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Blockbuster Headed for the Block?

13 Feb, 2003 By: Holly J. Wagner

While publicly expressing faith in Blockbuster Video and its chairman and CEO John Antioco, Viacom chairman Sumner Redstone may be quietly stumping to sell or spin off the nation's No. 1 home video rental chain, The Wall Street Journal reported today.

Redstone “told investors at a private meeting last month that ‘we have decisions to make. Do we spin [it] off? Do we sell it? There are companies who would buy it. Do we keep it? Do we buy it in?' he said. ‘We don't know the ultimate answer. We should be very careful, skeptical and questioning about the future of Blockbuster,’ the Journal reported.

The comments come amid an atmosphere of speculation about the industry in general and the major chains, which are heavily vested in renting box office hits as soon as they reach the market.

With sellthrough-priced DVD chipping away at the rental market, Blockbuster has been testing a variety of plans and ventures, such as the Freedom Pass subscription model, a major investment in movie downloading Web site Netmovies.com; ownership of filmcaddy.com, an online rental-by-mail business; and more sellthrough.

Yet the chain, along with the other major chains, suffered a slump during the last holiday retail season. When Big Blue issued guidance that the skid would lower earnings for the quarter and the year, its stock plummeted, losing a third of its value overnight.

Redstone publicly praised Antioco at an investor's conference in California in early January, saying the stock drop owed to a business anomaly.

“Business has been strong since and John says we are going to have a great 2003,” Redstone said. “We changed an industry with revenue-sharing, so don't blame me for having confidence in this man.”

Those revenue-sharing deals have generated controversy for years, first among independent retailers who are suing the chain and several major studios for alleged price-fixing.

Trouble mounted when Buena Vista Home Entertainment sued the chain just days later, accusing it of selling off VHS tapes before the revenue-sharing deals under which they were purchased allowed.

Yesterday and today two law firms filed class action lawsuits against the chain, accusing the management of inflating its stock price when they knew the business was in trouble.

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