Blockbuster bids over $1B for Circuit City, looks to rival Apple stores

[AppleInsider]

Movie rental house Blockbuster has made an unsolicited takeover bid for struggling electronics retailer Circuit City, a move that aims to combine the stores of both companies into "a game-changing retail concept" akin to Apple Inc.'s widely successful international retail operation.

Blockbuster made the all-cash offer of $6.00 to $8.00 per share in a February 17th letter to Circuit City's chairman following months of informal negotiations between the two companies, the company revealed in a statement Monday. Based on the closing price of Circuit City's 168.4 million shares on December 31, 2007, the deal values the No. 2 US electronics retailer at approximately $1.01 to $1.35 billion.

Blockbuster said the combination of the two companies would result in an $18 billion global retail enterprise uniquely positioned to capitalize on the growing convergence of media content and electronic devices, which has thus far been dominated by the efforts of Cupertino-based Apple through its tightly-knit ecosystem of hardware, software, and online services.

Word of the offer comes a week after reports suggested that Blockbuster was also evaluating a plan to enter the electronics hardware business with a set-top-box that, like Apple TV, would allow customers of its Movielink service to stream movie rentals to their high-definition TV sets.

"Our proposal offers Circuit City a significant premium to its existing stock price and creates a game-changing retail concept with a sustainable competitive advantage," said Blockbuster chief executive Jim Keyes. "We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as cost synergies."

Circuit City, which operates nearly 700 stores across the US, had yet to respond to Blockbuster's offer as of Monday, compelling the movie rental chain to make its proposal public because "it believes the shareholders of Circuit City should have the opportunity to participate in determining the destiny of the company."

Should the deal ultimately receive approval, it will form a combined retail chain of over 9,500 stores, including nearly 6,000 in the US. By comparison, Apple along with electronics retail partner Best Buy currently operate around 800 US-based retail points for the former's electronic device offerings.

Blockbuster isn't the only technology player looking to replicate the success of Apple's retail business. Last week it was reported the Microsoft is also mulling the prospect of opening a self-branded chain of retail stores to promote its Windows franchise.

[ View this article at AppleInsider.com ]

[crees!]

Blockbuster just sells movies and games. It doesn't currently make hardware or software. Circuit City doesn't make hardware or software either. More players are obviously needed in this venture and so far it looks like the ship is sinking even before it has left port.

[godrifle]

That dog'll hunt. Last time I was in a Blockbuster, I said to myself, "Self, now *this* is retail!". I can't remember the last time I went into a Circuit City, but I'm sure I found myself staring at walls to third-party electronics gearing thinking to myself, "Self, now *this* is electronic retailing!".

But the two of them together. THINK of the synergy: CityBlock or CircuitBuster.

[mbene12]

Well both companies certainly need some sort of change. You cant even compare the retail experience of CC and Best Buy imo, and rental video stores are on the bubble of being obsoloete. Granted it might take 5-10 years before people look back to DvDs with a nostalgic eye, but the writing is on the wall.

Lol is CC going to be a rent to own type operation?

[csimmons]

Regarding competition with Apple Stores: It appears that imitation is the sincerest form of cluelessness.

[quinney]

I love the smell of desperation in the morning.

[solipsism]

So Blockbuster plans to save two sinking ships by lashing them together. I don't see this working out without something entirely new to add to the mix.

[tacojohn]

Well- they both need a completely new business model.

I'd scrap everything, and do this

• Use the CC stores as more of a "premium" electronics retailer w/out premium pricing
• Make sure you have staff that knows what they're talking about
• Offer a more "personal" shopping experience to differentiate from best buy
• Make sure every store has great working demo equipment
• Turn the Blockbuster stores into "mini" stores that offer service for your gear, focusing on "new" gadgets and electronics, maybe have store events like Apple does, hype new products, etc.
• Have a TON of DVD/Bluray rental kiosks in all stores w/ competitive pricing to netflix- use these to draw people into the store to buy new stuff
• Give me a "store of the future" feel when I walk into the store

The main thing that I hate about big box electronic stores is a lot of their demo equipment is broken and setup terribly. They never have the newest thing out on the shelf, internet access is blocked, and you can't actually "use" the stuff before you buy it. Plus, *most* of the people who work there don't know jack about what they're selling.

