Little more than a year ago, a combination between the largest movie rental company, Blockbuster
But things still change quickly in Internet time, which is why antitrust considerations on Blockbuster's $700 million offer for Hollywood Entertainment, should they come up at all, would be seriously wrongheaded. The retail movie rental business has been thrown into turmoil by the emergence of Netflix
When I say "would have raised antitrust questions," I'm not guessing. More than five years ago, the Federal Trade Commission scotched a planned merger between the companies on the basis that it concentrated too much of the industry's volume in one company. Certainly, the two companies haven't lost ground in the retail business -- combined they control more now than they did in 1999, about half of all bricks-and-mortar rental volume in the U.S. But this is an industry that doesn't really need protection from any big player: The whole shooting match is beset by outside competition from several different angles.
First there is the aforementioned Netflix model, to which other participants, most notably Wal-Mart
So why make an offer now? I see two drivers. First, Hollywood Entertainment has an existing buyout plan to take the company private at about $10.25 per share, making time of the essence for a move. Second is a protection of its bricks-and-mortar business. Blockbuster's model is changing, but unlike Netflix or Amazon, its network gives it the ability to build in-store pick-up into its subscription model. For people who still wish to take advantage of a spur-of-the-moment video selection, this remains a differentiator. But this only works if the network of stores doesn't become a financial albatross around the company's neck. Management determined that its best move, then, was to eliminate some of the competitive forces that Hollywood Video stores cause. In other words, this $11.50 bid by Blockbuster isn't necessarily an indication of the value of Hollywood Entertainment as a stand-alone company, but rather the price that Blockbuster is willing to pay not to worry about it as a competitor anymore.
Bill Mann owns shares of Costco.