants new releases, which is very inconsistent for the subscription-digital streaming offer.

“The blockbuster customer” is not that one-dimensional. Wrong assumption again. (Netflix isn’t in trouble. Blockbuster is.) Blockbuster doesn’t seem to be listening to its customers a whole lot. This could be part of the problem: A company that thinks it understands its customers better than they understand themselves. Not smart.

“We could be on consoles tomorrow morning for subscriptions if we wanted to” is incompatible with “the problem we see is that game consoles would just as soon sell their own movies.” Same breath, conflicting notions. Which is it? And if Blockbuster could expand its distribution, if Blockbuster could, in fact, give consumers more options to rent videos conveniently from their homes and through whatever devices they choose, why not let them? This makes no sense.

What Mr. Keyes also fails to understand is that Blockbuster’s “core” – the technologically-challenged “I can’t figure out how to use a wii” mythological demographic he seems to want to cling to – is, in fact, perfectly capable of figuring out how to use new types of devices to order movies. The flaw in Mr. Keyes’ reasoning is this: He equates the transaction to the credit card holder. In other words, his data-centric gaze focuses squarely on “the mother” (or any single customer) rather than seeing the customer as a household. Let me explain:

In terms of adoption, I see this phenomenon with many of my friends of advancing age who have kids and teenagers: Initially, they may not be 100% comfortable with this new way of ordering movies. But their kids can figure it out in mere minutes. Jim’s example of “that family-oriented mom” is a flawed rationalization, not a reflection of reality. In the real world, technologically backwards parents may be the ones authorizing the transaction, but they don’t have to be the ones pushing the buttons. Kids can (and do) manage the process before teaching it to their parents. Kids love to do stuff on their own. In every household I frequent where adults aren’t natural tech geeks, the kids put in the movies. The kids are the Facebook, cell phone, iTunes and DVR experts. They teach their parents how to use these new tools, and the parents learn just fine.

Bottom-line: There is no obstacle here. Mr Keye’s world view is the only obstacle I see.

To get this straight, Blockbuster will not go bankrupt?
It is not our intention. Our objective is to manage a very challenging liquidity environment. We’re doing a lot of things at the same time, and we have to spend a lot of money to build our future. What we couldn’t have anticipated was a complete financial meltdown in 2009.

You’re saying Blockbuster’s financial troubles were entirely from the financial crisis. Wasn’t it due in part because of Netflix’s success?
No, I don’t know where that comes from.

No comment.

In Blockbuster’s recent earnings call, the numbers for by-mail subscribers were not released. Could you give me some sense of how many customers subscribe with Blockbuster by-mail?
We don’t release it because it is not relevant. Our customers are still half subscriber and half in-store.

Not relevant?

Denial is a powerful force.

Is this the end of the road for Blockbuster? Not quite yet. If the video giant has proven anything, it is that it is resilient, to the point of being stubborn. I can’t help but admire that, in a way. Unfortunately, the company still seems as painfully out of touch with the world and its market today as it was in 2006.

The result: A crippling lack of vision, little initiative, no emphasis on velocity, excuses rather than solutions (it’s the economy, our core customer is technology-backwards, it takes a lot of time, we could be there if we wanted to), and what sounds like a profound sense of denial from the C-suite.

The outcome: Eroding market share. An upside down balance sheet. Bankruptcy. I don’t think a turnaround is likely, at this point. There is a domino effect at play here that may be too far along to be stopped.

Tip: You don’t wait until the boat is underwater to start thinking about refitting its hull.

Sad to see a once mighty brand wither away and die like this. Especially since it didn’t have to be that way. Blockbuster, I really hope you can turn this around… but if you can’t, you will only have yourself to blame.