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TK's MORNING BUZZ: The Blockbuster Behemoth Is Coming Back to Haunt the Studios That Helped Create It

2 Feb, 2001 By: Thomas K. Arnold

Studio executives are privately worried that the Blockbuster behemoth they helped create is coming to back to haunt them.

It's like this, I've been told: Blockbuster's revenue-sharing deals are coming up for renewal, and Big Blue no longer wants those nasty guarantees contained in the original agreements.

Moreover, Blockbuster is buying fewer copies of new releases, overall. The chain has fine-tuned its mix and discovered you don't need 200 copies per store of the latest theatrical blockbuster to hit video -- particularly since there's less and less competition.

The studios don't really know what to do. And I, for one, find it hard to sympathize with them. When Blockbuster first came to them with its pitch for cheaper goods through revenue-sharing, the studios knew full well what Blockbuster's game plan was -- or, at least, they should have. Blockbuster said it wanted to increase customer satisfaction to help it increase market share.

Now, in a mature industry such as video rental, there's only one way for one player to increase his market share -- it's got to come at someone else's expense.

And that's precisely what has happened. Blockbuster has used its cheap goods to guarantee the availability of top new rental releases, extend rental periods and cut rental rates -- all to put the competition out of business. And it's worked -- while rental revenue, overall, is flat, Blockbuster's market share perentage in the past three years has climbed from the mid-20s to an estimated 40. In the meantime, thousands of independent video stores have gone out of business.

With the competition out of the way, Blockbuster no longer needs those stacks of new releases. And I'm sure some very red-faced studio executives are staring at themselves in the mirror, saying, "I should have known."

Comments? Contact TK directly at:TKArnold@aol.com

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