Audio Video News

A plan by Blockbuster Inc., the world's #1 video chain, to turn its major rival's stores into Blockbuster franchises, has been blocked by the Federal Trade Commission, the Wall Street Journal reported December 10. Blockbuster had planned to put its name on Hollywood Video's approximately 1500 stores.

With about 4500 stores in the US, Blockbuster is the undisputed top dog of the video-rental business. Hollywood Entertainment Corporation is the second biggest. The FTC objected to the franchise deal on antitrust grounds, lawyers said. The deal would effectively leave only one major video retailer in the nation.

Calling the proposed deal a "de facto merger," Dan Potter, CEO of Video Update Inc., said that, if allowed, the move would have "tremendous potential to raise prices." Between them, Blockbuster and Hollywood control about 43% of the total US video rental market and about 75% of the market in major metropolitan areas, according to Potter, whose company is #3 in the industry.

Blockbuster and Hollywood continue to discuss combining their Internet operations, which are presently focused on sales. In the not-too-distant future, video-on-demand via the Internet will likely become a big source of income for such companies. The video rental market is maturing, observers note, and new sources of revenue are needed to ensure growth. The independent dealers who characterized the frontier days of the business have now mostly given way to corporate operations.

Hollywood Entertainment intends to take public its Internet operation, Reel.Com, Inc., according to documents filed with the Securities and Exchange Commission early in December. Blockbuster will probably do likewise with Blockbuster.com.

In an unrelated development, the surge in the popularity of DVD players has prompted Blockbuster to make space on its sales floors for the new format. More than 3800 of the company's 4500 locations will soon have substantial inventory in DVD, according to a recent announcement. The Consumer Electronics Association is now predicting that more than 3.6 million DVD players will be in consumers' homes by year's end.