Jacob Goldstein
Jacob Goldstein spent more than a decade as co-host of the Planet Money podcast. He's also the author of the book Money: The True Story of a Made-Up Thing, which the New…
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Wayne Huizenga came from a long line of trash collectors. It was a rough, fragmented, mom-and-pops business which notoriously attracted mobsters. But Huizenga set out to buy his small competitors – to roll them up – to form the biggest waste management firm in the world.
Huizenga bought up rival companies at a furious pace – several per week – and when he tired of the trash business he looked for something new. In the 80s, video stores also tended to be mom ‘n pops outfits. Huizenga spotted that there was a golden opportunity to consolidate the rental industry, so used roll ups to build the giant Blockbuster Video chain.
Write to us at businesshistory@pushkin.fm
Pushkin. Too quick?
00:07
Speaker 2
No, it was perfect.
00:08
Speaker 1
Pushkin.
00:08
Speaker 2
Stop. You got it. Robert Smith.
00:24
Speaker 1
Yes, sir.
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Speaker 2
Today's show is about Wayne Huizenga, a man who got into the garbage business in the 60s when it was rough and tumble, mom and pop shops with a couple of trucks. And he went on to create the biggest garbage company in the world, Waste Management Inc., by executing a historic roll-up, one of the all-time great roll-ups, buying a bunch of little companies. And then, in the 1980s, he got out of the garbage business and I made the same move again, and he built Blockbuster Video. Blockbuster Video and a garbage magnet? Into the blue and yellow pillar of our high school weekends. I'm Jacob Goldstein.
01:01
Speaker 1
I'm Robert Smith, and this is Business History.
01:03
Speaker 2
What would you say it is? What is it about?
01:06
Speaker 1
It's hard to tell, but I think it is a show about the history of business.
01:09
Speaker 2
Wayne Huizenga was a man who loved a roll-up. The roll-up is a standard business move. You've got a fragmented industry. You buy a bunch of little companies to make a great big company. Billy Durant did it to build GM. We talked about that. Private equity today loves this move. You know, they roll up car washes.
01:27
Speaker 1
Plumbers. Plumbers.
01:28
Speaker 2
Dentists. Doctors' offices. Doctors' offices. Veterinary clinics. So today on the show, we are going to talk about Wayne Huizenga, the garbage business, the video industry, and the art of the roll-up. Wayne Huizenga got into the garbage business in part because it ran in his family. His grandfather... Harm Huizinga. What is Harm short for? Harmonious. Harmonious. Or maybe he was just a bad man. I don't know. Harm Huizinga worked in Chicago in the 1890s as a blacksmith and wheelwright. Two jobs you don't hear a lot anymore. And he would drive into Chicago every day in a horse and buggy. And on his way home, people would ask Harm Huizinga if he could just take some trash out to the edge of town for him and throw it on the ground, basically. Oh, you live out in the country? I have something for you, a big bag of trash. And Izinga thought, wait a minute, here is a demand. Here is something people want. So he bought another wagon and turned it into a garbage buggy and I believe created the first trash business in Chicago. Wayne's father, that was his grandfather, Wayne's father moved the family to South Florida, where Wayne grew up. And during summer breaks, he'd go back to Chicago, drive a dump truck, I guess when he was in high school. And in 1959, he lands back home in Florida. He's 22 years old, and he's managing a family friend's three-truck garbage firm, a company called Pompano Carting Company.
03:03
Speaker 1
Oh, sounds great.
03:04
Speaker 2
Sounds amazing. And there's this thing that happens at this point in Wayne Izinga's life, early career, that shows you what kind of a guy he is. And it's a little bit Rashomani because there's two different versions of the story. And they're different in important ways. So the first one is Huizenga, the tough but sympathetic businessman out there in a, you know, rough and tumble world. That version goes like this. A customer named Thomas Millwood complains that his trash hasn't been getting picked up. And Huizenga says the bill hasn't been paid and that's why. And the customer's like, yes, it has. And things escalate. And at some point, Huizenga grabs the customer's balls and twists. And then the customer pins Huizenga down until the sheriff comes. And Huizenga gets charged with assault and battery.
03:56
Speaker 1
Version one.
