Market Watch

Blockbuster UK and Australia, Business as Usual


Display Driver IC Forecast

Blockbuster video rental chains in the UK and Australia have sought to distance themselves from their US parent's September 2010 Chapter 11 bankruptcy filing. Both operations have assured consumers and the industry that, as separate legal entities, their businesses are unaffected by the filing and that both remain commercially viable and financially healthy. Both cited better store rationalisation and weaker competitive factors in their home markets as reasons for their relative stability.

Analysis
Within the group's international portfolio Blockbuster UK and Blockbuster Australia are the largest company-owned and franchised operations respectively. The UK operation, directly owned by its US parent, was put up for sale in March 2010 along with the other international operations. A buyer has yet to emerge, but a store rationalisation programme has enabled the UK chain to close or renegotiate rental terms on unprofitable stores. Whilst the US bankruptcy could prompt a change of ownership, the UK arm remains financially healthy, with solid equity and, critically, debt free, according to management. The Australian operation is a franchise business run by the Franchise Entertainment Group (FEG), operator of Australia's largest rental chain Video Ezy and video retailer EzyDVD, and is thus one further step removed, effectively only licensing the name from the US parent and therefore wholly unreliant on the US business.

Like its US counterpart, Blockbuster UK has faced rent-by-mail competition from Lovefilm International but kiosk rental, typified by Redbox in the US, does not present the same threat in the UK and Screen Digest does not expect it to take off in the same way. In Australia, where both rent-by-mail and kiosk options are available, store-based rental still accounts for the lion's share of the video rental market.