[nevenmrgan]

Here's the key problem: Blockbuster is probably convinced that they would be combining the two companies' strengths to form an even stronger brand, when these are in reality two quickly failing businesses. If - IF - they started with the premise that both companies should be re-envisioned, from scratch, they might come up with something interesting. But there's no chance they'll do any such thing. I'd be shocked to learn that there were any radical thinkers at either Best Buy or Circuit City, and if there are (*someone* came up with this "revolutionary" idea, I guess) they'll get weighed down by board-mentality lameness quickly.

If this happens, I expect a thoroughly half-assed effort.

[digitalclips]

Classic case of 'Two wrongs don't make a right!'.

[solipsism]

I wonder if Blockbuster thinks it could do well to sell a limited supply of fast moving electronics and software in their BB stores. I can't really think of anything else.

[lkrupp]

First the iPod and now the TV. Some forum posters are always poo-pooing the idea that physical media is on its way out for music and video. We hear all the arguments about how people want something to touch and possess instead of digital media stored on a server or local hard drive. If that's the case then why are outfits like Blockbuster and Netflix scrambling to save their business models by diversifying and going digital. It all stared with the iPod and now continues with the TV and similar technology. This is disruptive innovation in spades people. The music and movie industries, along with their retail partners like Blockbuster have been turned inside out. They're trying to turn back the clock but it's already way too late. The horse is out of the barn; the genie is out of the bottle thanks to visionaries like Steve Jobs. Yes, all this stuff was developed in the lab some time ago by others but it takes somebody like Jobs to make it actually work.

Doesn't it seem rather pitiful to see articles like this one in which some company always has a plan to "take on" or "rival" Apple. For a company often declared as irrelevant or "niche" by pundits Apple sure seems to know how to rock the boat.

[BuzDots]

Originally Posted by AppleInsider

Last week it was reported the Microsoft is also mulling the prospect of opening a self-branded chain of retail stores to promote its Windows franchise.

[ View this article at AppleInsider.com ]

promote?

[TranceMist]

Two drowning industries reach for each other to go down together.

[Gandalf the Semi-Coherent]

This reminds me of the Kmart-Sears merger. Two failing retailers combine together... for what? To sell Kenmore appliances at Kmart? That turned out to be a huge flop at the Kmart near where I live in Los Angeles--and I'm in a nice part of the city. They replaced that entire Kenmore section with more sporting goods.

And a note about Circuit City... I used to be a salesperson at a CC in Florida in the early 1990s. We had to undergo two weeks of intensive off-site sales training before CC would even let us out on the floor to talk to customers, much less sell anything to them. We had to know all our products in our department up one side and down the other, so we would be prepared for any question that would be asked.

Years later, when I moved to California, I was appalled at the condition of the CCs I visited. No one on the floor knew a damn thing about anything. Unless you wanted a TV, the selection of products was terrible. I think this was about the time they instituted the "no salesperson will approach you" policy. I understand why people dislike overly aggressive salespeople (which we were not trained to be, BTW), but at least employ people who can answer a basic question. In English.

This merger is doomed to fail.

GTSC

[solipsism]

Originally Posted by lkrupp

Doesn't it seem rather pitiful to see articles like this one in which some company always has a plan to "take on" or "rival" Apple. For a company often declared as irrelevant or "niche" by pundits Apple sure seems to know how to rock the boat.

BlockBuster isn't taking on or rivaling Apple here.

[coolflash]

Sure Blockbuster and Circuit City are faltering companies, but the idea of acquiring companies is a good idea in theory (if the right company is purchased and then this new acquistion is integrated correctly). As I and others have thought, why doesn't Apple just buy Tivo and Netflix to add to appleTV's capabilities and assume the direct leadership in the "new media" "wars." The internet (appleTV, Tivo, Netflix) is by far going to be the future access point for all digital media, so why not take a lead by buying a lead (buying, then incorporating Tivo and Netflix into apppleTV). All companies do this. Let's do it apple--I really want to "need" an AppleTV.