03:57
Speaker 2
Version one. Version two comes from the Miami New Times Alt Weekly. Not so sympathetic to Huizenga. This version is essentially Huizenga the bully. In this version, Huizenga is going door to door, selling garbage collection services on behalf of Pompano Carting. And he knocks on the door of this customer, Thomas Millwood, same guy. But Millwood doesn't go for the pitch, says, no, thanks. I'm not interested. But Huizinga refuses to leave and starts using abusive and profane language to Millwood and his wife. And then in a fit of rage, he attacks Millwood, hits him, breaks his sunglasses and grabs his balls and twists. One detail that is the same in those stories. And then gets charged with assault and battery. Also the same. So he is definitely tough and aggressive, and he is in the right business in the right place at the right time. Perhaps the most important ingredient to success in business is right place, right time. Florida in 1960 is a good time to be in the garbage business for a few reasons. Air conditioning is spreading. People are moving to Florida because now you can live there in the summer without it being awful.
05:05
Speaker 1
There's so many flip-flops and pop-tops to throw away.
05:07
Speaker 2
Flip-flops, pop-tops, rag-mops, lollipops. Consumption in the U.S. is booming, right? This is the post-war boom, better living through chemistry, plastics. And Americans are creating more and more garbage. The rate of garbage produced by Americans is growing faster than the population, which is good if you're in the garbage business. And Huizenga is definitely a hustler. And he borrows $ 5, 000 from his father-in-law and buys a beat-up garbage truck and a handful of customer accounts. And in February of 1962, he starts Southern Sanitation Service.
05:46
Speaker 1
Ooh, it sounds fancy.
05:47
Speaker 2
Robert, give us Wayne Huizenga on his early years as a businessman.
05:51
Speaker 1
I worked 20 hours a day, bar none, all the time. And I never drove main streets. I always drove the alleys and the side streets, trying to find out what was happening.
06:00
Speaker 2
One more quote from another interview.
06:02
Speaker 1
I picked up garbage from 2 a.m. until noon. Then I changed my clothes and went door to door selling my services. I didn't know anything about the business. I just worked hard. and gave good service.
06:12
Speaker 2
This part seems true. Huizenga tried very hard to keep his customers happy, except the balls guy, but maybe he wasn't a customer. Service is his edge on a certain level. He's just a guy with a garbage truck, like lots of other guys with garbage trucks. By 1968, he has 40 trucks covering routes from Key West to Tampa. And this was common at this time. It's the 1960s. There were something like 12,000 garbage businesses operating in America. Over half of them were just a guy with a few trucks. There was no big national player. And so there is this kind of big business history, business question here, which is, why do we find that some industries are highly fragmented like this? Tons of little players, no big dominant firm, while others are concentrated? And for the answer, I want to go to Michael Porter.
07:06
Speaker 1
Ooh, legend.
07:07
Speaker 2
Harvard Business School professor. He was a famous business writer in the 20th century. Maybe the most. Maybe the most famous business writer. The most cited one at business school.
07:14
Speaker 1
Absolutely. He had something called Porter's Five Forces. Don't ask me to list them off.
07:19
Speaker 2
List them! Oh, no.
07:22
Speaker 1
They're going to take away my MBA. His five forces were competitive rivalry, threat of new entrants, bargaining power of suppliers, bargaining power of buyers, and the threat of substitute products.
07:35
Speaker 2
So in one of his books, Competitive Strategy, Techniques for Analyzing Industries and Competitors, he actually lists, that may or may not be true for the record, he actually lists a bunch of reasons why an industry can be fragmented. And if we apply his framework, as I'm sure he would call it, to the garbage industry of the 1960s, we can see three reasons why it's fragmented.
07:59
Speaker 1
Should I get a whiteboard?
08:01
Speaker 2
One, low barrier to entry. Anybody can get into the business, just like Huizenga. Borrowed a few thousand dollars from his family, bought a truck. He's in the business. Two, personal service is key, which we talked about this as well. Huizenga has been able to grow his business because he's making sure that everybody gets well taken care of. But this is hard to scale. There's only one Huizenga. He can't make digital copies of himself to knock on doors.
08:28
Speaker 1
And we see this in all sorts of businesses, plumbers, roofers, painters, locksmiths. Any person who's putting a flyer under your door on a daily basis, those are people who are using personal service and low barrier to entry.
