At its peak, Blockbuster operated more than 9,000 stores and served 60 million customers. They dominated home entertainment with six billion dollars in annual revenue. Embedded inside that revenue was a single mechanism that generated approximately 800 million dollars a year — about 16 percent of everything they earned.

Not from renting movies. From penalising customers who kept them too long.

The late fee was a dollar a day. It was not uncommon for a customer to owe more in fees than the movie cost to buy outright. The resentment was real and widespread. But there was nowhere else to go. Blockbuster held the market. Customers were not quite customers — they were prisoners.

Reed Hastings, who co-founded Netflix in 1997, famously claimed the idea came to him after being charged forty dollars in late fees for Apollo 13. He later admitted the story was embellished. But the underlying truth was accurate: Blockbuster’s late fee model was despised, and the frustration it generated was the market signal that Netflix was built to answer.

In 2004, Blockbuster CEO John Antioco did something remarkable. He looked at the late fee and named it for what it was: the number one customer dissatisfaction factor in the entire business.

On 1 January 2005, Blockbuster launched its No Late Fees campaign. Antioco was direct about the logic: any time you can remove the thing customers hate most and increase traffic at the same time, you have your answer. And the data backed him. In the first nine months after removing late fees, rental revenue increased by 284 million dollars.

But the business had given up 400 million dollars in late fee revenue to get there. To investors focused on quarterly returns, that looked like a loss. To Antioco, it looked like the only path forward.

He was right. By 2007, Blockbuster Online was growing fast enough to alarm Netflix executives. Reed Hastings later acknowledged that Antioco’s Total Access strategy — which let customers return online rentals to stores and pick up movies for free — genuinely threatened Netflix’s model. Antioco’s plan was working.

Activist investor Carl Icahn had taken a large position in Blockbuster. He regarded the spending on Blockbuster Online and the elimination of late fees as reckless. He mounted a proxy war, reduced Antioco’s bonus, and gained control of three board seats. In 2007, Antioco left.

His replacement was Jim Keyes, former CEO of 7-Eleven, chosen by Icahn. Keyes refocused the business on its physical stores, cut funding for the online division, and dismissed the threat of streaming entirely. In 2008 he told an interviewer that neither Netflix nor Redbox were on his radar as competitive threats.

The late fees came back.

In 2010, Blockbuster filed for bankruptcy with nearly one billion dollars in debt. Dish Network acquired the remnants for 320 million dollars — less than the company had earned in late fees in a single year. One independent franchise store remains open today in Bend, Oregon, kept alive as a curiosity.

Activist investor Carl Icahn had taken a large position in Blockbuster. He regarded the spending on Blockbuster Online and the elimination of late fees as reckless. He mounted a proxy war, reduced Antioco’s bonus, and gained control of three board seats. In 2007, Antioco left.

His replacement was Jim Keyes, former CEO of 7-Eleven, chosen by Icahn. Keyes refocused the business on its physical stores, cut funding for the online division, and dismissed the threat of streaming entirely. In 2008 he told an interviewer that neither Netflix nor Redbox were on his radar as competitive threats.

The late fees came back.

In 2010, Blockbuster filed for bankruptcy with nearly one billion dollars in debt. Dish Network acquired the remnants for 320 million dollars — less than the company had earned in late fees in a single year. One independent franchise store remains open today in Bend, Oregon, kept alive as a curiosity.

This is the part of the story that matters most for coaches. The late fee was not just a revenue stream. It had become structural — so deeply embedded in the business model that removing it felt existential to the people who depended on the quarterly numbers.

Icahn was not evil. He was a rational investor responding to short-term signals. But those signals were lying to him. The 400 million dollars the business gave up by removing late fees looked like a problem. What it actually was, was the price of survival.

This is the trap that deliberate friction sets. When friction is generating revenue, it creates a powerful institutional incentive to protect it. The people closest to the numbers stop seeing it as a liability. They see it as a feature. The status quo hardens, defended by shareholders, boards, and quarterly targets — right up until a competitor removes the friction first and takes the customers with them.

Netflix did not build a better video store. They simply removed the thing Blockbuster’s customers hated most. That was enough.

The Blockbuster story is not unique to the video rental industry. The pattern repeats across every sector.

Taxis had a monopoly on urban transport and built their model around it — opaque pricing, cash only, no accountability for poor service. In 2008, two conference-goers couldn’t hail a cab in Paris. That friction became Uber.

T-Mobile’s rivals — AT&T, Verizon, and Sprint — had spent years locking customers into contracts, burying fees, and making plans deliberately hard to compare. In 2012, incoming CEO John Legere declared war on every one of those friction points. He called it the Un-carrier strategy. Within years, T-Mobile had forced the entire industry to follow or fall behind.

In each case the friction was deliberate, defended, and profitable — right up until it wasn’t. Run Frictionless explores these stories and others in depth, giving coaches a framework for identifying the same pattern in their clients’ businesses before a competitor does it for them. Every purchase includes a free playbook and an online session with the author.

Run Frictionless second edition explores more examples like Blockbuster — businesses that baked friction in deliberately and the competitors that were built to remove it. Every purchase includes a free playbook and an online session with the author.