[acknight]

Sounds kind of like Blockbuster wants to bring Circuit City in to merge the old (and long ago failed) Circuit City Express concept (which, last I knew, died back in the early-mid 90s).

Dying rental company + Mostly mediocre electronics store = success?

[NOFEER]

if blockbuster is looking at the apple model, it will want to put an Btv (blockbuster tv unit to counter iTV) and get it more retail exposure and floor space, maybe BB buys tivo? but to have an entire CC retail space, how to build it's business model which is dying a slow death. unless they see being a netflix/ apple type, namely make hardware optimized to BB downloads etc

[Thomaspin]

Tie two rocks together and they still sink.

[maxmann]

they are out of money.. this is a way to raise money from uniformed investors who think that the likes of BB and CC can penetrate the Apple business model.. they are just lacking a couple of things.. like qualified people to do it.. and products to compete with the model apple has put forth.. See sears as an example.. The idea is beyond silly as the same invested dollars could buy apple stock or .. if they have to do it their OWN way than they could at least copy the business model of apple and start from scratch. the dead weight of BB and CC is like so overwhelming nothing can ever happen that makes a profit worth investing in ..

[JeffDM]

Originally Posted by coolflash

Sure Blockbuster and Circuit City are faltering companies, but the idea of acquiring companies is a good idea in theory (if the right company is purchased and then this new acquistion is integrated correctly). As I and others have thought, why doesn't Apple just buy Tivo and Netflix to add to appleTV's capabilities and assume the direct leadership in the "new media" "wars." The internet (appleTV, Tivo, Netflix) is by far going to be the future access point for all digital media, so why not take a lead by buying a lead (buying, then incorporating Tivo and Netflix into apppleTV). All companies do this. Let's do it apple--I really want to "need" an AppleTV.

Netflix isn't a necessary component, I don't think they have download rental rights to (m)any more movies than Apple does. Currently, their strength is in their DVD library, but that doesn't translate to internet rentals at all, or any better than Apple can.

[quinney]

I also wonder who is going to lend Blockbuster the money to do this deal.
They are already deep in debt and hardly have cash to cover their current
liabilities. Credit markets are tight and very cautious now.

[Wiggin]

Originally Posted by solipsism

So Blockbuster plans to save two sinking ships by lashing them together. I don't see this working out without something entirely new to add to the mix.

I was trying to come up with the perfect analogy, but I think you nailed it on the head. And the comparison to Apple's stores is laugable at best. Apple has a line of products that they have 100% control over marketing for. So they can create the store experience to fit their product line. Even if Blockbuster had their own set-top box, that's just one device. You don't need very much shelf-space for just one device.

Thinking back to the old days when VCRs were too expensive for individuals to buy, when you went to the video store to rent movies, you also rented the VCP (video cassette player). Perhaps Blockbuster should revive that old business model and start renting Blu-ray players along with Blu-ray movies. If they don't do something to get customers hooked on Blu-ray quickly, we are all just going to skip over physical media and go for downloads, even at the lower quality (it'll be a few years yet before HD downloads become practical for the majority of potential users).

Originally Posted by coolflash

Sure Blockbuster and Circuit City are faltering companies, but the idea of acquiring companies is a good idea in theory (if the right company is purchased and then this new acquistion is integrated correctly). As I and others have thought, why doesn't Apple just buy Tivo and Netflix to add to appleTV's capabilities and assume the direct leadership in the "new media" "wars." The internet (appleTV, Tivo, Netflix) is by far going to be the future access point for all digital media, so why not take a lead by buying a lead (buying, then incorporating Tivo and Netflix into apppleTV). All companies do this. Let's do it apple--I really want to "need" an AppleTV.

