How Blockbuster Changed The Rules

For years, visiting the neighborhood Blockbuster to rent a movie was a bit like watching Geraldo Rivera open Al Capone's vault. Great expectations gave way to dejection as you learned that any valuables inside were long gone.

No more: these days Blockbuster is stocking its shelves with three times as many copies of new releases and guaranteeing that such hits as Good Will Hunting will be in stock, or next time they're free. It is making other customer-friendly changes too, like lowering the price on older movies. The company is backing it all with a $160 million advertising blitz that features a chorus of blue Blockbuster boxes driving home the point with their rendition of I'll Be There.

Seem like a fuss? It is--a long-overdue fuss. About two years ago, the video-rental business began fading faster than Godzilla. Remarkably, the decline had little to do with new technologies like video on demand, long thought to be the industry's Death Star. The threats from technology persist. But it was management, not technology, that caused so much corporate pain and so many customer complaints. After all, how many times are you willing to go out for Titanic and come back with The Poseidon Adventure? Eventually you just stop going out. And that's exactly what happened: traffic slipped, new memberships decreased, and in April 1997, Blockbuster revealed that earnings had sagged 20%.

Blockbuster's troubles were destroying the synergistic dreams of its parent, media giant Viacom (1997 sales: $13.2 billion), owner of Paramount Pictures, Nickelodeon and MTV. Viacom CEO Sumner Redstone bought Blockbuster in 1994 from billionaire Wayne Huizenga for $8 billion, figuring that the retail stores would be a natural outlet for Viacom's films and music. But by mid-1997, with Viacom's stock stuck to the floor, Redstone had to implement drastic measures, including a $323 million charge at Blockbuster. The charge reflected an unsuccessful attempt to expand Blockbuster's sales by emphasizing music, candy and comics and moving the company to Dallas from Fort Lauderdale, Fla., at the behest of former CEO Bill Fields.

More important, Redstone had to find someone to fix Blockbuster before it did more damage. He chose John Antioco, a retail veteran who knew the problem firsthand: Antioco could never find the films he wanted either. "The dynamic of going to a video store expecting not to get what I wanted was finally enough for me to stop making the trip," he recalls. "What other business treats you like that?" Perversely, customers got so used to the abuse that it became easy not to give them what they wanted. "Managed dissatisfaction," Antioco called it. He is no stranger to making unhappy customers whole. Previously he cleaned up convenience-store retailer Circle K before moving on to run Taco Bell.

Little more than a year after stepping in, he has delivered a series of hit moves. Says Redstone: "He's great. Hiring John was as good a management move as I have ever made." Gone are the days when Blockbuster would send 1 in 5 shoppers home empty-handed while leaving scores of others disappointed. Worldwide rental revenues at stores open more than a year were up 13.3% in the second quarter. A year ago, they had slipped 3%. Active memberships have risen 7%, and internal customer-satisfaction surveys have rebounded to an all-time high.