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Blockbuster Bags Circuit City Deal

July 3, 2008 | Author: Ibex Marketing

On Tuesday, Blockbuster issued a statement that the company has “decided to withdraw its proposal to acquire Circuit City.” The release quoted company chairman and CEO, Jim Keyes:

“Based on market conditions and the completion of our initial due diligence process, we have determined that it is not in the best interest of Blockbuster’s shareholders to proceed with an acquisition of Circuit City. We continue to believe in the strategic merits of a consumer retail proposition that would bring media content and electronic devices together under one brand. We will pursue this strategy through our Blockbuster stores as a way to diversify the business and better serve the entertainment retail segment.”

This does not come as a complete surprise, as Circuit City continues to have rocky performance. Also, Blockbuster already has a large investment in brick and mortar locations through their existing rental stores. Do these stores have sufficient space to stock rental movies and still have room to show electronic hardware? Well, how often do you rent a movie that’s not on the outside walls? They can probably free up some space in the middle of the store. And if there’s a strong move to electronic delivery of rental movies (which looks likely), then you need even less space for physical inventory.

Making do with the space they already have would seem to make a lot of sense for Blockbuster at this point. The company is clearly going to have to transition itself to some new business model that does not rely so heavily on the rental of physical discs, and it could be that becoming a consumer electronics store could be one way to diversify.