Jim Keyes, the former CEO of Blockbuster and 7-Eleven, provided Dallas Startup Week attendees more than what was expected. Beyond offering advice and encouragement to doing business, he gave them a behind-the-scenes look at the death of Blockbuster.
Keyes, whose corporate career spans more than three decades, was named the CEO of Blockbuster in 2007 after leading 7-Eleven as its president and CEO for five years. The movie company was already starting to suffer from disruption from Netflix, which at the time was a movie-by-mail company.
“Contrary to popular belief, Netflix did not kill Blockbuster,” Keyes said. “Blockbuster actually had a better opportunity to be Netflix today than Netflix did, and that’s what I was hoping … to accomplish.”
Keyes said the common misconception is that Blockbuster could not keep up with technology or that it was unwilling to reinvent itself, he said. The truth is rather the opposite if you ask Keyes, who said he believes any company’s success is entirely dependent on its ability to embrace change. Blockbuster was already knee-deep in offering new products, Keyes said, and the true killer had nothing to do with technology or the company’s competitors. “So why did Netflix win?” he asked the crowd, which began shouting out guesses. “Everyone forgets. What happened in 2008? Lehman Brothers collapsed.”
The market crash left Blockbuster, which Keyes said had nearly doubled its earnings in 2008, with $350 million in debt that was due in the first quarter of 2009. It was something Keyes wasn’t worried about because he was planning to refinance the debt at a later date. But now, with banks unwilling to lend, and nervous movie studios changing their credit terms from 90 days to cash, Blockbuster had only one option, Keyes said.
“What really happened to Blockbuster was our inability to finance our debt,” he said. “That was the death blow to Blockbuster that caused us to have to file for bankruptcy.”
Keyes said if he had the chance to do it over again, he’d refinance day one to be immune to a market crash. If the company had not been subject to the effects of the crash, Keyes believes Netflix would still be a movie-by-mail company. That’s because Blockbuster was on the up and up, and Netflix was still bleeding cash, he said. Keyes also was ready and waiting for technology devices to start allowing for streaming content (the iPad didn’t launch until 2010). As one of his first moves as Blockbuster’s CEO, he had purchased MovieLink, a company backed by five major movie studios that provided digital movie downloads. This allowed Blockbuster the chance to buy the digital rights on an exclusive basis, which would’ve kept Netflix from being able to stream movies from those studios in the future.
“My view of Blockbuster in 2007 was here is a company that is poised for disruption,” Keyes said. “And it’s perfectly positioned to do it because it already owns that home-video customer.”
Even though Blockbuster was generating $180 million in annual revenue, the company ultimately voted against the $100 million purchase of exclusive rights. The company’s board felt the risk was too high given that the digital customer and devices were still catching up to what the company wanted to do, said Keyes. Instead, the company opted to focus on the stores and provide a digital offering called Blockbuster On Demand and a mail service similar to Netflix, with the added advantage of exchanging a movie in-store. It also put out kiosks, similar to Redbox, at retailers.
“We had true total access,” Keyes said. “You want movies by mail? You want to go to a store? You want to get it at a kiosk? You want to get it via digital streaming? We had all four of those channels.”
Although Blockbuster did file for bankruptcy in 2010, it never liquidated. It sold to Dish Network for $320 million. Dish, which also had purchased spectrum as it readied for a 5G network, bought the company aiming to leverage the brand identity for a 5G streaming option, Keyes said. It also planned to purchase Sprint. The idea was that it would use Blockbuster stores as distribution for better mobile service that would come with the ability to stream movies and mobile content. But the bet was too early, as consumers still wait for 5G networks to launch in the U.S.
So what did Keyes learn from all of this?
“Timing is critically important,” Keyes said. “I tend to get ahead of my headlights sometimes because I feel like I can see where the future is trending, where technology is going to take us, and yet the consumer is not yet there.”
He also brought up an example of launching too early at 7-Eleven. There, he tried to leverage its ATM technology to launch something called Vcom, or virtual commerce machine. The machine would do everything from paying a ticket to cashing a check to wiring money to paying employees. 7-Eleven added all of the bells and whistles, complete with flashing lights. “It was an absolute disaster,” he said. That’s because it was all too much too fast, he added. Keyes predicts it would’ve had a chance to succeed had he only launched it with one capability first, like allowing customers to cash their paychecks, and then slowly added additional services.
“The lesson for everybody is don’t give up on your ideas,” he said. “Those machines are now readily available in the market today. … You have to be careful not to get ahead of your customer with some of these great ideas but also have the patience to see it through.”
He also offered startups advice to stay ahead of the game and even land corporate clients like 7-Eleven and Blockbuster. It came in four pieces: Always embrace change, have the confidence to execute, simplicity is key, and always be aware of the community your company serves and leverage that to provide stakeholder value. For example, at 7-Eleven Keyes invested in a program that took the company into public schools and began developing and recruiting future employees.
He said the best startups he worked with were able to break down into simple language their technology, why he should be using it, what the alternatives were, and why they don’t work. It’s a simple as a one- or two-page explanation that educates the top executive. “Assume that they don’t know what they want, and help them learn from you and be able to better articulate what they want,” he said. Then “there’s a better chance they will turn to you for that product or service.”
He also said look for the corporate entrepreneurs, which he knows exist given that he was one. They’re the ones that will be fearless enough to try something new.
But in the end, above all, business leaders need to be tough, as they will likely have to withstand a lot of rejection, negative perceptions, and ups and downs. Keyes certainly did.
“I got more value out of my learning in five years at Blockbuster because of the war I went through and all of the battle scars I got … than the success at 7-Eleven,” Keyes said. “Even from your battle scars, you learn and grow.”