Blockbuster's Game Theory

The game's afoot at Blockbuster (NYSE: BBI  ) .

The DVD rental giant is ramping up its presence in video-game retailing. The chain has always been an active renter of game titles in the past, but now its company-owned stores will begin selling a wider array of hardware, accessories, and software. The move should redefine its stores as a place for permanent purchases, rather than transient rentals.

Blockbuster has undoubtedly noticed what niche leader GameStop (NYSE: GME  ) has been able to accomplish in a much smaller footprint. Blockbuster will never achieve that kind of street cred among die-hard gamers, but it may as well try.

I like the move, but the tactical shift itself isn't a slam-dunk. Awhile ago, Hollywood Video was clearing space among its flick rentals to add Game Crazy video-game sections within its stores, and where did that take it? Blockbuster's nearest competitor wound up cashing out to Movie Gallery and is now wading through bankruptcy court.

Blockbuster has a better shot at making it work, in part because it's using its strengths as a shoehorn. For instance, the chain is now selling a PS3 package that bundles the 40-gig version of the console with a Blu-ray movie, a PS3 game, and a dozen free weekly Blu-ray or PS3 game rentals.

OK, so maybe Blockbuster needs to brush up on its price points. It is selling the system for $500, when the console, Transformers PS3 game, and Spider-Man Blu-ray disc can be bought for just $450 a la carte through Amazon.com (Nasdaq: AMZN  ) . If it can't price its subsequent rental packages as a free bonus, it's going to turn a tactical advantage into a pricing disadvantage. However, give Blockbuster a few months to get it right. It knows how important this is as a way to wean itself off the DVD-rental cash cow.

In a year or two, Blockbuster may resemble a smaller version of Hastings (Nasdaq: HAST  ) , the regional media-powered department store that sells everything from CDs to video games to consumer electronics beyond its DVD rental business. Even if Blockbuster is unsuccessful in its attempt to buy Circuit City (NYSE: CC  ) , expect Blockbuster to become more of an entertainment retailer than one that can be quickly bumped off once digital delivery becomes the celluloid standard.

"Blockbuster still rents movies, but that's just a small fraction of its business," I suggested recently in taking a glimpse at what Blockbuster may look like come 2010. "The chain has become more like a RadioShack (NYSE: RSH  ) , making the most of its small-box footprint as a Jack of all trades that specializes in media entertainment."

OK, so maybe I should have rolled with GameStop instead of RadioShack. Either way, Blockbuster is taking the right steps to build a stable of stallions before it has to retire its one-trick rental pony.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 632595, ~/Articles/ArticleHandler.aspx, 10/20/2014 11:53:19 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 16,399.67 19.26 0.12%
S&P 500 1,904.01 17.25 0.91%
NASD 4,316.07 57.64 1.35%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/4/2010 3:59 PM
BLOKA.DL $0.19 Up +0.01 +0.00%
Blockbuster, Inc. CAPS Rating: *
AMZN $306.21 Up +2.57 +0.85%
Amazon.com CAPS Rating: ***
CC.DL2 $0.10 Down +0.00 +0.00%
Circuit City Store… CAPS Rating: *
GME $40.66 Up +0.80 +2.01%
GameStop CAPS Rating: *
HAST $0.00 Down +0.00 +0.00%
HASTINGS ENTERTAIN… CAPS Rating: ***
RSH $1.04 Up +0.13 +13.82%
RadioShack CAPS Rating: *

Advertisement