Please be kind, rewind: why movies will never be the same without Blockbuster

Fast forward four decades and video and its successor DVD are on the way to extinction. The latest of umpteen nails was driven into the coffin this week with news that two of the final three Blockbuster video stores in the United States are to close.

Both are in Alaska, where patchy broadband had until recently kept at bay the all-conquering streaming services such as Netflix and Amazon. But now rising rents have forced the owner of the stores at Anchorage and Fairbanks – run independently, as Blockbuster itself filed for bankruptcy in 2010 – to announce their closure. 

All this despite a campaign by HBO comedian John Oliver to keep them going (he even purchased mementos from Russell Crowe's "divorce auction" and sent them Alaska-ward in an attempt to drum up interest). One of the Blockbusters will briefly re-open next week for sell off its more than 10,000 tapes and DVDs. After that, shutters will come down forever. That will leave just a solitary Blockbuster standing in the United States, in the small town of Bend, Oregon.

When people think of Oregon they typically imagine Portland hipsters cycling to their local craft-brewery, munching granola and listening to local artists such as The Decembrists or Laura Veirs. Bend, however, belongs to another Oregon. On the edge of the Cascade Mountains, the former logging town marks the point at which the pine forests of the coastal state give way to scrub and desert. There aren't many jobs – tourism is the major industry, with Les Schwab Tires the biggest local employer. 

But its very remoteness has attracted artists and craftspeople, as well as athletic types drawn to the fresh mountain air and clement conditions. So it's a quirky pace – Twin Peaks with a whiff of Burning Man. Which may explain the continued existence of a barn-sized Blockbuster, just off Route 20 and a stone's throw from the nearby McDonald's and Wendy's. 

Simply by continuing to exist, the Bend Blockbuster has become a retailing sweetheart in America. Its Facebook page proudly shares selflies by tourists who have in many cases driven hundreds of miles to pose by the huge Blockbuster sign out front. A notice on the door  advertises five-day movie rentals for $1.25. Just inside is a huge bin of DVD slipcases, yours for 10 cents a pop. 

As with the Alaska Blockbusters, the Bend store was able to survive because it was independently owned and so did not go down with the mothership in 2010. This extraordinary decline from a position of apparent invulnerability in the early Noughties to tumbleweed and ruin is, before anything else, a textbook case of a successful company unable – or refusing – to adapt to changing technologies. 

Yet it's also a tale of vision, hubris, over-weening ambition and tragicomedy – a Paul Thomas Anderson movie with video cassettes and store clerks instead of oil gushers and Daniel Day-Lewis drinking milkshakes. 

Blockbuster's great innovation was to industrialise the video library, or video store in American parlance. Video stores were born in 1978, when the owner of a Los Angeles film projector leasing company, Video Station, purchased copies of all 50 movies then available for release on VHS and its rival format Betamax in the United States. 

Advertising "videos for rental" in the Los Angeles Times, George Atkinson offered the cassettes for $10 per day – plus a  $50 annual membership (lifetime membership was a snip at $100). Several studios sued him, claiming he was breaching copyright law but the courts backed him and the mom-and-pop video store was born. 

Video changed the way films were distributed – but, more profoundly than that, it changed how we watched them too. Those old enough to remember will recall what a thrill it was to enter the musty warren that was the local video store. Out front were displayed the new releases – Sylvester Stallone's Cobra perhaps, alongside RoboCop and Ferris Bueller's Day Off. 

Then, further in, the classics – One Flew Over The Cuckoo's Nest with its faded image of Jack Nicholson looking unhinged, Ridley Scott's Alien, that iconic cover somehow more menacing when wedged behind protective plastic. 

Depending on the reputability of the retailer, there might also be a "video nasty" section – cheap horror films that whipped up a tabloid frenzy in the early Eighties – and, if you dared to look, an "adults only" aisle, where the sleeves were soft-focused and where, if your glance fell the right way, it might alight upon a glimmering of lace or bared flesh. 

The pleasure of taking a chance on a movie at random – picking something just because you liked the cheesy cover – is one impossible to replicate today. 

And you were always haunted by the one that got away. To this day I regret not ponying up the £1.50 it would have cost my friends and I to rent Hell Comes To Frogtown from our local video pit. It was about a muscle-bound hero named "Hell" who, Mad Max-style, stumbles upon a settlement populated by under-dressed damsels and mutant amphibians. I could probably find it on YouTube if I went to the trouble – but it wouldn't be the same. 

Video stores created their own culture. Quentin Tarantino's love for, and deep knowledge of, cinema was honed as a clerk at Video Archives at Manhattan Beach, California. And in his book Videoland: Movie Culture at the American Video Store Daniel Herbert argues that the video store ushered the motion picture out of the realm of art and into that of commodity – creating the Hollywood of today.

"Video stores changed the way Americans treated movies and thus changed movie culture or the ways in which people socialise around movies and collectively make movies meaningful," Herbert writes. "From the moment in the Seventies that movies were first made available on magnetic tape, they had a newly physical presence in the world and were treated as material commodities." This transformation made movies more accessible, portable and controllable, criteria by which consumers weigh the value of entertainment more generally.

The inevitable next step was taken in Texas, where one David Cook made a fortune supplying software searches to the oil industry. Life as an oil man –  or at least the guy who looked after the oil man's computers – was lucrative and Cook was not desperate for a second act in his life. His wife Sandy, however, saw an opportunity as the sales of VHS players boomed – the format had long seen off the higher quality but fiddlier Betamax – and studios lowered the price of rental tapes. 

At his wife's behest, Cook bought into a small video franchise in Dallas, Video Works. He urged the other shareholders to expand and the chain soon became familiar across the Dallas-Fort Worth sprawl. But the Cooks dreamed of even bigger success, and came into conflict with the company when Video Works refused to allow him redecorate the outlets in a blue-and-yellow design. 

