Blockbuster

"This is one of the processes by which the number of competitors in an industry tends to decline over time, as discussed earlier. Waste Manage¬ ment, run by Huizenga and Dean Buntrock, acquired scores of local mom-and-pop operators. Increasing the scale produced operating effi¬ ciencies and improved managerial methods. In addition, and not inci¬ dentally, Waste Management told its story very effectively to stock market investors. Huizenga later applied what he had learned about growth through acquisition to a high-growth business, the Blockbuster chain of video rental stores."

"Winning is no laughing matter to Huizenga, however. Associates report being sent back to the negotiating table 15 times or more until they emerge with terms that satisfy him. In purchasing a portable toilet busi¬ ness for $4 million, Huizenga rejected the sellers’ demand that they retain SI00,000 cash in a bank account. Unwilling to yield on the issue, which his colleagues thought too trivial to be a deal killer, he abruptly said, “Okay, boys, let’s go home.” Huizenga’s team stood up and left the room, but as he expected, the sellers did not let them get down the elevator be¬ fore conceding the point and closing the transaction.30 “A deal,” Huizenga once told an interviewer, with a smile, “it’s like chasing a girl. You work at it until she says yes.” Then the smile disappeared. “You keep putting the pressure on them. Hit ’em right between the eyes. . . .You kill ’em.”31 According to one participant in many of Blockbuster’s acquisi¬ tions, Huizenga often told reluctant sellers that delaying would only re¬ duce the eventual sales price. While they dallied, he elaborated, Blockbuster would open more stores and become a greater competitive threat.32"

"The investment hypothesis was grounded in this dilemma: Blockbuster would drag their feet facing up to the painful existential imperatives that confronted them and Netflix would continue to cannibalize their customers.14 This hypothesis was borne out by Blockbuster’s subsequent behavior and their eventual demise."

"Counter-Positioning. Throughout my business career I have often observed powerful incumbents, once lauded for their business acumen, failing to adjust to a new competitive reality. The result is always a stunning fall from grace. A superficial thinker might pin this on lack of vision and leadership. Not Hamilton. By inventing the concept of Counter-Positioning, he was able to peel back the layers to peer into the deeper reality of these situations. Rather than lacking vision, Hamilton established, these incumbents are in fact acting in an entirely predictable and economically rational way. Our earlier battle with Blockbuster bore out this notion."

"Out of the Frying Pan… When I became an investor in Netflix in 2003, my investment hypothesis had two legs: Netflix’s DVD-rental business had Power: Counter-Positioning to the brick-and-mortar incumbent, Blockbuster; Process Power, as well as modest spatial distribution Scale Economies relative to other DVD-by-mail wannabes. This Power was not properly recognized by the investment community."

"In the spring of 2003 I took a leap by investing in a small early-stage company based in Los Gatos, California. Today you may recognize the name: Netflix. Most of my investments have been in large caps, but I made this bet on Netflix due to their impressive mail-order DVD-rental business which was successfully disintermediating Blockbuster’s brick-and-mortar business model. Blockbuster faced the unpleasant choice of losing market share or eliminating late fees, which accounted for about half of their income."

"I went off to a Christmas cruise in the Caribbean with about ten pounds of Paramount internal data to study. The bidding process had given each side the ability to top the other with a three-week pause between bids, and I was prepared for Viacom to raise the stakes. Which they did. Over the next months the bids went from $62 a share to $95, and the transaction now approached $9 billion. We both had to raise more equity. Redstone got Blockbuster to inject $500 million into Viacom, and we got Advance, the parent company of Condé Nast, as well as BellSouth, to come in with us. It was a grueling process, and the media followed each bid as if it were the longest horse race in history. At one stage, when Viacom had the leading bid, *New York* magazine put me on the cover with the headline MOGUL IN A MESS."