Blockbuster flees innovation, offers to buy Circuit City instead

April 14, 2008

Blockbuster flees innovation, offers to buy Circuit City instead With 7,800 retail outlets worldwide and a wide variety of movie and video game content available for rent, it would seem appropriate for Blockbuster to be working on better ways to deliver that content to its customers. Instead, Blockbuster just made an awkward move, offering to purchase Circuit City for $1.3 billion.

Circuit City is facing increasing competition from rivals like Best Buy and Wal-Mart, which may make it a vulnerable target for acquisition, but any likely synergies with Blockbuster are tenuous at best.

Many Blockbuster stakeholders are also skeptical, “while Blockbuster touted the move as a strategic combination of retailers focused on electronics and digital media, investors were skeptical, and shares of the video rental chain fell more than 16 percent in afternoon trading,” according to Reuters.

The real disappointment here is with Blockbuster’s lack of focus on providing innovation in the media rental space. With competitors like Netflix, Amazon Unbox, iTunes, and Tivo taking customers away, Blockbuster has an immediate need to distribute media more effectively through compelling channels.

Downloading video through the Internet is one space where the strongest players are still emerging and Blockbuster has a real chance at reestablishing itself as a market leader. There are several rumors that Blockbuster is working on some sort of set top box, and if that’s the case it should get to market quickly and work to establish a lead against its competitors.

Instead, the company is choosing to engage in a battle for control of a struggling retailer that competes in a different space.

Dennis Bryan, a portfolio manager who works with Circuit City shares told Reuters that he thinks Blockbuster is “trying to steal a company and take advantage of shareholders at Circuit City who don’t really understand the value of the business.”

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