Viacom is reportedly set to offload listed video-rental chain Blockbuster as the United States video market takes a knock.
The media group, which owns the CBS television network in the US and Hollywood’s Paramount studio, has been looking for a way out of Blockbuster. The chain faces the threat of obsolescence as new technology such as video-on-demand becomes more widely used and the retail price of DVDs continues to fall.
The film business is also concerned that it could face the same kind of rampant online piracy that has hobbled the music industry. Wall Street increasingly views Blockbuster as a liability, and the prospect of a sale lifted Viacom shares by 57c in early trade to $40,14. According to the Wall Street Journal, Viacom is in discussions with a group of private equity firms including Thomas H Lee, Blackstone and Quadrangle. Viacom, which also owns the MTV networks, has an 82% stake in Blockbuster. The chain has its own listing on Wall Street and Viacom’s holding is worth $2,5-billion. Blockbuster was 14c lower at $17,09.
”The question is whether anyone would be prepared to pay a premium for a business with so many unknowns,” said one insider.
The first Blockbuster store opened in Dallas, Texas, in 1985. It grew rapidly and has 8 500 outlets with 48-million members. Last year it began offering DVDs for sale alongside its rental business, reflecting a shift in the DVD market towards ownership.
It has tough competition from US discount retailers such as Wal-Mart. In its most recent quarter Blockbuster reported total revenues of almost $1,4-billion, marginally lower than a year earlier. The more telling figure was a 7,5% decline in revenues at stores open for more than a year.
Jill Krutick, analyst at asset managers Smith Barney, has forecasted a sale of the business. ”Despite some attractions, Viacom may be better off without the home-video giant,” she noted. ”Blockbuster is a prime candidate, in our view, for [a leveraged buyout] as it is a mature but cash-rich business.” — Â