How Much Could Blockbuster Have Bought Netflix For?
In 2004, Netflix’s then-CEO Reed Hastings and his CFO Jim Dorward took the company public with an initial public offering (IPO) of 5.5 million shares at $15 per share, raising $82.5 million. This marked a significant turning point in the company’s history, as it enabled Netflix to expand its operations and pursue its ambitious plans for the future.
A Missed Opportunity
Fast forward to 2010, when Blockbuster, a once-dominant video rental chain, had the opportunity to buy Netflix. Yes, you read that right – Blockbuster, a company that was struggling to adapt to the changing market, had a chance to acquire the pioneer of online streaming. According to various reports, Blockbuster’s CEO, Jim Keyes, met with Netflix’s Hastings and made a bid to buy the company for $50 million. Keep in mind that Netflix’s market capitalization at the time was around $2.5 billion.
The Reckoning
What makes this missed opportunity even more astonishing is that Blockbuster had the chance to buy Netflix for a mere fraction of its market value. In an interview, Hastings recalled:
"We said, ‘We’re not interested in being acquired.’ Jim [Keyes] said, ‘Okay, we’ll just spin up a service and do it ourselves.’"
In hindsight, it’s clear that Blockbuster’s attempt to buy Netflix was a crucial mistake. Netflix, already an early adopter of online streaming, was well-positioned to capitalize on the emerging video-on-demand market. Meanwhile, Blockbuster stuck to its brick-and-mortar business model, which ultimately led to its downfall.
A Look Back in Time
To put this into perspective, let’s take a look at the growth of both companies over the years:
| Year | Netflix | Blockbuster |
|---|---|---|
| 1997 | Founded with 30,000 customers | Founded in 1985, 2,000 stores |
| 2004 | IPO at $15 per share | Peak of 9,000 stores |
| 2010 | Acquires littleneck, $100 million in revenue | Bankruptcy, 2,000 stores remaining |
| 2019 | 150 million subscribers, $15.8 billion in revenue | Gone, only 328 stores remaining |
Today, Blockbuster’s Aftermath
After the failed acquisition attempt, Blockbuster continued to struggle to adapt to the changing market. Despite efforts to revamp its business model, the company filed for bankruptcy in 2010 and underwent multiple restructurings. Today, only a few Blockbuster stores remain in the United States, with the majority of the brand’s assets being sold off to various companies.
What If?
Fast-forward to the present day, and it’s clear that Netflix’s value has grown exponentially, reaching an estimated market capitalization of over $250 billion. If Blockbuster had acquired Netflix in 2010, it’s likely that the former would have owned a significant portion of the latter’s shares. Let’s do a rough calculation to estimate the value of those shares:
Assumptions:
- Blockbuster’s bid of $50 million in 2010 was a fair value for Netflix at the time.
- Netflix’s market capitalization was around $2.5 billion in 2010.
- If Blockbuster had acquired Netflix, it would have owned 20% of the company’s shares (a rough estimate, given the bid amount).
Calculating the Value:
- 20% of $2.5 billion = $500 million
- $500 million + $50 million (bid amount) = $550 million
A Potential Windfall
If Blockbuster had successfully acquired Netflix, it’s likely that the company would have gained significant value from the transaction. Considering the current market capitalization of Netflix, the estimated value of Blockbuster’s shares would be:
- $250 billion (market capitalization) * 0.2 (20% equity stake) = $50 billion
This analysis suggests that Blockbuster’s initial bid of $50 million in 2010 would have grown to a potential value of $50 billion if they had acquired Netflix. This is a staggering difference, highlighting the importance of being ahead of the curve in the ever-evolving tech landscape.
Conclusion
In 2010, Blockbuster had a rare opportunity to buy Netflix for a fraction of its market value. Unfortunately, the company failed to capitalize on this chance, and the world has witnessed the consequences. Today, Blockbuster is a shadow of its former self, while Netflix has become one of the most successful entertainment companies in the world. The story serves as a reminder of the importance of adaptability and innovation in the rapidly changing tech landscape.