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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 (OTCPK:NTDOY) 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 (NYSE: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.

Source: What Is Blockbuster Thinking?