Audio Video News

Many of Blockbuster Inc.'s 5100 US video outlets will soon become satellite stores for RadioShack Corporation, thanks to a partnership agreement announced by the retailing giants February 27.

The arrangement will let Blockbuster generate more sales and give RadioShack easy access to more customers. Specifics of the deal give RadioShack approximately two million square feet in 4300 Blockbuster-owned stores, as well as in a number of the rental giant's 800 franchises. "This allows us to compartmentalize under the RadioShack brand all of these businesses we were looking at getting into," said Blockbuster CEO John Antioco. "For us, it's minimal risk and minimal capital."

If all goes well, the partners may expand the floor-sharing arrangement to include Blockbuster's 2000 foreign stores. The space allocated to RadioShack is equal to 1000 of its own stores, according to a joint press release. The deal may help RadioShack achieve its goal of tripling its revenue within five years. Combined Blockbuster/RadioShack stores will compete directly against outlets like Best Buy and Circuit City that stock electronic hardware as well as videos, music, and computer software.

The concept will be tested later this year at 130 Blockbuster stores in Austin, TX, Las Vegas, NV, Norfolk, VA, and Tulsa, OK. If all goes well, RadioShack will invest approximately $300 million for license fees, inventory and personnel costs, and space averaging around 600 square feet per Blockbuster site.

Store modifications will cost Blockbuster about $75 million. With the growing popularity of DVDs, Blockbuster is seeing a natural reduction in the amount of space devoted to rentals, as the discs take less display space than videotapes. "In most of our stores, there's 1000 or so square feet we could put to better use," Antioco said.

The partnership venture derives from Blockbuster's predictions of a decline in the video rental business. The company wants to expand into related businesses to reduce its reliance on video rentals, with the eventual goal of having at least 30% of its revenue come from other sources by 2005. Last year, the Dallas-based company signed a sweetheart deal with direct broadcast satellite service DirecTV to sell satellite receivers and subscriptions out of Blockbuster stores, in exchange for favorable advertising on DirecTV. As part of the new agreement, however, Blockbuster will stop selling the satellite systems, as RadioShack is also an authorized DirecTV dealer.

In a separate deal, also announced February 27, Blockbuster will distribute films from Universal Pictures over Blockbuster's entertainment-on-demand service, under development by Enron Broadband Services. The video-on-demand (VOD) service is being tested in Seattle, WA, Portland, OR, and American Fork, UT.