Wednesday, December 10, 2003

Viacom to discard Blockbuster Speculation is high that Viacom is about to drop its ownership position in Blockbuster. The video rental company was riding high four or five years ago, but now, in spite of several tries at reinventing itself, it’s in trouble. Even though Blockbuster and rival Hollywood Video had managed to drive most of their competition out of business and form a dominant duopoly, they look to be victims if a radical disruption in their short-lived market. According to a Wall Street Journal article, ”Viacom Nears Decision On Divesting Blockbuster” (12/2/2003): Viacom Inc. is close to a decision to shed its roughly 82% stake in video-rental giant Blockbuster Inc., most likely by selling to a group of private-equity firms, people familiar with the situation say.” The estimated value of such a deal might be as high as $2.5 billion. The main reason is the declining fortune of video rental thanks to low-price retail DVDs, Blockbuster has tried to sell DVDs retail, but it can’t compete with Wal-Mart or Best Buy, with their loss-leader discounts. Blockbuster has also gone through periods of selling popcorn and selling electronic equipment, to no avail. So even though there is a Blockbuster in almost every town and city in America, its return per store is gradually sliding. If successful, the prospective deal would be the second recent example of an important entertainment business imperiled by changing technologies and cast off by its media-giant parent. Time Warner Inc. recently agreed to sell its music division to a group of private-equity investors led by Edgar Bronfman. The threat of new technologies took hold more slowly in the home-video business, but it has taken hold with a vengeance. …Last year, in a major shift, people spent significantly more on movie purchases than on rentals. While retail sales of films rose 19% to $12.26 billion, rental spending slipped 3%, to $9.92 billion, according to Adams Media Research of Carmel, Calif. While Blockbuster is slowly declining in sales, it’s still a money maker. Viacom, as a smart oligopoly, feels it has to concentrate on growing rather than sinking assets, and assets that reflect its own profile, as an entertaiment company, not a retailer.    8:28:09 PM

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