In 1997 Blockbuster decided that the DVD would never replace VHS. With that decision it began to dig its grave

**Blockbuster's DVD Misstep: A Cautionary Tale for the Digital Age** In 1997, a pivotal decision by Blockbuster to reject a DVD rental exclusivity deal with Warner Bros. marked the beginning of its decline, highlighting the perils of technological inertia in the face of disruptive innovation. This shortsightedness, rooted in the comfort of VHS dominance, ultimately paved the way for competitors and new distribution models to gain traction. The incident serves as a potent reminder for contemporary tech companies to remain adaptable and forward-thinking. At the time, DVD promised superior picture quality and interactive features, but the established VHS format controlled 95% of the home video market. Warner Bros. proposed a revenue-sharing model for exclusive early DVD rentals, mirroring the lucrative VHS agreement where Blockbuster received 60% of rental income. However, Blockbuster's leadership, influenced by the immense profitability of VHS, opted to underestimate the nascent DVD technology, a decision that would have profound consequences. This strategic miscalculation allowed competitors like Walmart to capitalize on reduced wholesale DVD prices, eventually surpassing Blockbuster as a primary revenue source for Hollywood studios. The rapid adoption of DVD players, despite their initial high cost, ultimately democratized access to the new format, leaving Blockbuster tied to an outdated technology and a dwindling market. The situation underscores the critical importance of embracing digital transformation and anticipating shifts in consumer behavior to maintain relevance.