When becoming #2 is not so great
Companies, as we have pointed out, strive to become #1 or #2 in a market segment, using acquisitions, mergers, and (hopefully) organic growth to reach that prominence. And for most companies, being #1 or #2 is great - but not always.
Take the video rental market. Last year, #3 video chain Movie Gallery extended itself to acquire #2 Hollywood Video, snatching it out of the grasp of #1 Blockbuster. The $1.2 billion purchase gave Movie Gallery a total of 4,800 stores and a strong #2 position.
But several issues have made that decision look like a disaster, according to a story in BusinessWeek ("Nightmare On Main Street". 6/9/08). The company took on high levels of debt, even as the video rental industry has continued to tank overall, thanks to competition from retail DVDs and from mail services like Netflix. That was compounded by an overall lack of really hot video title last year, something that may improve this year.
In fact, according to the BusinessWeek story "in-store sales for video outlets shrank by 13%." Cash-short Movie Gallery has been forced to renegotiate loans. And with movies on demand getting more popular, both on cable TV and over the Internet, the decline in in-store rental is likely to continue.
Meanwhile, the latest rumor is that the company is on the block, and possibly at a bargain price. There is some rumor that Blockbuster may be the key suitor, with Netflix also as a possibility.
1:49:56 PM 
|
|
