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Blockbuster Reportedly Looking at Merger With Columbia House

19 Sep, 2003 By: Holly J. Wagner


No. 1 rental chain Blockbuster and mail-order club Columbia House are negotiating a potential merger that would help Blockbuster weather the uncertainties of the video rental market, the Wall Street Journal reported today.

Merger talks are in early the stages, but a union of the two companies could give both more muscle in the market-share battle with mass merchants.

After a number of robust years, sellthrough-priced DVD caught Blockbuster off guard in the fourth quarter of last year, when rentals plunged after the Thanksgiving weekend. Even before that, the chain was experimenting with a variety of ventures dating back to a short-lived video-on-demand pact with Enron in late 2000 and early 2001, and extending to its acquisitions of an online rental site now known as filmcaddy.com and financial backing in CinemaNow.com and Netmovies.com.

Competition from sellthrough trade and online rentailer Netflix has also put pressure on Big Blue to offer subscriptions in various markets around the country. The chain has rolled out its Game Freedom Pass subscription nationwide, and extending the movie version to more markets appears likely if pressure on the rental industry continues.Exploring the lucrative trade-in games and used discs, the chain also bought U.K.-based Game Station and Movie Trading Co., an 11-store Texas-based chain that trades in used discs.

Speculation that parent company Viacom Inc. might want to spin off the chain has cropped up periodically over the past two years, but with no specific actions that appeared to support such a move.

Blockbuster is expected to be debt-free by next year, forcing the company to decide how to invest its cash, the Journal noted.

A merger would let Columbia House expand its DVD business while giving Blockbuster a stronger back-end for e-commerce and distribution. The combined database that would come of a pairing would also put both brands into more households.

A Blockbuster representative would neither confirm nor deny information reported in the Wall Street Journal. The company has been on record as saying it is open to any option that improves its competitive position and supports the company's long-term strategic goals.

In midday trading, Blockbuster shares were up 84 cents, to $22.26 a share.

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