A Bid for a Bigger Blockbuster

By Unmesh Kher

Blockbuster caused a flutter when it announced a billion-dollar bid last month to buy rival Hollywood Entertainment, and rental chain Movie Gallery Inc. followed up with a bid of its own. What was puzzling, however, was the rationale that inspired Blockbuster's proposal. Online subscription services like Netflix, along with DVD sales and video-on-demand services, have eaten into the company's income. Its rental revenues have declined each quarter this year compared with last. Blockbuster has responded by investing in video-game rentals and launching its own online subscription service. It's "surprising that Blockbuster would choose to spend so much reinforcing its presence in the brick-and-mortar portion of this business," says Marla Backer, a Research Associates--Soleil analyst. If the Blockbuster deal is struck, the combined company will control roughly 50% of the traditional rental market--which means antitrust regulators will probably get involved. Movie Gallery notes that this is not a problem its bid is likely to face.--By Unmesh Kher