Viacom to Spin Off Blockbuster

The Financial Times reported that media giant Viacom (CBS, MTV, Cartoon Network, Simon & Schuster) formally began the process of spinning off its Blockbuster video rental business. Those shareholders who tender their Viacom stock will get 5.15 shares of Blockbuster. The FT says this will be worth about $1 billion. The question is whether Blockbuster has a future.

That is not a knock on Blockbuster, its management or its operations. The question merely is what sort of future does the video rental business really have? The pundit world is full of false and failed predictions of the death of this business and that industry. However, in the case of the video rental business, there are enough challenges to warrant a serious consideration of just what Blockbuster faces on its own.

The great challenge for Blockbuster and other video stores is the revolution in electronic delivery of data. Back when VHS (and Beta) tapes had to be shipped, it made sense to have a retail outlet system. Netflix, which will deliver DVDs to one’s home by mail, is only just now offering mail-order rentals. And now, cinemas are even working to bring in digital transmission to get rid of the expense and inconvenience of having physical films. The game is different.

Video-on-demand calls into question the need for bricks and mortar stores. What point is there in going to the strip mall when a few clicks of the remote control can set the movie or game up? Record companies and their retailers have already seen their sales drop because of the existing technology. The video stores are likely to see the same unless they can find a way to keep people walking in the door and spending money.

This is not to say that Blockbuster on its own will be a loser. Rather, a prudent investor will press management on the issue of adapting to video-on-demand. Those video chains that cannot answer the challenge are doomed. Those that can will not look much like the video stores of today.



© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.



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