08:42
Speaker 2
Although I do have to say, I feel like the flyer is a negative signal to me. I want to hire... The plumber or the roofer who doesn't need to be putting flyers on people's doors. I want the guy who, like, won't take my call. That's why it's very hard for me to fix my house. We got one more. Three. And maybe most important for Porter's list of why an industry might be fragmented is there's not that much of an economy of scale. So if you grow a garbage business, you got to buy more trucks and hire more drivers. So, yes, your revenues are growing exponentially. But your costs are also growing. And this means there's not a huge incentive to get big.
09:21
Speaker 1
And we see this also everywhere in barbers, right? Every new person who comes in, you're going to need another chair or another barber.
09:27
Speaker 2
And this is definitely true of the garbage business in the 1960s. And yet we know Huizinga is going to build a giant garbage business. The industry is going to become consolidated. And so there is this great question. What changed? Why did the industry flip?
09:45
Speaker 1
And you know the answer to this. Hippies.
09:48
Speaker 2
Environmentalism. Regulation. Regulation is going to change the equilibrium. If you think about the garbage business when Huizinga gets into it, it is not that different from Harm Huizinga's garbage buggy of the 1890s. Tossing it out the carriage on the way out of town. It's close to that. People pick up garbage in the city. They drive out of the city and they do kind of whatever they want with it. Not quite, but you might dump it in a quarry or an empty ravine or burn it in an incinerator. But of course, the incinerators put dirty garbage smoke into the air and the landfills is garbage just sitting there. And then it rains on it. The rain goes down through the landfill into the water table. So it's poisoning the water potentially. And so as the environmental movement gets going in the 60s, people are like, we don't want to breathe garbage smoke. We don't want to drink garbage water. In 1965, President Lyndon Johnson signs the U.S. Solid Waste Disposal Act. And thousands of dumps and incinerators get shut down. Robert Smith, I got good news for you. We're going back to Michael Porter.
10:56
Speaker 1
Government or regulatory changes can force consolidation by raising standards in the product or manufacturing process beyond the reach of small firms. Recognizing the ultimate effect of such trends and positioning the company to take advantage of them can be an important way of overcoming fragmentation.
11:14
Speaker 2
There's actually two beats in that paragraph. Beat number one is the government can come in raise standards and make it too expensive for a guy with a truck and a quarry on the outside of town to run his landfill.
11:27
Speaker 1
If you had to line your pit with a certain plastic, you'd be like, I just want to dig a hole and throw the garbage in. I'm out of the business.
11:35
Speaker 2
And companies that see this happening and can afford to follow the rules can win, can roll up the industry. So in 1968... Wayne Huizenga merges his garbage company with another guy's garbage company. The other guy is actually Huizenga's cousin's husband. Which is funny that your cousin's husband isn't just your cousin, but your aunt's husband is your uncle.
12:03
Speaker 1
Cousin-in-law?
12:04
Speaker 2
They put their companies together. The cousin's brother is Dean Buntrock. proprietor of Ace Scavenger Services of Chicago.
12:13
Speaker 1
Oh, the names just keep getting better and better.
12:15
Speaker 2
Dean had been convicted at one point of conspiracy to restrain trade, to willingly injure the business of others, to hinder others from performing lawful acts, and an attempt to monopolize the rubbish collection business. But apparently got something of a slap on the wrist. In any case, in 1968, Huizenga and Buntrock merge. And they call their new company Waste Management Inc. It's actually Dean, the cousin's husband, who has this insight about the new regulations. Landfills that comply with the new regulations are now scarce. And so if somebody could buy up those compliant landfills, you could have a local monopoly, essentially.
13:03
Speaker 1
Always buy the scarce resource.
13:04
Speaker 2
Always buy the scarce resource if you can afford it. Because then you can charge a lot for people to dump their garbage there. To do that, they need capital. But capital is actually hard to come by in the garbage business in the 60s. Banks are wary of the industry, see it as seedy, crimey. And they're not entirely wrong.
13:23
Speaker 1
Hey, in the waste management business, everybody immediately assumes you're mobbed up. It's a stereotype and it's offensive. It's my Tony Soprano.
