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Retailers Ready for Blockbuster, Hollywood Merger

18 Nov, 2004 By: Erik Gruenwedel

Blockbuster's much ballyhooed interest in acquiring No. 2 rival Hollywood Video would appear to create the type of market juggernaut federal antitrust guidelines were designed to prohibit.

The combined companies' U.S. video revenue market share in 2003 was 20 percent, according to Video Store Magazine Market Research. Their share of the U.S. rental market was 46 percent, and their share of the U.S. game rental market was 54 percent.

“It's huge,” said Michael Pachter, analyst with Wedbush Morgan Securities in Los Angeles. “There's a lot of synergy. They are going to make a lot of money.”

Blockbuster has not officially made a merger offer to Hollywood.

Conventional wisdom might suggest that Big Blue — engorged with the addition of 1,900 Hollywood stores in 47 states and the District of Columbia, plus 600 Game Crazy locations that more than double its real estate in the U.S. video game market — would make much of that money by dictating price, which can have a negative impact in the marketplace and configuration overall — including the survival of independent video rentailers.

“I would be hopeful that mergers such as Blockbuster and Hollywood and Sears and Kmart would provide us some pricing stability instead of a downward spiraling price war,” said Kevin Cassidy, EVP operations and merchandising for Tower Records. “I'm hoping this leads to stabilization in DVD pricing throughout the marketplace. So the DVD format does not feel any significant erosion due to consumers' feelings about what fair price is.”

Bring It On
If a Blockbuster/Hollywood marriage portrays a budding Wal-Mart business culture invading home video, local rentailers don't seem to be cowering at the specter of an ?ber Blockbuster loose in their neighborhoods.

“In a way it is a vote of faith by Blockbuster in [retail] stores,” said Adrian Hickman, manager of TLA Video in Philadelphia. “What's fascinating to me is that Blockbuster is acquiring a lot of brick-and-mortar at a time when Netflix is attacking brick-and-mortar as being outdated.”

To many rentailers, a combined Blockbuster/Hollywood operation would reduce by 50 percent the sparing strength of what has been described as a local turf war between the two Goliaths.

“I would like to see the one giant kill the other off, and I'll take on the survivor as the David,” said Terry Field, owner of Super Video, Albany, N.Y.

“They are always trying to compete with each other, and I get caught in the crossfire,” echoed Christine Johansen of Crown Video and Tanning in Minneapolis. “If they become one, there won't be all of these 99-cent rentals.”

In fact, it is the 99-cent rental, which both Hollywood and Blockbuster quietly introduced in select markets in late summer, that irks local rentailers the most.

“I know McDonald's, Wendy's and Burger King are hanging on to the 99-cent concept,” said Robert Philipps, owner Feature Presentation, Barneveld, N.Y. “But if you don't have the traffic, you are going nowhere fast.”

While the possible merger might make Blockbuster a more dominant force when negotiating their pricing deals directly with the studios, the reduction in competition would make it easier for the independents to sneak in between the cracks.

“It's a good thing for the independent retailer,” said Mike Greaves, owner GenXvideo, Waterloo, Ontario, Canada.

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