The quick take:
- Why it matters now: streaming prices keep climbing. Discovery+ raised prices on Oct. 13, and Netflix says customers took its 2026 increases in stride. Customers keep paying, until somebody gives them a reason not to.
- In 2000, Blockbuster collected $800 million in late fees. That same year, it passed on buying Netflix for $50 million.
- The lesson: if a big piece of your profit comes from something customers resent, you’ve written your competitor’s sales pitch for them.
On Oct. 13, Discovery+ raised its prices by $1 to $2 a month, a week after the Paramount and Warner Bros. Discovery merger closed, TheWrap reported. A week later, Netflix told shareholders that “member response to our 2026 price changes is consistent with prior adjustments and our expectations,” in its third-quarter letter.
Translation: customers grumble, then pay. Every business has some version of this, a fee or a policy people put up with because they don’t have a better option. Blockbuster had the most famous one in history. And it learned what happens when somebody shows up offering the better option.
The Most Profitable Thing Blockbuster Sold Was a Penalty
In 2000, Blockbuster collected $800 million in late fees from customers, CNBC reported. That’s not a side business. That’s a profit center built on people forgetting to drive a tape back to the store.
That same year, Netflix’s founders offered to sell their company to Blockbuster for $50 million. Netflix mailed DVDs to subscribers, who could keep them as long as they liked. Blockbuster wasn’t interested. Former Netflix CFO Barry McCarthy later said Blockbuster “laughed us out of their office,” according to CNBC.
Think about it from Blockbuster’s side of the table. Buying Netflix meant paying $50 million for a company whose whole pitch was getting rid of the fees that were making Blockbuster rich.
When It Finally Dropped Late Fees, It Kept a Catch
Blockbuster did eventually move. In December 2004, it announced “the end of late fees” starting Jan. 1, 2005. CEO John Antioco called it “the biggest and most important customer benefit we’ve ever offered in our company’s history,” according to the company’s announcement. The company estimated late fees would otherwise have added $250 million to $300 million to its operating income in 2005, and it planned to spend about $50 million launching the change.
But read the fine print. After a one-week grace period, Blockbuster would “automatically sell” customers the movie, minus the rental fee. Return it within 30 days and you got a credit, less a restocking fee.
Customers who thought “no late fees” meant no fees were not happy. In March 2005, Blockbuster settled with the attorneys general of California, 46 other states and Washington, D.C., California’s attorney general announced. It agreed to pay the states $630,000 for their costs. Blockbuster had finally gotten rid of the thing customers hated, and found a way to make them mad about it anyway.
It Almost Worked. Then the Debt Came Due.
Here’s the twist most people forget: Blockbuster nearly caught up. In 2006, it launched Total Access, which let online subscribers return their DVDs at a Blockbuster store and walk out with new ones for free. Netflix co-founder Marc Randolph told CNBC it got “very scary” because Blockbuster had something Netflix couldn’t match: “a blended model of online and stores.”
But by then, Blockbuster was carrying roughly $1 billion in debt, CNBC reported. When it couldn’t refinance, former CEO James Keyes said, “That was the death blow to Blockbuster that caused us to have to file for bankruptcy.” It filed in September 2010. “Blockbuster stuck with, you know, an old model for a little bit too long,” analyst Michael Pachter told NPR.
Activist investor Carl Icahn, who fought management over the company’s strategy, later called Blockbuster “the worst investment I ever made.”
Before Your Next Meeting
Here’s what this means for your business:
- What do your customers pay for that they wish they didn’t? Blockbuster’s $800 million in late fees was also the best reason to try Netflix. Which of your charges would a competitor love to advertise getting rid of?
- If you fixed it tomorrow, would customers believe you? Blockbuster’s “no late fees” came with a catch, and it ended in a settlement with 47 states and D.C. When you change a policy customers hate, is the new version actually simpler?
- Are you judging the upstart by today’s numbers or by what customers want? Blockbuster looked at a $50 million company that threatened its fees. What small competitor are you dismissing because it’s tiny, not because it’s wrong?
