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TK's MORNING BUZZ: Two Recent Bankruptcy Filings Could Have Far-Reaching Impact on Video Retail Landscape

20 Sep, 2000 By: Thomas K. Arnold

The recent bankruptcy filings by two public, national video specialty chains, first Video City/West Coast and now Video Update, raises some interesting questions that could have far-reaching ramifications on the video retail landscape.

Both chains filed for reorganization rather than liquidation, meaning they intend to stay in business and continue operating while the court helps them pay off their debts on a structured basis.

But any "reorganization" is likely to result in the closure of a good percentage of stores, particularly since growing too big, too fast, hastened each chain's demise.

The good locations will likely be snapped up by competitors, probably Blockbuster and maybe Hollywood.

But my guess is that the good locations are in the minority, and we're going to see many Video City and Video Update stores close in the next few months, probably sooner rather than later.

As for Video City's deal to buy West Coast Entertainment, good luck. I don't think the courts will look too kindly on one bankrupt chain trying to buy another chain that's already gone belly up in the past. And yet most West Coast stores are franchisees, and they've effectively been on their own for quite some time, their ties to corporate limited to their name only.

The net result, I predict, will be a significant reduction in the number of video stores in the entire domestic retail universe.

Independents who are near closed Video Update or Video City locations will do better, but their gains will hardly offset the loss in rental revenue the industry as a whole will suffer due to the closure of so many stores.

Overall rental spending, already in a state of decline since the start of summer, is unlikely to recover. Sure, we've got a boffo fourth quarter ahead of us, but if you look at the schedule of titles you can see that except for Gladiator and a couple of other big titles, most of the blockbusters are coming out at a sellthrough price--and those that aren't are coming out on DVD the same day as they are on VHS, which given the rapid growth of the DVD player base will almost certainly cut into rental revenue.

One studio executive, remarking on the big sellthrough fourth quarter his studio predicts, added, almost as an afterthought, "As for rental, it's dead."

That may be an exaggeration, but from the looks of things, it's not all that far from the truth.

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

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