Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How a 40-Year-Old Video Rental Store Survived Streaming
Transcript
- Lucas: So there's this one video store in Portland, Oregon — Movie Madness — that's been open since 1984. Forty-two years later, it's still renting DVDs and Blu-rays. And I think the instinct is to say, 'oh, a quaint holdout, a nostalgia trip.' But the real story is that Movie Madness survived because its owners understood something about disruption that most businesses get wrong. Luna: Okay, I have to admit — I assumed every single video store was dead. Like, Blockbuster went from 9,000 stores to one tourist trap in Bend, Oregon. How does a single independent shop survive that? Lucas: Right, that's exactly the question. Blockbuster's peak was around 2004 — 9,000 stores, 60,000 employees, 6 billion in revenue. By 2010, they were bankrupt. The standard narrative is that Netflix killed them. And that's partly true — Netflix rewrote the distribution model for home video. But Movie Madness survived by refusing to compete on convenience. Luna: Meaning they didn't try to be a cheaper or faster Netflix. Lucas: Exactly. They leaned into the opposite. Movie Madness had a 45,000-title inventory — that's not just new releases, that's obscure foreign films, silent-era classics, Criterion Collection editions, deleted films. Things that have never streamed and probably never will. The owners, Linda Mowry and later a nonprofit, figured out that the value wasn't in renting the latest Marvel movie — that's a commodity. The value was in curation and access to the weird stuff. Luna: So they became a library, not a convenience store. That's a completely different business model. Lucas: Yes. And they doubled down on that identity. In the early 2000s, when Blockbuster was still opening stores, Movie Madness started expanding its collection rather than its floor space. They also bought up inventory from closing video stores across the state. So by the time streaming went mainstream, they had a physical catalog that was genuinely irreplaceable. Luna: But how do you monetize that? Renting obscure films to a small audience doesn't sound like a sustainable revenue stream. Lucas: It barely was. For years, the store operated on thin margins — they had loyal regulars, but it was never a cash machine. The real pivot came around 2013, when the owner at the time, Linda Mowry, decided to turn the store into a nonprofit. She transferred the entire 45,000-title collection to a trust, and the store became a mission-driven cultural archive. That changed the economics completely. Luna: So suddenly they could accept donations, apply for grants, and have tax-exempt status. That's a structural advantage a for-profit video store can't get. Lucas: Exactly. The annual operating budget went from relying on rental income — which was declining — to a mix of rentals, donations, grant funding, and special events. By 2019, the store was actually in the black. Which, for a physical video rental store in the era of 200 million Netflix subscribers, is remarkable. Luna: I want to get into the specifics of how that nonprofit model works. But first — what was the moment that triggered the pivot? Was there a near-death experience? Lucas: There were several. In 2010, after Blockbuster's bankruptcy, a lot of people assumed all video stores were dead. Movie Madness lost about 20 percent of its rental revenue that year. The owner at the time, a woman named Susan P. — actually I want to get the name right — Linda Mowry took over in 2012. She had been a customer. She saw the store was losing money and she basically said, 'if this place closes, the collection disappears.' So she bought it. Luna: She bought a failing video store. That's either an act of love or a terrible business decision. Lucas: Probably both. She wasn't a retail veteran — she had a background in arts administration. And that background is probably what led her to the nonprofit idea. She saw the collection as cultural heritage, not inventory. So she spent two years working with lawyers to structure the transfer. By 2013, Movie Madness was officially a 501. Luna: And that changed the revenue mix. Can you give a rough breakdown of what their income looks like post-pivot? Lucas: From their public filings — because nonprofits have to disclose — around 40 percent comes from membership fees and DVD rentals. The membership model is interesting: it's something like 20 dollars a year for unlimited rentals. Another 30 percent comes from individual donations and foundation grants. The rest comes from events, like screening series and filmmaker Q&As held in the store. They also sell some merchandise and used discs. Luna: So the rental business is still the core, but it's subsidized by philanthropy. That's a different model than almost any other retailer. Lucas: It's closer to a public library than a Blockbuster. And libraries have survived the internet. The question is whether the model scales — and for Movie Madness, it doesn't need to. They only have one location. Their goal isn't growth, it's preservation. That's a critical distinction. Most business thinking assumes you need to grow or die. But some businesses can survive by shrinking into a sustainable niche. Luna: That's a hard lesson for founders who have been told that 'scale or fail' is the only path. But let's talk about the cultural value angle. Movie Madness now calls itself a 'movie museum.' They have props and costumes from famous films — like the ax from 'The Shining' and the vest from 'The Big Lebowski.' Does that actually drive revenue, or is it just marketing? Lucas: It drives foot traffic, but not massive revenue. The museum pieces are a differentiator — they make the store an attraction, not just a rental counter. Tourists come to Portland specifically to see it. I've seen write-ups where people say they planned a trip around visiting Movie Madness. That's brand loyalty that no streaming service can buy. Luna: And that kind of loyalty is built on scarcity. You can't stream a prop. You can't replicate the experience of browsing aisles with a film scholar who can recommend a 1960s Japanese horror film you've never heard of. Lucas: Exactly. And that's the lesson for any business facing disruption — don't try to beat the disruptor on their own terms. Movie Madness could never have built a streaming service to compete with Netflix. But Netflix can never replicate the tactile, curated, community-driven experience of a physical store. The winning move was to make the store more like itself, not less. Luna: Let's bring this back to a broader business lesson. What's the one thing a founder listening today could take away? Lucas: I think it's this: when a technological disruption hits your industry, don't ask 'how do I compete with the new thing?' Ask 'what does the new thing not do well?' The new thing — streaming — is great at convenience and breadth. It's terrible at curation, deep catalog access, and community. Movie Madness built its survival on those weaknesses. Every industry has a similar gap. The question is whether you're willing to be small enough to exploit it. Luna: And that requires letting go of the growth-at-all-costs mindset. Lucas: Right. Movie Madness is never going to be a billion-dollar company. But it's been operating for 42 years, and it's still open. That's a kind of success that doesn't show up on a venture capital scorecard. It's a business that found its 'enough' and built a model around it. Luna: I think that's a really powerful point. And it's one of the reasons I love doing this show — we get to highlight businesses that redefine what success looks like. If this conversation has been valuable to you, you know, we keep this podcast ad-free and listener-supported. And if today's episode was worth a coffee to you, you can find us at buy me a coffee dot com slash fexingo. No pressure, just a way for us to keep doing this. Lucas: Yeah, listener support genuinely makes this possible. And we appreciate every single contribution — it lets us focus on stories like Movie Madness that don't get mainstream coverage. Luna: Exactly. So back to the story — what's happened since the pandemic? Did the streaming boom during COVID hurt them again? Lucas: Actually, it had a mixed effect. Rental revenue dropped during lockdown — people couldn't come in. But they quickly pivoted to a curbside pickup model and even launched a limited mail-order rental service for their most loyal members. And once restrictions lifted, they saw a surge in new memberships from people who discovered the store during the pandemic and wanted to support local businesses. So they actually came out of 2021 in a stronger position than they were in 2019. Luna: That's resilience through flexibility. The core mission stayed the same, but the delivery method adapted. Lucas: Exactly. And that's the final lesson — a sustainable niche isn't static. It requires constant small adjustments. Movie Madness didn't just pick a niche and freeze. They evolved their pricing, their membership model, their nonprofit structure, their event programming. But the core — being the definitive archive of physical film — never wavered. Luna: Alright, I'm already looking up their membership page. I think I'd pay twenty bucks a year just for the chance to browse their horror section. Lucas: And that's exactly how they've stayed in business for 42 years — one member at a time.