13:31
Speaker 2
It's pretty good. You inhabited it. Anyways, you made it yours. Anyway, WMI can't get bank financing. And so they decide they're going to go public. Ambition. And they net from their IPO... $ 4 million. $ 4 million. It's like Dr. Evil going public.
13:51
Speaker 1
I feel like that's the catering fee by an investment bank for a modern IPO.
13:57
Speaker 2
Yes, if you're lucky, that's the catering fee. If they do the cut rate, no salmon. So $ 4 million could buy you some amount of landfills in 1971. And so Huizenga decides to focus on the suburbs. It's the early 70s. Suburbs are still growing. And in 1972, Huizinga really starts executing on this strategy, and he goes very, very hard. The company has this little propeller plane, and he's flying all the time. He'll wake up before dawn, fly off for a breakfast meeting in one city, get on the plane, fly to another city for lunch, get on the plane again for a meeting in a third city, sleeping on the plane. And between March and December of 1972... WMI buys 133 businesses, which is many per week. Many per week. It's just deal, deal, deal.
14:54
Speaker 1
And these are mostly dumps.
14:56
Speaker 2
Largely dumps. Some little garbage companies. Often they're combined. And one thing that Huizenga manages to do is, in fact, to get a monopoly on private landfills in certain cities, in certain areas. And once they do that, unsurprisingly, They can jack up the fees for dumping in those landfills because you don't have a choice. That's why monopolies are bad, frankly. But it's good if you're the one with the monopoly. They're growing at like 35 percent a year. And at one point, Bunt Rock, the partner, the cousin's husband, tells Huizenga, look, we're growing. There's this huge market we're not in, New York, New Jersey. We've got to go look at it. So Huizenga went up to take a look. Robert, read us what he said.
15:46
Speaker 1
I spent two days with these guys driving around, listening to them talk and came back and said, no, we are not going to New York and New Jersey.
15:55
Speaker 2
What was the Tony Soprano line? It is a stereotype and it's offensive. Those things may be true, but in fact, the business was mobbed up there. Give me another line.
16:05
Speaker 1
We didn't do business there because of that. We didn't want to be tainted with that.
16:09
Speaker 2
And this is the real mafia. This is Godfather type stuff. You know, Genovese, Gambino, Lucchese, Colombo, Bonanno.
16:17
Speaker 1
The real Michael Porter's five forces of New York.
16:20
Speaker 2
In 1970, yes. And there is a reason that this particular business was so crimey. And that is garbage is a commodity business. You can try and get better service or whatever, but essentially people just want their trash picked up at the lowest price. And maybe the central theme of business history that we have talked about so far is commodity businesses are terrible to be in because everybody competes each other down to the lowest price and you don't make any profit that way. So what do you do? You fix prices.
16:52
Speaker 1
If you're the mob.
16:52
Speaker 2
Even if you're not the mob, if you're just four guys with garbage businesses competing against each other, you get together and you have a few beers and you say, look, you take that neighborhood and I'll take this neighborhood and we'll just leave each other alone and we'll have our nice little businesses. And that is essentially a cartel. But there is a problem with cartels that is also interesting. And that is there's an incentive for everybody to cheat a little bit.
17:17
Speaker 1
Because they got in the cartel because they're greedy. They're, by definition, greedy people. And what do greedy people do? They try to take a little bit more from their competitors. And now they're competing again. Yes.
17:27
Speaker 2
I mean, in a way, the optimal position for anyone to be in is to be in a cartel but cheating a little bit on the side, lowering your prices a little bit so you can get a little more business or something like that. Now, what do you do if you have formed a cartel and someone cheats?
17:41
Speaker 1
You can't call the police.
17:42
Speaker 2
You can't call the police.
17:44
Speaker 1
You are criminal.
17:44
Speaker 2
You have broken the law to create the cartel. You can't be like, well, this guy is cheating in our cartel. Come enforce it. This is where the crime comes in. This is where the threat of violence and in some cases actual violence is used to enforce the cartel. And this was the trash business in New York and New Jersey for a long time. And to be clear, if you live here, you're like, doesn't the city pick up my trash? Yes, it's the trash business for institutions, for businesses, that sort of thing.
