In 2000, Netflix co-founder Reed Hastings walked into Blockbuster’s office with a surprising offer: sell us your company, and we’ll handle your online division. At the time, Netflix was still mailing DVDs in red envelopes, while Blockbuster was a global giant with over 9,000 stores.

Blockbuster laughed. Literally.

Fast forward a decade, and Blockbuster was bankrupt. Netflix, on the other hand, had become one of the most powerful media companies in the world. People often say Netflix killed Blockbuster with better technology or a more convenient model.

But the truth is deeper than that.

Netflix didn’t win because it was better. It won because it redefined the game.

What Blockbuster Was Really Selling

Blockbuster wasn’t just a video rental company. It was a weekend ritual. You drove to the store, wandered the aisles, grabbed snacks, and picked a movie. For years, this worked. Blockbuster built a brand around the experience of movie night.

But it was also full of friction.

You had to drive. Titles were often out of stock. Late fees were brutal. In 2000, Blockbuster made $800 million in late fees alone.

The pain was there. But customers accepted it, because there was no clear alternative. Yet.

Netflix Didn't Compete, It Reframed the Problem

Netflix looked at the same experience and asked a different question: What if movie night didn’t require leaving your house? That one shift changed everything.

Netflix didn’t try to be a better Blockbuster. It didn’t open stores with longer hours or more candy. It removed the very idea of a “store” from the equation. First with DVDs by mail, and then with streaming, it positioned itself as something completely new.

It wasn’t just about renting movies. It was about entertainment on your terms. No driving. No late fees. No out-of-stock DVDs. Just press play.

This Was Category Thinking

Netflix didn’t kill Blockbuster with price or convenience alone. It changed the frame. It made Blockbuster feel outdated. Not by attacking it, but by offering a different mental model for what entertainment could be.

This is the heart of category thinking: Don’t compete in the old game. Create a new one. And once the market adopts your frame, the old one begins to collapse under its own weight.