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Troubles with Blockbuster

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Would that they had a rewind button at Blockbuster Entertainment. Recently likened in an industry report to a ”gangrenous limb” of the Viacom empire, the division is now valued at about a quarter of the $8.4 billion the company paid for it in 1994. Worse, cash flow for the second quarter of 1997 fell a mind-boggling 68 percent, to $46 million.

What went wrong? A combination, it seems, of bad luck and chowderheaded management decisions. ”Blockbuster has been absolutely incompetent in the last year and a half,” says Bob Alexander, of NYC-based marketing consulting group Alexander & Associates, summing up the opinion of many industry analysts (Blockbuster execs wouldn’t comment for this article). A look at the scorecard reveals:

A REVOLVING CEO DOOR After the amicable 1996 departure of Steven R. Berrard, who learned the business under former Blockbuster owner H. Wayne Huizenga, Redstone tapped Wal-Mart topper Bill Fields. Fields left this past April and was replaced in June by Taco Bell’s John Antioco. Wall Street likes Antioco, but getting people to rent The Cable Guy is not the same as selling them a burrito. ”Who since [Berrard] has had a strong connection to the movie business?” asks Alexander. ”Who understands the product?”

A NEW HEADQUARTERS Shifting a company’s home base from Fort Lauderdale to Dallas shouldn’t hamstring operations — unless two thirds of your employees don’t follow.

A NEW DISTRIBUTION center Fields’ decision to build a high-tech shipping plant north of Dallas ”will save tens of millions of dollars,” says David Doft, VP and media analyst for Furman Selz LLC. But until it opens in 1998, Blockbuster employees are hand-wrapping orders. Reportedly, tapes are reaching stores late, and a lot of inventory is, uh, falling off the truck.

OVERDIVERSIFICATION Under Fields, Blockbuster wasted capital opening — then closing — a string of failed music stores, and revamped its video stores as ”entertainment destinations,” stocking shelves with T-shirts, plush toys, CDs, and junk food. Why no one remembered that this last tactic hadn’t worked when Huizenga tried it in the early ’90s remains a mystery.

IT’S BEEN A LOUSY YEAR FOR VIDEO According to VidTrac, rentals were down 8 percent during the first half of ’97 compared with the same period last year. The chief culprit: Movie studios released most of their big ’96 movies to tape last Christmas instead of waiting for the new year, leaving video stores with little to proffer come ’97. Still, some chains are showing increases, so when you consider that one out of four video stores in America is a Blockbuster, it may be that Viacom’s albatross is dragging down total industry performance.

NO PORN The policy that enabled Blockbuster to carve out a pro-family image has also crimped the bottom line. Adult tapes cost less to buy and can account for as much as 30 percent of a store’s earnings. If Antioco decided to pull a 180 on this policy, he’d face a firestorm of negative publicity. But Wall Street might not mind. ”How big a fallout would there be?” asks Doft. ”Most everyone does it.”

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