18:12
Speaker 1
Still, if we were crime business history, we would hammer this lesson home.
18:16
Speaker 2
All the time.
18:17
Speaker 1
Divide up the business and then use threats and violence to make sure you can keep prices high.
18:23
Speaker 2
It is extraordinary how high they kept prices, in part by killing people. Like, to be absolutely clear, people got killed in the garbage business. There was this moment in New York when there was a crackdown, not until the 90s, kind of amazingly. There was a crackdown on organized crime in the garbage business in New York in the 90s. And when that happened, prices fell by like 50%. They were not inflating prices by 15%. I guess you don't kill people for the extra 15. You're going to kill people. You might as well double the price. So it worked. And Huizenga and WMI stayed out of New York and New Jersey for a long time. Although this is a point to mention that at some point, WMI paid $ 19. 5 million to settle a price-fixing suit in Philadelphia. Also got fined in other places for harassing competitors and intimidating customers.
19:16
Speaker 1
That's the ball twisting?
19:18
Speaker 2
No. Huizinga was not personally attached to any of these WMI ones, I should say. But there was an instance in New Orleans when city officials said that people from WMI told them that they would wear cement boots and meet their maker if they kept investigating the company. Wow. We'll be back in a minute. Thank you. The ad break is over. It's the mid-70s. WMI has done its big roll-up. But the nature of Wayne Huizenga is to want more. Often the case with the people we talk about on this show, clearly true of Wayne Izinga.
20:16
Speaker 1
When are we going to do our lazy person show?
20:18
Speaker 2
Like the person who just did the thing and got out, or did the thing, like the Ferdinand the Bull of business history. Who is the Ferdinand the Bull of business history? Email us at businesshistoryatpushkin.fm. It's the mid-1970s. You're a big garbage company with lots of money. You have found a competitive advantage in government regulation. You have realized that government regulation... gives you an advantage by being big and having access to capital because the complex rules are hard for smaller companies to deal with. How do you grow? What's your move? You look for something even more complex and highly regulated with more expensive rules, which is why in the mid-70s, WMI gets into the chemical waste management business.
21:02
Speaker 1
Ooh, hazardous.
21:04
Speaker 2
They buy their first major site in 1977. That's in Alabama. They buy a bunch of other chemical disposal sites. They're also... expanding internationally. Saudi Arabia, Venezuela, Argentina become the biggest garbage company in the world. And then in the 80s, they get into trouble because of that chemical waste business. In particular, that site in Alabama that they had bought. There's an expose on the front page of the New York Times, followed by charges from the EPA that the company improperly disposed of PCBs, remember PCBs, chemicals, That went into the local water supply. At one point, there was a fire at the site. A pipe failed. A quarter million gallons of liquid waste flowed onto adjacent properties. Bad, you know, nasty stuff. But the company weathered it. Their stock fell, but it bounced back. They hired a bunch of former regulators. Classic move in that setting. They got through it. But Huizenga, by the 80s, actually had had enough. When he talks about it, He doesn't talk about the toxic waste. He talks about what executives always talk about when they leave a job. But I have to say, he says it in a kind of compelling way. Robert Smith, do you remember the song, The Cat's in the Cradle? You're going to make me cry here on the podcast. Of course. Of course.
22:26
Speaker 1
1970s Harry Chapin, right?
22:28
Speaker 2
When you coming home, Dad? I don't know when.
22:30
Speaker 1
But we'll get together then.
22:32
Speaker 2
Son.
22:33
Speaker 1
You know we'll have a good time then.
22:36
Speaker 2
Here's what Huizenga said about that song.
22:38
Speaker 1
It really does. It makes me a little emotional as a father, yes. And as a son. That hits me every time I hear that song because that's me right to the T. That comes back and hits you real hard. And I wish I'd have spent more time with them. I never saw my kids play Little League Ball. I never went to a PTA meeting.
22:55
Speaker 2
Sorry, laugh.
22:56
Speaker 1
You're not missing anything at the PTA meeting. But yes, Little League Ball is amazing.
