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Blockbuster dying

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(Update 13Nov09) BBI released not so good earning report (Reuters). One interesting point is they are going to spend $10,000 to $20,000 to renovate the stores (about 1,700).

(Original) Note I am saying “dying”, not “death”. This also does not demonstrate all the hard work of men and women at Blockbuster, from corporate to stores, note I am merely talking about the trend of a business. Full disclosure: I do have a small long position on Blockbuster common stock (NYSE:BBI).

Two points:

First, stock and company are two things, Blockbuster dying does not equal to Blockbuster stock BBI goes to zero immediately. Example: The Motors Liquidation Company (formerly General Motors, MTLQQ.PK). Last I checked, their worthless stock is still trading at 65 cents.

Second, the dying process could take some time. DVD will be around for a while, but people are increasingly use mail service (Netflix) and Kiosk (Redbox). To Blockbuster’s credit, they are doing all the right things to overcome the attack from Netflix and Redbox, and to ride the digital revolution. Also Keep in mind Blockbuster still has a well known brand (which will be used to launch the Blockbuster Kiosk with NCR put up the money). Some of the initiatives of Blockbuster:

1) Close unprofitable company owned stores (note some franchised stores are also being closed because franchisees can not keep it open);

2) Bought MovieLink, the digitial movie download company, couple years ago;

3) Team up with NCR on Kiosk, in this case Blockbuster only receives royalty for use of brand because NCR will put up the capital (for machine).

More about DVD slowing

Apprently Wal-mart, which account for 1/3 of US DVD sales, cut spaces for DVD sales. Are these people flocking to Netflix or Redbox? Maybe. DVD itself will still be around, as reported by WSJ a while ago, Netflix estimates DVD will be the main media for movie for at least 4 or 5 years.

Also I remember WSJ has an article recently about the default rate for people in different income range. As you may have guessed right, lower income people have much higher default rate. WSJ also ran another artcile on a African American woman tries to repair her credit. What does this mean for Blockbuster? Their main customers are in deleverage (repay debt) mode, and they don’t have spare dollars for the movie rental, esp. considering there is 99 cents alternative at Redbox 🙁

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