I think it's too late for that. TiVo has too much tied up in contracts with Comcast, and TiVo boxes already do much of what AppleTV does including renting movie downloads, viewing photos off your computer or from online sources, playing music (non-DRM only, of course), and later this year playing video off YouTube. So there is already a lot of overlap in functionality.

The only new thing Apple would gain is the DVR functionality. And given the horrid state of the cable industry's standards for 3rd party boxes hooking into their cable systems, I really don't see Apple wanting to play in that wasteland. TiVo can barely make it work while keeping up with the evolving standards; and then it's only with the close cooperation of the cable industry. Given Apple's selling and renting of content, which threatens to make cable television obsolete, I wouldn't see that level of cooperation continuing if Apple bought TiVo. And now that TiVo is licensing their software to Comcast to include on their Motorola set-top boxes, Apple would be stuck with those contracts as well.

Adding DVR functionality to AppleTV would be cool. But buying TiVo is most certainly NOT the way to do it. I think the best we could ever hope for would be a over-the-air broadcast tuner in AppleTV in order to get local channels for sports, weather, and news. But then Apple would expect you to get the rest of your content from the iTunes Store.

And I still think the best thing would be if the networks would start "broadcasting" their entire lineups via Podcasts. Even include the commercials for all I care, or get Apple to have rentals for TV shows (like movies, I only need to see them once!). Oh, and make the TV shows HD! I already get my daily nightly news broadcast via Podcast, and many of the shows I watch I could get from iTunes.

We are close to being able to cut out the cable company entirely and just download everything. Why would Apple want to include a DVR if the goal is to replace the cable company?

[Marktrek]

Combining two failing businesses makes no sense. If Blockbuster does not have enough floor space for their new concept why didn’t they buy some closing CompUSA stores for a cheap price instead of buying Circuit City for a premium cost. Could their limited new electronics really not fit into the existing stores? Blockbuster closed locations near my home.

And I will not walk into a Circuit City store after the way they treated their employees. You have proven to be a good dependable employee that will help people, keep displays working properly, have them return as customers and then recommend us to friends? Well you got a raise so you’re fired. After all it is the corporate executives that do all of the work that gets people to buy from us. Employees that have contact with the public are worthless.

And forget Premium stores. People will get their information and then buy from the cheapest place possible. The one exception to this is a company like Apple. Customers do think that it makes more sense to buy direct from the manufacturer, even if there is a slightly better deal elsewhere.

[SpamSandwich]

Originally Posted by Thomaspin

Tie two rocks together and they still sink.

On the nose comment.

[BEatMaKeR]

Originally Posted by crees!

Blockbuster just sells movies and games. It doesn't currently make hardware or software. Circuit City doesn't make hardware or software either. More players are obviously needed in this venture and so far it looks like the ship is sinking even before it has left port.

I agree. My thoughts reading this article exactly!

Sounds like a really lame attempt to tap into Apple's market. What are they thinking?

[thompr]

Gee, I wish someone would hire me as a CEO and pay me those outrageous salaries. I could come up with crappy ideas like this on a daily basis.

Seriously, does anybody really think that this is a good idea? I mean, what is Blockbuster going to do with all of that (costly to operate) Circuit City floor-space other than sell the same stuff that they are selling now plus perhaps a new gadget or two that works with whatever vision Blockbuster has to enter the race to the digital future? The displays for that new stuff will take up all of perhaps 200 square feet. Is the rest of the store still going to carry the same old stuff with the same clueless sales staff? Bombs away.

If Blockbuster wants to emulate Apple, they should REALLY emulate Apple: put a smallish, but informative, tasteful and compelling, display of their AppleTV killer (as if they will ever have one, but what if...) in most of their strategically located stores, and then rent some space from Best Buy to showcase their wares there too. Attempting a full blown entry into retail with a large-footprint store (especially one that is failing) is just a bad bad idea.