23:00
Speaker 2
So in 1984, Huizinga left WMI and he started spending more time with his family. Just kidding. He buys a portable toilet company called Portalette. Let's roll it up. It does rentals in 25 states. And he buys all new trucks and new toilets for Portalette. He grows the business and then sells it to WMI. Can roll the toilets off the same truck that drops off the dumpsters for construction sites. I'm going to do an aside about the word dumpster. Dumpster used to be a registered trademark. In fact, I thought it was a registered trademark. Really? And so I looked it up.
23:36
Speaker 1
No.
23:36
Speaker 2
And it was a victim of what is called... Genericide.
23:40
Speaker 1
Yes. A.K.A.
23:41
Speaker 2
Trademark erosion. Yes. Which is if everybody starts using your word as a word and you don't fight it, you can lose the right to the trademark. I'm going to give you a few others. Escalator. The Otis Elevator Company bought escalator as a trademark. It was a moving stairway, but they failed to enforce it. Thermos in the U.S., dry ice, trampoline.
24:03
Speaker 1
Trampoline.
24:03
Speaker 2
Also victims of genericide. Genericide is a sad word, but I think it's great when we all get to use a word whenever we want to. Trampoline, trampoline, trampoline. Back to Huizinga. Besides the portalette business, he also gets into the sports business, which is what he becomes best known for in South Florida because he owns the Miami Dolphins, the Marlins, the Panthers, a hockey team. But his big post-garbage play comes in 1986. The video rental business. Somebody he knew from WMI pitches him on this video rental chain in Dallas. It's got 19 stores. It's called Blockbuster Video. Guy's like, it's taken off. It's a great time to get in. And Huizinga, who made his fortune in the rough and tumble garbage business, says, video rentals? Pass. Too sleazy. We forget this now. We forget this now. But at the beginning... As with many technologies, a key driver of the video rental business was pornography.
25:11
Speaker 1
Yes. And if you went to a small video store back in the day, there was often a curtain in the back of the store that said adults only. And behind that curtain, or so I've heard, was porno videotapes.
25:25
Speaker 2
Porno was what they used to be called. That's an old man word. I actually, I remember the curtains. I was a young child. I never went behind the curtain, but I remember trying to like See if I could see through if there was like a little gap in the curtains. That's what it was like back then. And in fact, I found this story from the New York Times from the early 80s, and it said porn was somewhere between 20 and 50 percent of the video business in the early 80s, down from 70 percent in the late 70s. So this is real.
25:55
Speaker 1
Always an innovator, porn. Let's talk about these video stores for a moment, because it's easy to forget that at the time, just about every neighborhood had a It was usually a very tiny video store, and you walk in, and there's shelves, and all the videos are there.
26:10
Speaker 2
Yeah, they were like, if you think of a dry cleaner, or in Southern California where I grew up, taco shops. Like, every strip mall, there'd be a little shop, a guy, a family running a shop. That is what video stores were.
26:25
Speaker 1
Classic fragmented situation, because, you know, if you buy some videotapes, anyone could start a video rental store, and... It was usually personalized to the neighborhood and people would write their recommendations on it.
26:36
Speaker 2
Like log jamming was a staff pick? Yes. Yes.
26:41
Speaker 1
And the third of Porter's reasons for fragmentation is that to expand the stores would just require a lot more money to have a bigger store to get 10 copies of Star Wars rather than the two they had. Frustrating.
26:55
Speaker 2
But that's the way video stores operated. That is likely what Huizenga had in his mind when his former colleague pitched him on investing in a video store. But eventually, after several pitches, he was persuaded to just go out and take a look at these video stores in Dallas. And what he found was actually quite different than the classic mom-and-pop video store. We'll be back in just a minute. Break is over. It's 1986. After being pitched and pitched on this idea, Huizenga agrees to go out to Dallas and take a look at this new little company, Blockbuster Video. And here is what he finds. Blockbuster Video had been founded the year before, in 1985. by a husband and wife team with a third investor. And the wife, Sandy Cook, was a cinephile. She loved movies. The husband was a computer programmer. And this turned out to be the perfect pairing to start a video store. Sandy, the cinephile, wanted a good selection of movies. You know, movies for grownups. And by grownups, she did not mean adult films. No porn. They weren't going to do porn. But there was a bigger selection. The stores were bigger. They were clean. They were brightly lit. She'd already come up with the blue and yellow color scheme. So the basic model of the store was there. And then the husband, the computer programmer, had built this way to attract inventory using computers, which sounds boring and routine today, but in the mid-' 80s was like, you know, running your business with an AI agent today or something. It was the frontier.
