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Jonathan Tobin: Defending the Right to a Jewish State

Heather Hale: Compliment your kids without giving them big heads

Megan Shauri: 10 ways you are ruining your own happiness

Carolyn Bigda: 8 Best Dividend Stocks for 2015

Kiplinger's Personal Finance editors: 7 Things You Didn't Know About Paying Off Student Loans

Samantha Olson: The Crucial Mistake 55% Of Parents Are Making At Their Baby's Bedtime

Densie Well, Ph.D., R.D. Open your eyes to yellow vegetables

The Kosher Gourmet by Megan Gordon With its colorful cache of purples and oranges and reds, COLLARD GREEN SLAW is a marvelous mood booster --- not to mention just downright delish
April 18, 2014

Rabbi Yonason Goldson: Clarifying one of the greatest philosophical conundrums in theology

Caroline B. Glick: The disappearance of US will

Megan Wallgren: 10 things I've learned from my teenagers

Lizette Borreli: Green Tea Boosts Brain Power, May Help Treat Dementia

John Ericson: Trying hard to be 'positive' but never succeeding? Blame Your Brain

The Kosher Gourmet by Julie Rothman Almondy, flourless torta del re (Italian king's cake), has royal roots, is simple to make, . . . but devour it because it's simply delicious

April 14, 2014

Rabbi Dr Naftali Brawer: Passover frees us from the tyranny of time

Greg Crosby: Passing Over Religion

Eric Schulzke: First degree: How America really recovered from a murder epidemic

Georgia Lee: When love is not enough: Teaching your kids about the realities of adult relationships

Cameron Huddleston: Freebies for Your Lawn and Garden

Gordon Pape: How you can tell if your financial adviser is setting you up for potential ruin

Dana Dovey: Up to 500,000 people die each year from hepatitis C-related liver disease. New Treatment Has Over 90% Success Rate

Justin Caba: Eating Watermelon Can Help Control High Blood Pressure

The Kosher Gourmet by Joshua E. London and Lou Marmon Don't dare pass over these Pesach picks for Manischewitz!

April 11, 2014

Rabbi Hillel Goldberg: Silence is much more than golden

Caroline B. Glick: Forgetting freedom at Passover

Susan Swann: How to value a child for who he is, not just what he does

Cameron Huddleston: 7 Financial Tasks You Should Tackle Right Now

Sandra Block and Lisa Gerstner: How to Profit From Your Passion

Susan Scutti: A Simple Blood Test Might Soon Diagnose Cancer

Chris Weller: Have A Slow Metabolism? Let Science Speed It Up For You

The Kosher Gourmet by Diane Rossen Worthington Whitefish Terrine: A French take on gefilte fish

April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review Dec. 11, 2008 / 14 Kislev 5769

Creative destruction: Some businesses deserve to die and we're better for it

By Jonathan V. Last


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http://www.JewishWorldReview.com | With all the talk of bailouts, it's worth remembering this cardinal truth: Some businesses deserve to die.

Creative destruction is the term Joseph Schumpeter used to describe the healthy evolution of economies as outmoded businesses are displaced by more efficient ones. Take, for example, the case of Blockbuster and Netflix.

We all know Blockbuster, which was founded in 1985 and became America's biggest video rental chain. Pre-Blockbuster, video stores were mostly mom-and-pop affairs, but Blockbuster introduced economies of scale and expanded aggressively.

At its height, Blockbuster owned more than 9,100 stores and commanded nearly half the U.S. video rental market. Its big profits prompted Viacom to purchase the business for $8.4 billion in 1994.

But markets change.

The DVD emerged as the successor to the VHS tape in the late 1990s. The movie studios wanted to keep the rental arrangement that had existed with VHS tapes. When a movie was first released on VHS, a single copy would cost about $120. This price was intentionally prohibitive, so that the only practical way for consumers to see a movie at home was to rent it.

Only after several months of release would the price be dropped to "sell-through," or about $20. In return for this window, Blockbuster gave the studios 40 percent of their rental revenues.

The executives at Blockbuster, however, demanded a greater percentage of the rental revenues from DVDs. It was a disastrous decision. In response, the studios adopted the sell-through model we know today: The day a DVD is made available for rent at Blockbuster, it is also available for purchase for about $20 from retailers.

While Blockbuster was foolishly forcing the movie studios to change the economics of movie rentals, a rival company emerged to change the delivery mechanism. In 1999, a little outfit called Netflix started charging users a flat monthly subscription fee and delivering DVDs by mail, allowing people to rent as many movies as they liked for as long as they wanted.

