Blockbuster and how I almost became the kingpin of cable
There was an article about Blockbuster (BBI) on Venture Beat yesterday. The trading of the stock was halted after it dropped 77% because apparently the company is seeking to file Chapter 11 bankruptcy.
I worked for Blockbuster for a brief period of time after Bankers Trust (another defunct company - now part of Deutsche Bank) and before CRV. I was the President of BBI responsible for new media. I got there right before their second IPO as it spun out of Viacom and left right before the now infamous Enron deal.
It was an excellent career move for me and despite my short time there I learned a lot, got to do a lot and almost became the kingpin of cable!
Here is the story of what almost happened:
After months of much trial and tribulation, I finally convinced the management team that our future was in becoming a cable company. Our option was either to (a) buy a cable operator and consolidate the market (the market was still fragmented at that time) or (b) partner with a Telco and launch a Blockbuster branded Video over DSL service competitive to cable much like US West and GTE were doing at the time.
I got us talking to Bell Atlantic as it was merging with GTE to form Verizon. Our pitch was our brand and our ability to sign up customers for service at Blockbuster stores. We got lucky, they bit. And to top it all, Verizon – the new entity - had to shed all its cable assets, mostly GTE systems in CA, because of anti-trust and we had the chance to buy it all.
It would have been an instant family. We would have ended up with a few million subs, excellent cash flow and an agreement to aggressively roll-out a video over DSL service on top of the new Verizon network in major metropolitan areas. Verizon and BBI would split the cost of the roll out.
I started lining up all the pieces: Bear Stearns to raise the debt component, venture investors for the equity portion (that’s when I first met my Spark co-founder Todd Dagres) , a small acquisition that would have given us all the middleware we needed – the works.
I even went office shopping in Silicon Valley with my partner in crime at the time – Steve Pantelick who is now the CFO of Aggregate Knowledge. We were going to spin this baby out and then consolidate the cable market as fast as we could. We would remake the company. If we could pull it off, we would use all the free cash flow from the store business - $500M/year at the time - lever up and buy a lot of cable subs - at the then going price of $2,000 per sub.
Then CBS happened – Viacom merged with CBS and shelved the plans to spin out 100% of Blockbuster as they needed our free cash flow to pay for the acquisition. As a subsidiary of a Media Company, the word came down that we could no longer compete with the hand then fed them and that was the end of it.
Soon after, I left. I think I cried when I met the CEO to resign.
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