NCR Won't Let Blockbuster Die in Peace

By Rick Aristotle Munarriz | More Articles
July 6, 2010 | Comments (7)

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Just when the inevitable delisting of Blockbuster (NYSE: BBI ) seemed to all but kill the debt-saddled DVD rental chain, NCR (NYSE: NCR ) is whipping out the defibrillator.

NCR has struck a deal with QuikTrip to install Blockbuster Express kiosks in nearly all of the chain's 555 convenience stores.

The Blockbuster Express machine has been a rare workhorse in Blockbuster's depleted flick-flinging fleet, taking on Coinstar's (Nasdaq: CSTR ) Redbox juggernaut head-on. It also only helps that the better-positioned NCR is bankrolling the kiosks.

By simply licensing Blockbuster's brand, NCR has been able to shoehorn its $1-a-day disc-rental automatons into supermarkets, drugstores, and discounters. From Duane Reade to 99 Cents Only (NYSE: NDN ) , NCR has been able to wedge its kiosks into the pockets of available discount-oriented retail that Coinstar hasn't claimed.

The expansion of Blockbuster Express -- thousands strong and clearly counting -- has been a mixed blessing for the rental chain's flagship stores. On the one hand, it attaches the company's iconic brand to a booming niche in home entertainment. Coinstar's DVD revenue soared 70% in its latest quarter. Unfortunately, Blockbuster Express makes the stores less relevant by pushing $1-a-day value pricing.

It's clear that Blockbuster will need to evolve if it wants to stay afloat. The recent liquidation of Movie Gallery is more of an omen than an opportunity. Best Buy (NYSE: BBY ) thrived after last year's erasure of Circuit City, because there was more market share in consumer electronics to go around. Bed Bath & Beyond (Nasdaq: BBBY ) continues to rock in the housewares space after the demise of Linens 'N Things, because consumers still need soft goods for their homes.

Blockbuster, on the other hand, is pushing in-store DVD rentals even as couch potatoes feast on pay-per-view, online streaming, and $1 rentals. The in-store market is thinning out overall, despite Blockbuster's faltering rivals.

The ball is now in NCR's hands. Will it let Blockbuster file for bankruptcy, dealing a blow to the brand that powers its growing kiosk business? That's certainly possible, especially now that consumer brands such General Motors and Six Flags (NYSE: SIX ) have recently emerged from bankruptcy reorganization with their reputations largely intact.

Or will NCR step in as Blockbuster's sugar daddy, providing financing for the retailer to get through this rough patch -- at least, for long enough to see how viable the kiosk business ultimately becomes?

The way things are going, NCR will have to come up with an answer -- and soon.

Will Blockbuster file for bankruptcy protection later this year? Share your thoughts in the comments box below.

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Best Buy is a Motley Fool Inside Value selection. Bed Bath & Beyond and Best Buy are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a bull call spread position on Best Buy. The Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz can't remember the last time he went into a video store for a rental. He does not own shares in any of the stocks mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (6)

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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 icon found on every comment.

Report this Comment On July 06, 2010, at 2:36 PM, USsearch99 wrote:

Blockbuster Express machines have more than double what Redbox titles and they have new releases that Redbox can't get for 28-days! With 7,000 kiosks installed my next month and 10,000 by the end of the year Redbox is feeling the heat. There are too many people complaining that Redbox titles they want are always sold out.
Report this Comment On July 06, 2010, at 2:36 PM, USsearch99 wrote:

Blockbuster Express machines have more than double what Redbox titles and they have new releases that Redbox can't get for 28-days! With 7,000 kiosks installed my next month and 10,000 by the end of the year Redbox is feeling the heat. There are too many people complaining that Redbox titles they want are always sold out.
Report this Comment On July 06, 2010, at 3:36 PM, emptygestures wrote:

Are you just saying that because you continue to hold your worthless BBI shares and hope for a turn around. Everywhere in California (at least) Redbox has monopolized the DVD kiosk business and there is no room for any more kiosks.
NCRs efforts were a little too late. Game over BBI.
Report this Comment On July 06, 2010, at 4:11 PM, BuffettIII wrote:

Mr. Rick Aristotle Munarriz :
Here is a brief history lesson for you, my friend:
Silver went from boom to bust in the late 19th century. Silver Tycoons like Horace Tabor, once the wealthiest man in Denver by far, died homeless and in rags.
When all seemed lost, some blokes went through and bought up all silver mines on the cheap. For pennies on the dollar, they grabbed "worthless" mines nobody wanted.
Why? Because they wanted silver? Nah... they bought the ready made mines for their copper ore. They walked away millionaires.
In the same way, Blockbuster's brick and mortar operation is waning. However some keen strategic investors, like NCR, may be able to leverage the Blockbuster brand, contracts and customer base into a profitable venture.
NCR stands for national cash register company. When Cash Registers became obselete, they got into ATMs and Kiosks. If anyone knows how to leverage changing technology into opportunity, it is NCR.

I would get used to those big, blue NCR kiosks if I were you, mate.
Sincerely,
Buffett III
Long BBI
Report this Comment On July 06, 2010, at 7:18 PM, Wheretheflavoris wrote:

Right on BuffettIII, and if NCR still has the guts it showed in the mid-70s when it totally wrote off all mechanical inventories to make way for electronics, then they just might very well score big on the kiosk business. Sure, management is different now, but they still show a capability to deliver what businesses' customers want.
Report this Comment On July 06, 2010, at 8:13 PM, WoodyDog1400 wrote:

Long live BBI, the brand is to strong and NCR will be the salvage to BBI as Liberty was to SiriXM.
I remember with Apple was a dead brand, go figure...
Report this Comment On July 20, 2010, at 5:26 PM, chopperjack wrote:

Sirius XM Radio doubled my money, not once but twice.
BLOCKBUSTER looks like the same bet.
The strategic alliance with NCR is in place, now all that remains for Blockbuster to see big gains is refinancing. Jeffery Stegenga a restructuring officer was hired by Blockbuster, in my opinion, to find the money for the refinancing.
My money is on Blockbuster!
"Show me the money!!"

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