28:47
Speaker 1
Because video stores at the time relied on a very smart film nut, a teenager often, working behind the counter. So you'd come in and say, do you have this? He'd be like, oh, yeah, yeah, we have this and would know exactly where it was.
29:00
Speaker 2
In the store. Maybe he would write it down in a book when he checked it out. So this is what they have. They've also invested in this distribution center so that they can roll out the inventory for three new stores in 24 hours. They're poised to grow. They have a big idea, but they need capital. They are constrained by capital. And as Huizenga is in Dallas looking around, he gets it. He thinks this is not porn. This is the garbage business circa 1968. It is a fragmented industry ripe for a roll-up. Robert Smith, take me back to Michael Porter.
29:37
Speaker 1
An industry can be fragmented because it is new. and no firms or firms have yet developed the skills and resources to command a significant market share. And it was new. The technology was.
29:48
Speaker 2
It was new. There was no inherent regulatory change. It was just that renting videos was a new thing because VCRs were new and nobody had come in and said, Let's roll it up. And that is what Huizenga is doing right now. He buys 60% of the company. For $ 18. 5 million, he becomes chairman and CEO. And we'll be together then, son. Blockbuster at this moment is this little regional video store chain. And there are other little regional video store chains. He is not the only one with this idea. So now... The race is on. Who can get big fast? And Huizinga is saying this explicitly. Here is him, Huizinga, at a company meeting early on.
30:37
Speaker 1
We have to move fast because we have nothing exclusive. Anyone can duplicate this. So we've got to be out there. We've got to be out there first with the superstore. Because if somebody comes in across from us, it's going to be harder. We've got to establish this thing called blockbuster. And it's got to mean videos.
30:55
Speaker 2
Huizenga does have the advantage of being Wayne Huizenga at this point. He's well-known on Wall Street. He knows the playbook for a roll-up. He did it in trash. And so he starts buying little regional video chains around the country. By the end of 1987, there are 133 Blockbuster stores. End of 88, there are 415. End of 89, there are 1,089 Blockbuster video stores. At one point, there's a new Blockbuster store. popping up every 17 hours.
31:27
Speaker 1
Yeah, it became a metaphor for a business growing quickly back in the 80s.
31:30
Speaker 2
It's like a sped up video of like the building going up and the blockbuster sign going on it. These are big stores with lots of videos, lots of selection. I remember like the new movie that everybody would want would come out and they wouldn't have four copies. They'd have 40 copies. And What this means is the barrier to opening a video store has now gotten higher. If you're just somebody without much money and you are entrepreneurial and you want to start a little video store in the strip mall, you can't compete with Blockbuster. And Huizinga is very aggressive. So not only is he opening big stores, putting mom and pops out of business, essentially, he is going after the kind of medium-sized regional chains that had been growing and There was this East Coast chain called Errol's, a big player. Here's what Errol said about Blockbuster.
32:25
Speaker 1
They grew and beat me up. Blockbuster's locations were always better than mine and twice as big as mine.
32:31
Speaker 2
They've got Errol surrounded. They're opening stores all around him. They hire away Errol's top marketing guy. And eventually, reluctantly, Errol sells to Huizenga to Blockbuster. Of course, once Huizenga has a lock on the video business, he did what he did when he had a lock on landfills. Jacks up the fees. There was a time when Blockbuster charged $ 3 for a three-night movie rental. By 1994, it's $ 3 for one night. Plus late fees.
33:02
Speaker 1
Oh, the late fees just killed me.
33:04
Speaker 2
They killed me.
33:06
Speaker 1
How many times was I driving back to the video store at, you know, 9.58, screaming into the parking lot, trying to get back to the future or something, into the store in time?
33:17
Speaker 2
You needed a DeLorean. You put it in the slot, right? What you don't do in that setting is be like, well, I got the late fee. I'll take it home and watch it and bring it back. Put it in the slot when you get there at 10.01.
33:27
Speaker 1
If I remember correctly, they didn't charge you if you didn't rewind it. They said, be kind, please rewind.
