In the year 2000, Netflix was a struggling DVD-by-mail company burning through cash. Its founders flew to Dallas to meet with Blockbuster's CEO and propose a partnership: Netflix would run Blockbuster's online brand, and Blockbuster would promote Netflix in its stores. The asking price was $50 million. Blockbuster's CEO reportedly laughed them out of the room.
Blockbuster at its peak: 9,000 stores, 84,000 employees, and $6 billion in annual revenue. Blockbuster today: one store in Bend, Oregon, operating primarily as a tourist attraction. Netflix today: 260+ million subscribers, a market cap exceeding $300 billion. That $50 million is now the most expensive "no" in business history.
Blockbuster didn't fail because its executives were stupid. They failed because they were successful, and success makes you believe the thing that's working will keep working. Late fees alone generated $800 million a year. Why change a model that prints money? The answer — because someone else will change it for you — is obvious in hindsight and invisible when you're counting $800 million in late fees.
Every business book tells you to innovate. But innovation means admitting that the thing you're currently doing might not work forever, and that admission costs money, upsets shareholders, and requires effort with uncertain returns. Not innovating is free, easy, and immediately profitable. The incentive structure rewards standing still, right up until the moment it doesn't, and by then it's too late. Blockbuster didn't ignore the future. They just couldn't justify investing in it when the present was so lucrative. Which is how all empires end.