Netflix represented an immediate, existential threat to Blockbuster. The giant should have acquired or crushed the upstart. Indeed, a former executive told Variety in 2005 that Blockbuster had passed up an opportunity to purchase Netflix for $50 million. Blockbuster believed it could preserve its outmoded model even in the face of tectonic shifts in the market.

Netflix saw its subscriber base rocket from 239,000 in 1999 to 1.5 million in 2003. Today it stands at 8.7 million. The company's revenues went from $270 million in 2003 to $1.2 billion in 2007.

It took five long years just for Blockbuster to launch a copycat version of Netflix's DVD-by-mail system. By then it was too late. Beginning in 2001, Blockbuster took staggering losses for six years out of seven. It lost $1.2 billion in 2004 alone.

Eventually spun off from Viacom, Blockbuster's stock today hovers around $1 a share. Purchased just 14 years ago for $8.4 billion, Blockbuster now has a total market capitalization of $227 million.

And Netflix? It now has a market capitalization of $1.4 billion and growing. In nine short years, it destroyed Blockbuster and created a new mode of home-video delivery.

Yet Netflix is now intent on destroying its own business model and creating a more efficient one. In 2007, the company began streaming some of the movies in its library over the Internet.

Today Netflix has the most seamless digital-download system going. Subscribers can access 12,000 movies and TV shows to watch on their computers or televisions.

Digital downloading has long been thought of as the Holy Grail of home video. Instead of trying to protect its mail-order model against it, Netflix tackled the new technology head on.

It's not clear how streaming video will affect Netflix's DVD-by-mail business or its bottom line. But Netflix decided digital downloading is the future, and that if the company didn't embrace it, someone else would.

As for Blockbuster, its days are numbered.

When the behemoth finally breathes its last, should Congress bail it out? Because if the president-elect and the Democratic Congress are going to give handouts to every poorly managed concern suffering the effects of creative destruction, there's a line around the block of people who'd like some cash.

For instance, you may have noticed that the newspaper industry isn't doing so well. And this week the WNBA saw a franchise go bust. And ... well, let's not go giving anyone ideas.

Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.

Jonathan V. Last is a columnist for the Philadelphia Inquirer. Comment by clicking here.


Previously:

11/20/08 Time for perspective on election's numbers
11/13/08 Climbing back from calamity
11/03/08 Put aside candidates' faults and ponder their qualities
10/09/08 Regrettably, neither of the presidential hopefuls has a grasp on economic theory
09/22/08 Anti-abortion Democrats and global-warming Republicans are becoming increasingly important
09/09/08 On both sides, this year's political gatherings marked the start of changed strategies that have transformed the race
07/23/08 With policy shifts, Obama now seen as an ordinary pol
06/26/08 Bush failed to hold others responsible for their mistakes, and he let his admirable vice president do too much
02/18/08 GOP will unify as Obama and Clinton continue to vie
12/13/07 Fun begins as races tighten and shift
12/05/07 Iran's future: Would lower fertility rates lead to stability?
11/01/07 Nobel Prize in Economics — where Team USA still dominates the game
10/25/07 Handicapping the GOP's presidential horse race
10/11/07 Germany's Turks provide a lesson on immigration
09/13/07 British battle can offer us a perspective on casualties
09/12/07 Alas, GOP seems set to take hit in Senate
08/30/07 Europeans have supplanted backbones with capitulation
08/24/07 Politics holds the key to ensuring a healthy growth in population
08/17/07 Finessing the Democratic center
08/10/07 Woohoo! Satire seeing a revival
07/31/07 Historical model: For Obama, it's Carter
07/26/07 Baseball, apple pie, a 2nd chance
07/24/07 Harry Potter and the alchemy theory
07/06/07 Life is hard — and often short. The perils of professional wrestling
06/21/07 After Bush: Gingrich and others worry that his shortcomings could have a far-reaching effect on the GOP
03/09/07 Why the British outclass us in acting
01/23/07 Romney: Seriously great, but with baggage
12/23/06 When truth is transpicuous
12/05/06 A realistic plan: Split the country in two
11/08/06 We could easily pull out of Korea and let China have regional hegemony. But would it be the right thing?
10/24/06 The decline of revolution
10/18/06 Why the free market is king
08/07/06 Democracy, of itself, not solution to all problems
08/01/06 We get the movies we deserve
07/27/06 How long will U.S. empire last?


© 2006, The Philadelphia Inquirer. Distributed by McClatchy-Tribune Information Services.

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