Chapter 2

2. Blockbuster Takes Charge

“This is an industry with an image problem, a fragmented industry of dimly lit stores and X-rated movies.”

—Wayne Huizenga in 1988, Chairman of Blockbuster, Inc. 1986-1994

What is the connection between Blockbuster, the dominant force in home entertainment for over 20 years, and Waste Management, the largest garbage company in the world? H. Wayne Huizenga. He founded Waste Management in 1971, and although he did not found Blockbuster, he bought controlling interest of the company in 1986 when it had only twenty stores. He and two partners from Waste Management paid $18.5 million for 60 percent of the company, and Huizenga became its Chairman and CEO. Eight years later, in 1994, Huizenga sold Blockbuster to Viacom, Inc. for $8.4 billion, by far the most it was ever worth.

Huizenga is the only person in history to have built three Fortune 500 companies. In addition to Waste Management and Blockbuster, he also built AutoNation into the largest car dealership in the country—in just three years. Two of those companies still lead their respective industries. Blockbuster, arguably the most iconic of the three, is gone.

Huizenga was a self-made billionaire. He founded his first garbage company in 1962 with a $5,000 loan from his father-in-law to buy one truck and some routes in Broward County, Florida. In fact, it was the only company he ever started from scratch. Every other one, hundreds of them, he bought. And his primary way to grow those companies was to buy more. After taking Waste Management public in 1971, he bought 133 waste companies—in just 10 months. Just one day after he took control of Blockbuster in 1986, he was on the road to buy its largest competitor, Major Video—and he did.

Wayne Huizenga was all about buying, building, and selling companies. He often said that he was much more interested in building them than running them. The day-to-day grind of running a business did not inspire him. As Don Flynn, Huizenga’s Chief Financial Officer at Waste Management, would describe him: “I think Wayne always wanted to grow faster and Dean [his partner Dean Buntrock] was more concerned with, ‘Can we manage it?’ Whereas Wayne would rather buy it, then figure out how to manage it.”5 Buntrock agreed: “Wayne is motivated by money and unbelievable financial success, but he is much more motivated by the hunt, the excitement.”6

In the case of Blockbuster, the entire organization took on Huizenga’s approach to business. It was obsessed with growth and little else. It was the company’s reason for existence and, in just a few years, thousands became rich as Blockbuster grew from 20 stores to over 3,000. But it was this singular focus on growth that also led to Blockbuster’s downfall. When competition came knocking, which was sooner than you think, they were lost. If they couldn’t buy it or overpower it with even more stores, they struggled mightily to find answers. Growth, at whatever cost, became so much a part of Blockbuster’s DNA that it carried over to Huizenga’s successors and persisted long after he was gone.

Huizenga ran Waste Management with his partner Dean Buntrock for 12 years and left in 1983. After taking a few weeks off, he proceeded to do what he knew best—buy businesses, lots of businesses. Through his new company, Huizenga Holdings, and with the assistance of his new business associate, Steve Berrard, he went on a buying spree. They bought bottled water companies, a portable toilet company, lawn care companies, pest control companies, and many others. In three years, they bought more than 100 businesses. All of them were service companies and most rented things. Even the bottled water company was a rental company in those days with its dispensers for the five-gallon jugs delivered every week. All had similarities to the garbage business, which essentially rented waste containers to be serviced by a fleet of trucks.

Huizenga planned to roll these companies into one giant service company and go public, which would have given him the financial clout to grow even faster. Blockbuster or anything like it was nowhere in his plans, but perhaps it was inevitable. Blockbuster was, after all, a rental company like all the others he had bought, and its first franchisee, Scott Beck, was the son of Waste Management Co-founder Larry Beck. And it was John Melk, also a past associate at Waste Management, who persuaded Huizenga to look at a Chicago Blockbuster store in 1985.

Huizenga was attracted to Blockbuster for the same reason as most other video store owners. When run right, video stores were incredibly profitable—from the day the doors opened. “Hell, if the numbers are half this good, it’s worth a look,” he told his business associates.7 Every successful video store owner of the day had discovered a once-in-a-lifetime opportunity, and thousands took full advantage. But no one had the vision or the financial skills to do it the way Huizenga did it—the same way he had done it with Waste Management.

David Cook, who founded Blockbuster, had opened the first store in Dallas, Texas, on October 19, 1985, about eighteen months before Huizenga visited that store in Chicago. But his path to the video business was an unusual one. He had founded Cook Data Services, a company that mainly supplied computer software to oil companies and raised $8 million when he took it public in 1983. But, within weeks of the IPO, OPEC announced it was slashing prices to maintain its stranglehold on the world oil market. The impact on the U.S. oil business was devastating, and Cook lost most of his clients. Faced with disgruntled shareholders, he searched for other ways to deploy the recently raised capital, and, in an unlikely twist of fate, the loss of his oil company clients led to the creation of Blockbuster.

Cook’s ex-wife Sandy initially raised the idea of opening a video store and believed it needed to be bigger and brighter than the typical store of the day. She went on to design the famous torn ticket logo, as well as the store décor with its bright lights and soon-to-be iconic blue and gold color scheme.

The store was an immediate, runaway success. “The first night we were so mobbed we had to lock the doors to prevent more people from coming in,” recalls Cook.8 Blockbuster stores were a game changer. These bright, beautiful stores were in high-traffic, easy-to-access locations and attracted thousands of customers—many of whom had never been inside a video store. Cook had indeed created a blockbuster, and Cook Data Services soon became the Blockbuster Entertainment Corporation.

Cook planned to roll out hundreds of stores across the country. “Before we even opened our first store,” he said, “we had spent $6 million to create a national distribution center in Dallas.”9 He sold Blockbuster licensing rights to developers and planned to have 1,000 stores open in three to five years. The distribution center would ship what Cook called a “store in a box” to the licensees. Included were inventory, fixtures, a computer system, even the toilet paper for the restrooms. The distribution center was designed to load as many as three stores in one day. Cook’s sales message to potential licensees was: “Unload the truck, and you’re in business!”10

With the infrastructure built and big expansion plans, Cook returned to the capital markets for more money to finance the growth. A secondary offering was scheduled to raise another $18 million, but what followed was a precursor to what would plague the video rental business for years to come. In a scathing commentary, the September 1986 edition of Barron’s questioned the viability of Cook’s plan, essentially claiming that anyone could do what he was doing. Blockbuster Entertainment was the first video rental company to go public, and Wall Street did not understand it, believing it was a scam that would have a very short life. Because the business was so profitable, it seemed “too good to be true” to many.

The Barron’s article caused Blockbuster stock to drop, and the secondary offering sank from planned proceeds of $18 million to only $4 million. “The Barron’s story was the single changing point in my life,” Cook would say.11 With the washout of the planned secondary public offering, he sought money from other sources to fulfill his growth plans and soon sold controlling interest to Huizenga and his two partners, John Melk and Don Flynn, both of whom were former associates at Waste Management. Huizenga assumed the role of Chairman and CEO, and Cook sold his stock and left with about $20 million. “I’m clearly not the best manager in the world for a large corporation,” Cook said years later, who openly admits he did not see it that way then. “I haven’t found anybody who doesn’t think...