Blockbuster's (BBI) Mad Dash

Blockbuster (BBI) continues to put its nose where it does not belong. First it tried to buy Circuit City (CC), a firm which is weaker than Blockbuster is, and Blockbuster is plenty weak. It shares are under $3, down from over $20 less than five years ago.

The issue of where Blockbuster would get the capital to close the deal came up quickly. The movie rental company’s management looked like buffoons.

Now Blockbuster wants to own a piece of Viacom’s (VIA) new pay-TV channel which is going into business to compete with HBO and Showtime. Viacom has lined up content from MGM (MGM) and Lions Gate (LGF). It is not clear why consumers, cable systems, and satellite TV companies would want a new movie channel, but that is only a minor detail.

According to The Wall Street Journal “As part of a deal being discussed, Blockbuster would get digital rights to the new channel’s programming in return for an investment in the partnership.”

What is Blockbuster going to do with those rights and why would Viacom want to grant them?  Blockbuster is a failing company in the DVD retail business. It has too many stores. It also rents DVDs through the mail. But, that business is dominated by NetFlix (NFLX). BBI would like to stream movies over the internet. The number of companies in that business is too large to count.

Maybe Blockbuster shareholders will get lucky. Perhaps the company does not have the money to buy into the Viacom deal. That would leave management the job of fixing its current business.

Douglas A. McIntyre

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