So, in 1985, Cook struck out on his own and on October 19 the first Blockbuster opened in Dallas. The colour scheme was, as per Cook's insistence, blue and yellow. Within, shelves heaved with 8,000 VHS tapes. 

Soon the chain had expanded to 19 outlets and, after seeing off a court case by Nintendo, moved into video game rental. Utilising his experience in logistics, Cook constructed a $6 million warehouse in Garland, Texas to act as a nerve centre for the operation and allow him to supply new stores quickly. 

He also cut a deal with video wholesalers so that he would rent cassettes rather than buy them outright at an outrageous mark-up – the terms under which smaller video stores continued to operate. 

Early on, he recognised it was important to pay attention to customers. Despite their cookie-cutter exteriors, within each store was carefully curated. One close to a college campus would prominently display broad comedies, horror and action movies. 

Another in the suburbs, with an older clientele, would give pride of place to dramas and Oscar fare. Ironically, this was an early analogue form of the algorithmic model that has driven Blockbuster's usurper Netflix and its obsession with "taste clusters" and tailored content. 

Blockbuster's goliath phase began in 1990 with the acquisition of East Coast-based Erol's and its 250 stores. By 1993, Blockbuster had a controlling interest in TV mogul Aaron Spelling's Spelling Entertainment Group and a 35 per cent share in Republic Pictures. Twelve months later, entertainment conglomerate Viacom acquired it for $8.4 billion. 

At its peak in 2004 the company employed 84,000 worldwide, operating 9,000 stores, of which half were in the United States. Yet cracks were starting to show. Blockbuster had always been perceived as vulnerable to new technology and in 1991 its stock had dipped 10 percent when Time Warner had announced it was upgrading its cable services. 

But the company's decline was not inevitable and there was an opportunity to pivot towards streaming. Indeed, this was a chance that had been presented to it on a plate when an obscure young tech executive named Reed Hastings flew to Blockbuster's HQ in 2000 and proposed that it buy his company for $50 million.

His plucky little startup was called Netflix and it had been, in fact, begun by Hastings out of frustration at Blockbuster's cynical revenue model, by which it earned millions from charging its customers over-due fees. As has now gone down in entertainment history, Hastings was appalled at being presented with a $40 bill when he forget to return a copy of Apollo 13 on time.

With web streaming in its infancy, Netflix took on Blockbuster head-on in the video rental space. The difference was that users ordered films by post and were not charged a late fee. What Netflix lacked was convenience – movies took days to arrive so users couldn't simply rent on an impulse, as they had from their local Blockbuster. 

But Hastings saw what was coming and was positioning Netflix for a time when his customers would go online to watch their "content" – a word even normal people were repurposing by the early Noughties. 

Such were the circumstances in which he stood before Blockbuster CEO John Antioco and gave his pitch. "Reed had the chutzpah to propose to them that we run their brand online and that they run [our] brand in the stores and they just about laughed us out of their office," recalled Barry McCarthy, Netflix's former chief financial officer. "At least initially, they thought we were a very small niche business. Gradually over time, as we grew our market, his thinking evolved but initially they ignored us and that was much to our advantage.”

Another long-term weakness with Blockbuster was, some insiders have argued, that after several bad summers at the box-office in the mid-Nineties it had pivoted away from its core business and into flogging extras – toys, sweet and other impulse purchases. "The problem with this strategy is that it never acknowledged, let alone addressed the fundamental promise and peril of the business," wrote former executive Jonathan Salem Baskin in Forbes. 

"If people didn’t come to find movies they wish they hadn’t missed in the theatres, no amount of add-on retailing could replace that once-glorious rental income. Blockbuster didn’t have a technology problem – digital distribution was minimal, albeit talked about incessantly – but rather a customer problem. It gave them no reason to visit stores in lieu of a latest, greatest hit."

In 2007 Netflix offered streaming to customers in the United States for the first time. Meanwhile Blockbuster was seeing its empire crumble before it. The same year Netflix got into online content, Blockbuster had belatedly recognised the threat of the rival and unveiled Blockbuster Online, by which customers would rent DVDs from their computer – in other words the same model Netflix had already operated successfully when Hastings went to Dallas in 2000. 

The big innovation was that customers could rent a second movie for free when returning the first to the store (Netflix customers sent their rentals back by post). Every free film was estimated to cost the company $2 – a necessarily price to keep Netflix at bay, it was felt. 

Hastings recognised the threat and was back with another pitch – a synergy under which Netflix would purchase Blockbuster's online business, and rentals could be returned to their local store. However, a major investor, serial mogul Carl Icahn, objected and the free movie deal was scraped. Several weeks later Antioco had been ousted, with just $24.7 million in severance for comfort. 

Soon revenues were in free-fall and in a panic Blockbuster began shuttering overseas stores. But it wasn't enough, despite desperate deals to secure exclusive early releases from Time-Warner, Universal and 20th Century Fox. In 2010 Blockbuster was unable to meet a $42 million interest payment to bondholders and that September the company filed for bankruptcy, with debts of $900 million. By that point Netflix was on its way to its present valuation of in excess of $100 billion. 

The video store didn't die with Blockbuster. A backlash against the perceived soullessness and crushing ubiquity of technology is gathering pace and to the artisanal bakery, the craft brewery and the board game store may also be added the VHS library. Seattle's Scarecrow Video, an independently owned not-for-profit business, for instance, stocks over 150,000 titles and continues to thrive.

So, too, do outposts such as Video Free Brooklyn, which records its own podcast, and LA's Cinefile Video, the website of which proclaims its motto as "What's A Netflix?". Regardless of whether Bender Blockbuster survives or goes the way of its Alaska cousins, the video store is not quite six feet under yet.