Thompson

[planetWC]

I wonder if the idea of this merger ending up with a "store like Apple" is originating from Blockbuster management. Sounds rather clueless to me. Look at how empty the Sony Stores are compared to Apple, the local one (Sony) is like a museum compared to the Apple store in the same complex.

What synergy is there between Blockbuster and Circuit City? And what would one end up with in the merger?
While it is a good idea for Blockbuster to reinvent itself in the face of netflix and downloads, why take on a failed retailer? To sell Dishwashers and Blu Ray DVDs?

Apple's retail stores have a well thought out approach and a strong theme and design. Is Blockbuster going to gut all the existing Circuit City stores to redesign them under the guidance of a top industrial retail designer?
Or will they just do a "mashup" of what they have?

Perhaps they can reintroduce DiVX again only with expiring Blu-ray discs.

[sandro]

Blockbuster expects to compete with the Apple Store by buying Circuit Shitty?! I would love to see them try, I wouldn't mind both companies going under, which is the most likely outcome of such a poorly thought merger.

I wouldn't step in a Ballbuster or Circuit Shitty on a bet, much less make a purchase. They are going to need a lot of luck and plenty of clueless customers to even have a hint of a hope. I can't wait to see the slow motion train wreck that this merger would produce.

[zanshin]

I think maybe only Sony.

They make computers, monitors and accessories. They have private-labeled media development software to go on them.

They make PlayStation game consoles, and have plenty of labels to sell with them.

They make TONS of consumer electronics and accessories to show off. Audio and Video. And movie studios and recording artists creating content to showcase and offer with them.

They have distinct Consumer and Professional level product offerings.

They make personal electronics, home electronics, workplace electronics, automobile electronics, etc.

And they can hire enough talent to give them style.

Circuit City and Blockbuster make nothing. (Not even much cash.) Their "style" is no different than any other retail store. They have nothing unique to offer, because everything they have, you can get somewhere else.

Without a unique offering, you have nothing that rivals the Apple store.

[Bageljoey]

Hold on.
While this piling on is apparently fun, I think it might be a bit unfair. If you read the AI article closely, nowhere does it say that Blockbuster actually compared its proposed collaboration with CC to the Apple Store retail model. I checked some other financial sites discussing the proposed merger and none of them mentioned the Apple Store concept.

I have not seen what Blockbuster actually said, but I think it is quite possible that AI just stuck that in there because they needed a reference to Apple so people wouldn't complain about a non Apple story being posted...

I do not know what Blockbuster's plan is, and I do not have great faith in their ability to pull it off, but saying they want to be an "Apple Store Killer" may be a little unfair.

More than likely, Blockbuster saw a company with huge annual sales but a low valuation and thought that they might be able to make some money off of it somehow. Here is an article from 2 weeks ago that shows that some people were starting to think CC was worth a look linky

[wilco]

Originally Posted by sandro

I wouldn't step in a Ballbuster or Circuit Shitty on a bet...

Does your mommy know you're using the computer without supervision?

[res08hao]

Originally Posted by AppleInsider

Movie rental house Blockbuster has made an unsolicited takeover bid for struggling electronics retailer Circuit City, a move that aims to combine the stores of both companies into "a game-changing retail concept" akin to Apple Inc.'s widely successful international retail operation.

Blockbuster made the all-cash offer of $6.00 to $8.00 per share in a February 17th letter to Circuit City's chairman following months of informal negotiations between the two companies, the company revealed in a statement Monday. Based on the closing price of Circuit City's 168.4 million shares on December 31, 2007, the deal values the No. 2 US electronics retailer at approximately $1.01 to $1.35 billion.

Blockbuster said the combination of the two companies would result in an $18 billion global retail enterprise uniquely positioned to capitalize on the growing convergence of media content and electronic devices, which has thus far been dominated by the efforts of Cupertino-based Apple through its tightly-knit ecosystem of hardware, software, and online services.

Word of the offer comes a week after reports suggested that Blockbuster was also evaluating a plan to enter the electronics hardware business with a set-top-box that, like Apple TV, would allow customers of its Movielink service to stream movie rentals to their high-definition TV sets.

