The debt was an especially big problem for Blockbuster, because launching its online subscription business was expensive. The idea was that Blockbuster would eventually add enough subscribers to make Total Access profitable. Netflix faced similar obstacles, which is why the company took over six years to post its first profit and why it continues to burn through billions of dollars each year while adding new streaming content to grow its subscriber base.
The other thing that got in the way of Blockbuster squashing Netflix was Wall Street billionaire and activist investor Carl Icahn. Icahn and the other board members he installed vehemently opposed Antioco's plans to build out Blockbuster's online business and, especially, the decision to ditch the company's lucrative late fees. They didn't seem to grasp the importance of building a strong digital presence to the future of Blockbuster's industry.
In the end, though, Blockbuster's ultimate demise might have come down to an argument between Antioco and Icahn over the CEO's bonus. Icahn and Keyes wanted Blockbuster to focus on growing its revenue to pay off its debt, which they believed meant turning the company's focus away from the online business and reinvesting in brick-and-mortar stores. Under Keyes, the company even reinstated its unpopular late fees in Blockbuster's online subscription business sputtered and the company was suddenly faced with an even larger obstacle than Netflix: the financial crisis that led to the Great Recession.
The financial crisis made it a scary time to be carrying so much debt, especially since banks were no longer as willing to lend additional money. His entry into any company typically means headaches for managers and directors. Antioco knows a thing or two about dealing with Icahn. Antioco led turnarounds at Circle K convenience stores and Taco Bell, and was on his way to building Blockbuster's digital unit into a significant Netflix competitor when Icahn's pestering and meddling began, according to Gina Keating, author of the critically praised book "Netflixed: The Epic Battle for America's Eyeballs.
Before Antioco resigned in , he had implemented a hybrid strategy that allowed customers to rent videos from stores or over the Internet for one monthly subscription price. Even Netflix insiders said the idea would have been tough to beat, according to Keating's book.
It was Jim Keyes, the CEO who succeeded Antioco and a man supported by Icahn, who gutted Blockbuster's digital unit and put the company's resources behind brick-and-mortar retailing. The company filed for bankruptcy protection in Question: Carl Icahn is a legend and has made lots of money.
Was it intimidating having him on your board and in control of three seats? Antioco: He's an interesting guy. He's certainly good at what he does, but it's amazing how much his decisions are driven by instinct instead of analysis. When I was there, I think his son Brett was the driving forcing behind his involvement with Blockbuster. Carl is very dynamic and works a lot and if he gets in at Netflix, life for Reed will change. Why did you leave? Antioco: It became impossible with a board that was so dysfunctional.
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