TK's MORNING BUZZ: For Blockbuster's Stock to Sink So Low Isn't a Good Sign for Big Blue13 Oct, 2000 By: Thomas K. Arnold
Happy Friday the 13th!
I opened my newspaper this morning to discover that Blockbuster Inc. stock closed trading yesterday at $7.50 per share, exactly half the IPO price.
Granted, the Dow had one of its worst days all year, nearly dropping back down to the 10,000-mark it first reached in March 1999.
But for Blockbuster's stock to sink so low, after a long period in the $9 range, certainly isn't a good sign for the company, particularly since the fourth quarter has just begun--which is traditionally a good time for retail--and the chain is in the midst of its much-ballyhooed expansion into selling DirecTV satellite systems and service.
Blockbuster chief John Antioco has made a big to-do with his strategy of exploiting what he calls the "pay for transaction" business. Simply put, he believes that the future of home entertainment will be increasingly fractionalized. The days when the family will gather around the livingroom TV set are over, he declares; thanks in large part to the growing number of delivery options, from satellite and cable to the Internet, DVD and the PlayStation 2 (which will also play movie discs), he sees Dad watching action films on the DVD in the study, Mom enjoying a romantic comedy on the bedroom VCR, and Junior alternately playing games and watching movies on his PlayStation 2 unit.
With so many entertainment options available, Antioco reasons, consumers will be less inclined to buy--hence Blockbuster's continued reluctance to jump into sellthrough, VHS as well as DVD--and more inclined to rent, be it a video from the video store or a pay-per-view movie.
The problem with Antioco's strategy, if one can be critical this early in Blockbuster's game, is that it appears he's trying to do too much, too soon, and thus risk losing Blockbuster's proprietary identity. You can buy satellite at the Good Guys or just about any consumer electronics store; you can subscribe to fledgling video streaming and downloading services via your own home computer.
But you can only rent videos (VHS and DVD included) at the video store, and despite the trend toward factionalized viewing in the home, the DVD sales market is exploding. Perhaps Antioco would be better advised to stick with what Blockbuster does best--rent and sell packaged movies--than to try to be all things for all people.
Three years from now, Antioco's strategy might be right on the mark. But for the time being, it appears he might be jumping the gun--with the barrel aimed straight at Big Blue's stock price.
Comments? Contact TK directly at:TKArnold@aol.com