"Our proposal offers Circuit City a significant premium to its existing stock price and creates a game-changing retail concept with a sustainable competitive advantage," said Blockbuster chief executive Jim Keyes. "We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as cost synergies."

Circuit City, which operates nearly 700 stores across the US, had yet to respond to Blockbuster's offer as of Monday, compelling the movie rental chain to make its proposal public because "it believes the shareholders of Circuit City should have the opportunity to participate in determining the destiny of the company."

Should the deal ultimately receive approval, it will form a combined retail chain of over 9,500 stores, including nearly 6,000 in the US. By comparison, Apple along with electronics retail partner Best Buy currently operate around 800 US-based retail points for the former's electronic device offerings.

Blockbuster isn't the only technology player looking to replicate the success of Apple's retail business. Last week it was reported the Microsoft is also mulling the prospect of opening a self-branded chain of retail stores to promote its Windows franchise.

[ View this article at AppleInsider.com ]

blockbuster should rename itself "Me Too".
And just what would they put in their new stores? More windows/ballmer junk? what a joke.

[echosonic]

The Apple Store is the Brick-and-mortar place where people go to get the products that free them from having to go to other brick-and-mortar places.

Dear CC and BB CEOs:

When you're stupid, its for a long time.

[coolflash]

"We are close to being able to cut out the cable company entirely and just download everything. Why would Apple want to include a DVR if the goal is to replace the cable company?"

Great thoughts. How soon can I cancel my expensive Comcast? All I really use it is for a few weekly televisions shows, CNN, and Colbert

[echosonic]

Originally Posted by Bageljoey

Hold on.
If you read the AI article closely, nowhere does it say that Blockbuster actually compared its proposed collaboration with CC to the Apple Store retail model.

I have not seen what Blockbuster actually said...

What they actually said was:

"Our proposal offers Circuit City a significant premium to its existing stock price and creates a game-changing retail concept with a sustainable competitive advantage...We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as cost synergies."

And then they promptly neglected to describe, expound upon, or hint as to how it would be so in any way shape or form.

In other words, they could as easily have said:


"cliche cliche game-changing-cliche, cliche cliche synergies cliche."

[Superbass]

I know everybody here is bashing and laughing at this merger, but I don't think very many people are actually thinking about it first.

If the newly merged company puts a good online download store together in a similar style to Amazon that allows music downloads, they'll also be able to include an online movie rental/download service a la iTunes.

While it's true that Apple already offers movie rentals and sales, they don't have anywhere near the same kinds of agreements with the studios/catalogue that Blockbuster has, and they don't distribute movies outside the US yet, which Blockbuster does.

Blockbuster realizes that the physical movie rental business is being replaced by downloading, but at the same time, existing sites like iTunes and Amazon offer music as well as films. Buying Circuit City gives them full access to the music market as well as their existing film agreements. The electronics distribution they get from Circuit City could also prove valuable, especially when you consider that CC carries not only Apple products, but also just about every other brand.

I'd say it's reasonable to assume that they'll also save a bunch of money short-term by having CC's eat nearby Blockbusters and they can use the millions they make laying Blockbuster people off and selling real estate to finance their foray into the downloadable content market.

[jsavage]

Originally Posted by solipsism

So Blockbuster plans to save two sinking ships by lashing them together. I don't see this working out without something entirely new to add to the mix.

By lashing two sinking ships together, one hopes to alleviate management overhead such that the previously administrative-only roles of captain and navigator..etc may be reassigned to bailer positions. Thus this increases the total number of bailers, increasing the overall gallons-per-minute that can be returned to the sea. An effective execution will keep the ships from sinking.

Then, however, lack of adequate administrative oversight might spear the ship on an iReef.


I know this sounds desperate, but the guys deserve some credit for trying.

[Johnny Mozzarella]

Originally Posted by solipsism

So Blockbuster plans to save two sinking ships by lashing them together. I don't see this working out without something entirely new to add to the mix.

Like buying TiVo and Sling.