33:34
Speaker 2
That was a movie called Be Kind, Please Rewind, I think.
33:38
Speaker 1
But I don't think they charged you.
33:39
Speaker 2
Was there the time when you were like, I don't have time to rewind it?
33:42
Speaker 1
Oh, 100%. My VCR screaming, like, we need.
33:45
Speaker 2
To return it. Rewinding. Nobody rewinds anything anymore. Back to Blockbuster. Something is coming for Blockbuster, and we know it. The internet. The internet is coming.
34:00
Speaker 1
The ultimate roll-up.
34:02
Speaker 2
The ultimate roll-up. What was shocking to me in putting together this story was how early people started talking about the internet coming for Blockbuster. A USA Today column from 1991. 1991. four years before the web, basically, quotes a money manager named Pam Wengarten.
34:26
Speaker 1
The video store is going the way of the dinosaur. In three years, it won't be around. People will just dial up movies with their phones.
34:34
Speaker 2
And to be clear, she means you pick up your landline, call something. For our younger listeners, she doesn't mean you'll watch it on a phone because that was not a thing. Okay, go on. Say what she says about Huizenga.
34:44
Speaker 1
The guy ought to rent a film from Blockbuster. It's called Death of a Salesman.
34:48
Speaker 2
Womp, womp, womp. Blockbuster's stock fell 6% in 1991. Market was way up that year, so it was really all about Blockbuster. And Huizinga and his team are aware of this. They look into cable, the internet, but it is not Huizinga's world. He is a man of the physical world. He drives the back alleys. He knocks on doors. He knocks on doors. He gets into the port-a-potty business. Even videotapes. This is a physical business. You're building stores. You have physical tapes. He is not the guy for this new world. And one thing to his credit is he seems to know it. He seems to know that the world is changing. And he gets out. He gets out. In January of 1994, he agrees to sell Blockbuster to Viacom. For $ 8. 4 billion. Viacom owned MTV, among other things, at the time. So this is an extremely 80s transaction.
35:49
Speaker 1
Showtime.
35:50
Speaker 2
Showtime. Viacom was run by Sumner Redstone, famous many things guy, businessman. And Sumner Redstone was on this acquisition binge at the time. He was buying Paramount. He was going to buy CBS. And he buys Blockbuster. So in this way, Huizinga, king of the roll-up, has been rolled up. You could spend some time with the family after this. He got into the car business.
36:15
Speaker 1
No.
36:15
Speaker 2
Rolled up car dealerships around the country into AutoNation, a national chain of used car superstores. The man had a playbook and he knew how to run it. Wayne Huizenga died in 2018. And I just want to close with a quote from Huizenga's New York Times obituary. It's actually a quote from his son, Wayne Jr., who talked about working in a landfill for his dad as a kid. He talked about the smell. He said, it was a smell I grew to love. My dad would say, it smells like.
36:46
Speaker 1
Money to me, son. My boy was just like me.
36:49
Speaker 2
The Wayne Huizenga story is over, but I do feel like we should do a little moment on the end of Blockbuster, an obituary. Years after Huizenga had left Blockbuster, there was a moment when a little company called Netflix offered to sell itself to Blockbuster for $ 50 million in Pass.
37:06
Speaker 1
Yeah. Who would want to use the internet to get movies when you can come to our big, beautiful store?
37:11
Speaker 2
Blockbuster filed for bankruptcy in 2010. Waste Management Inc., still going strong, worth more than $ 80 billion. Because people still throwing away trash will always throw away trash. Today's show was produced by Gabriel Hunter Chang, was engineered by Sarah Bruguier. Our showrunner and editor is Ryan Dilley. This is the last episode that Dilley will be working on with us. So let me say thank you, Dilley. You have helped us make this show much better than it otherwise would have been.
37:48
Speaker 1
A lot of the exciting moments came directly from London.
37:52
Speaker 2
Just a quick note that we will be off for the next few weeks, but we will be back soon with another episode of Business History. I'm Jacob Goldstein.
38:00
Speaker 1
I'm Robert Smith. Thanks for listening.
The Hosts
Robert Smith
Robert Smith, co-host of the Business History podcast, is a Professor of Journalism at Columbia University and contributing host of NPR's Planet Money where he tells stories about how the…
