"Neither RedBox nor Netflix are even on the radar screen in terms of competition. It's more Wal-Mart and Apple." Blockbuster CEO Jim Keyes
"I've been frankly confused by this fascination that everybody has with Netflix." Blockbuster CEO Jim Keyes
Framing is the process of using your internal preferences and biases to filter objective reality, and then presenting what you now believe to be objective reality to others.
Do you remember going to the local video store on Friday night? It can be hard for some to imagine now, but there was a time when video rental stores like Blockbuster Video were a regular part of your weekend plans. I can personally remember taking my entire family to Blockbuster where we would all go to our different favorite sections, eventually ending up at the checkout counter where we would be convinced to buy popcorn or candy. Occasionally we would hang around the counter waiting for someone to return a DVD that we wanted!
Online video streaming services like Netflix and small kiosk-based rental systems like Redbox destroyed the old video rental business model. Blockbuster came to the party late, even though it got an early invite. In 2000, Netflix proposed that it would handle Blockbuster's online component for it, and Blockbuster could host its in-store component (thus eliminating the need for mailed DVDs). According to an interview with former Netflix CFO Barry McCarthy, "They just about laughed us out of their office." Blockbuster went belly up and Netflix went on to thrive.
Why would Blockbuster fail to see the market potential of Netflix?
Bad framing.
Blockbuster was a well oiled and highly efficient retail operation. Their executive team had a long track record of success and were dominating their industry. Their “frame” was that people weren’t interested in a huge portfolio of movies, rather they were focused on new releases. They also believed that people wanted their movies immediately and wouldn’t wait for a movie to be delivered in the mail. Finally, the Netflix subscription model would cut into one of Blockbuster’s primary sources of revenue – late fees!
The management team of Blockbuster made a perfectly rational decision based on their framing of the issue.
Had they viewed their business through the frame of providing maximum flexibility to their customers by embracing new technology and distribution methods, they would have made a completely different decision!
This is also a lesson on corporate board composition. If everyone around you has the same background, then they will all have the same frame.
And you will have huge blind spots!
Who do you listen to?
Coda
I have an excellent frame and am very good at predicting likely outcomes based on many variables. I am typing this on January 27, 2020, and I have to confess I am very worried about the coronavirus. There seems to be a dramatic disconnect between what the official position is (nothing to see here, move along) and the information that is dripping out of China. There are now 50 million people under quarantine, the virus has a very long incubation period (where people are contagious), and they are actually washing down the streets in infected cities with bleach! I hope I am wrong, but on this day, my frame says this is very bad.