Market Watch

Blockbuster's Fate Still Up in the Air Following Acquisition


Display Driver IC Forecast

At least a few of Blockbuster's remaining rental stores seem likely to continue operations following the April 6 acquisition of that company's assets by Dish Network at auction. The company, which had nearly 2,900 stores (not counting some 370 franchised stores) at the end of the third quarter of 2010, is reportedly now down to around 1,700 stores. How many stores will remain open after the dust settles is still up in the air but the final numbers being bandied about publicly are all well south of 1,000 - though some of the locations that currently bear the Blockbuster banner will likely be picked up by independent rentailers and regional chains, especially if those locations were individually still ‘going concerns' at the time of closure.
 
Analysis
IHS Screen Digest's US Video Intelligence service currently projects total industry shrinkage of around 4,000 stores during 2011, with total stores falling below 6,000 from nearly 10,000 at year-end 2010. We estimate that Blockbuster's traditional rental share (i.e. not counting subscription revenue) of total US video rental spending has declined from nearly 23% in 2009 to less than 20% in 2010. That's a shrinking share of a contracting market: total spending on rentals fell from just under $6.5bn in 2009 to $6.2bn in 2010, though we expect that to rise slightly in 2011 to nearly $6.4bn on the strength of the subscription and kiosk channels. While both of those sectors have grown in recent years, consumer spending on traditional video rental has continued to decline - falling from $3.3bn in 2009 to slightly more than $2.2bn in 2010 and likely shrinking to $1.4bn in 2011.
 
Dish will pay around $320m to take over the beleaguered number-one US bricks-and-mortar rental outlet. Part of that amount (as much as $11.5m) will go directly to those studios that continued to support Blockbuster with digital and physical content under existing or better terms between the date of the Cobalt 'Stalking Horse' agreement (see the February 2011 issue of IHS Screen Digest's Hollywood Aftermarket research bulletin) and the date the deal closes. Studios that satisfy that condition, detailed in the purchase agreement approved by the US Bankruptcy Court, will receive 25% of their share at closing and the remaining 75% in equal payments made at 30, 60 and 90 days following that date. Assuming studios continue to support Blockbuster under Dish ownership, likely on cash purchase terms for the near future, it's probable that the company will keep at least those stores that are still profitable open and renting movies and games - and Dish may well find having its own branded walk-in retail presence a benefit to its other businesses down the road.