Blockbuster Buying Movie Gallery Assets?

An article in today’s Wall Street Journal says that Blockbuster Inc. is in talks with bankrupt Movie Gallery to buy some of the latters assets. It did not specify what assets Blockbuster wants to purchase.

We would assume that it won’t take on Movie Gallery’s Hollywood Video leases. Blockbuster is already closing about one-fifth of its 5,000 stores around the world.

The Journal says the movie-rental company hired a law firm and an investment firm to help it cut $1 billion in debt and remake itself into a business that can compete with mail-order service Netflix, kiosk-based-rental-outfit Redbox and digital downloads.

However, one analyst quoted in the report says that if Blockbuster’s stores aren’t profitable and traffic doesn’t pick up by mid year, “we may just kiss this whole story goodbye.”

Can Blockbuster change its situation, or is the outfit doomed to fail?

ALSO: Walmart’s Sales Are Down…The Recession Is Over!


3 Responses to “Blockbuster Buying Movie Gallery Assets?”

  1. 1 greg February 24, 2010 at 10:48 am

    This has been coming for a long time and everyone knew it. Blockbuster had an opportunity to agressively downsize its predominmantly great real estate locations when the market for that space was hot so they could shrink their costs andd remake their concept. They still have that opportunity,albeit in a more challenging economy,but they need to shrink their space and sharpen their focus so that the brand means something that will entice prople to shop the store. They can’t just throw a lot of movies and games on shelves and sell candy at the checkout in a smaller space and expect to thrive. With all the easily available and less expensive altenative outlets to receive video entertainment, what is going to motivate you to make single shop trips to purchase it at a higher price at Blockbuster?

  2. 2 steve noyola February 26, 2010 at 9:27 am

    I agree with Greg that Blockbuster had an opportunity many years ago to downsize or rightsize their stores and there were planty of retialers who would have taken space but what looks easy on the surface is actually very difficult to deliver. To begin with, most of the prototype stores that were 6,500 sq. ft were developed by preferred developers who sold them to 1031 buyers and other investors. These were 10 year leases with multiple options. The reason the people were attracted to these investments was because they were easy to own and manage. They were not really interested in multi-tenant deals. But, you would argue that Blockbuster would still be the sole tenant and they would just sublease the space but again, some owners would nit want that because they would then be responsible for leasing two spaces if Blockbuster went belly up. there is also the cost associated with splitting a building that was designed for a single user. If Blockbuster does it, they are spending capital that they would rather not spend and most Landlord’s weren’t interested in spending it because they have blockbuster on the lease and they were content to have it that way. Finally, you have the issue of rents. If Blockbuster is paying $20.00 per sq. ft. for their space and is forced to spend capital to subdivide the space, assuming you get the lanlord’s approval, then they have to get enough rent to get the return they want on that capital with a tenant credit worthy enough to justify the expense…Oh, one last thing. If you are Blockbuster and you are going to roll out this downsize program you have to add staff to handle the subleases, construction, etc so this “easy” fix suddenly becomes not so easy.

    I learned this first hand many years ago when I was hired at Montgomery Ward to downsize some of their stores…As a fomer Blockbuster broker and developer I hope they figure out a way to stick around but the challenges are greater than ever before. For their Landlords, I am guessing that most hope they hold on for a few more years so at least they will have a better opportunity to release their space if they do go away permanently

  3. 3 Joe March 1, 2010 at 9:44 am

    Blockbuster’s only hope, is to convert itself into another “Red Box” and get rid of everything else. They have to be very aggressive and put their kiosks (or boxes)in every 7-11 store, not just supermarkets. General Gas Stations would be good too. Also, McDonald’s and Burger King!

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