What Is Blockbuster Thinking?

When Jim Keyes was hired as CEO of Blockbuster (BBI), it seemed to make sense. The former 7-11 exec knows the convenience industry, which would seem to help convert Blockbuster’s brick-and-mortar business into something that works.

But trying to buy Circuit City (CC)? What’s he thinking? A presentation by the company makes it look so simple: What Circuit City doesn’t have (rental, retail and subscription) Blockbuster does — and vice-versa. The closest Blockbuster has gotten to anything related to Circuit City, with the exception of selling DVDs, is also selling gaming platforms, like the Nintendo (NTDOY.PK) Wii.

But Circuit City? Everybody always thinks they’re smarter than the next guy. Like the guys who thought they were smarter than Richard Thalheimer at Sharper Image (SHRP). (Failed.) Or the guys at CompUSA who bought TheGoodGuys. (Failed, taking the old CompUSA down with it.) Retail is littered with similar stories.

Is Circuit City CEO Phil Schoonover really that bad? Or are the headwinds simply ridiculous to try to fight, especially since Best Buy (BBY) has clearly figured out the secret sauce to consumer-electronics retailing? I’d say more the latter, though he’s made some moves that suggest the former, such as getting rid of the seasoned sales force.

What makes Blockbuster think it can do any better? Is Blockbuster director Carl Icahn the driving force behind the deal? Will Blockbuster become his vehicle to buy beaten-down retailers? And has it been lost on anybody the irony (or intrigue) that the other bidder for Circuit City is Mark Wattles, former CEO of Blockbuster’s struggling rival, Hollywood Entertainment?

And consider this: Maybe, just maybe, this tells us that Blockbuster on its own ain’t such a good business, after all.

Comments

[Ames Tiedeman:]

What is all the talk about BBI wanting CC so they can sell a device with the televisions? What device is this?

2008 Apr 15 07:58 AM

[billddrummer:]

The device in question is a movie rental set-top box. They're about 5 years too late with it, though. AAPL has one, cable providers have on-demand programming, and satellite providers are moving in that direction as soon as a couple more satellites are launched. Oh, and don't forget DVR and TiVO systems, that are already out there.

It won't matter much after BBI and CC merge, then sink under an avalanche of debt.

2008 Apr 15 11:24 AM

[heirbrande:]

Initially, I thought this was an ill-conceived iplan. However, I think this is a pretty good yet sly move after taking a closer look: Blockbuster is launching a setop box later this month that will use the Movielink service which has had some success. Next year, all new TVs are required to go digital. With Circuit City delivering the TVs and setop boxes (and converter kits for old TVs) and being an established electronics retailer, I'm predicting that Circuit City will see a lot of people buying new TVs and a trial subscription (or free subscription) to whatever service Blockbuster is launching. Blockbuster already has many links in the movie industry so it seems like a great match. Also, Icahn is known to love money and when he smells it he will not stop. People would get hurt along the way, but his goal (and shareholders' goal as a by-product) of making money will be met. Remember Icahn's association with Time-Warner. :) Also Apple is trying to move into delivering movies with Apple TV. Jobs knows how to make money so, this will be an incredibile deal for Blockbuster if the management is right. The stock is relatively low now and is priced so that a lot of people can get on board at this price.

2008 Apr 15 11:48 AM