A $50 Million Offer September 2000

You are advising John Antioco, chief executive of Blockbuster.

The founders of a small DVD-by-mail rental company called Netflix have flown to Blockbuster’s headquarters in Dallas. They propose that Blockbuster buys Netflix for $50 million and lets the Netflix team run the online side of the combined business.

Known information

Blockbuster operates thousands of video rental stores and earns substantial revenue from late fees.
Netflix is losing money; its founders say it is on track to lose at least $50 million this year.
The dot-com boom has turned to bust, and many internet companies are struggling to survive.
Most households still rent films in person, and fast home internet is not yet widespread.

Reveal what happened (spoilers: decide first)

Fact

What actually happened

Blockbuster declined the offer. (Decline the offer)

Blockbuster turned the proposal down without a counter-offer. According to Netflix co-founder Marc Randolph’s account, Antioco appeared to be “struggling not to laugh” at the price. Blockbuster launched its own online rental service in 2004 but filed for bankruptcy in 2010. Netflix went on to become a global streaming company.

Important

Possible consequences · Analysis and speculation, not fact

Buying Netflix might have given Blockbuster a head start online, but many business writers argue that a large store-based company could still have held back the online unit to protect its existing revenue. The outcome of such a merger cannot be known.

History does not reveal what would definitely have happened under the other choice. Many factors could have changed the outcome.

Context · Why it was decided this way

Most accounts of the meeting come from Netflix’s founders. At the time, the decision looked reasonable to many observers: Netflix was small and unprofitable, and dot-com valuations were collapsing.

Later analysis often focuses less on the 2000 meeting and more on Blockbuster’s decisions in the years that followed, including disputes over how much to invest in its online service and in ending late fees.