Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, April 22, 1993 TAG: 9304220031
SECTION: BUSINESS PAGE: B5 EDITION: METRO
SOURCE: Associated Press
DATELINE: MIAMI LENGTH: Medium
The video rental giant has bought into two Hollywood studios, acquired stakes in children's entertainment centers and plans to open music "megastores" with Richard Branson, founder of Britain's Virgin Atlantic Airways, as partner.
The company, which operates four video rental stores in the Roanoke Valley, is considering buying a chunk of Chairman Wayne Huizenga's three-team sports empire, which includes the Florida Marlins baseball franchise and has enough programming to create a cable television network if it chooses.
Blockbuster, which already controls 15 percent of the nation's $12-billion-a-year videotape rental market, is aiming to boost that share by expanding from 3,127 to 5,000 stores in 1995.
While in no way slighting his cash cow, Huizenga has been looking for other ways to spend the profits.
"Fortunately, it throws off a lot of excess cash," said the 55-year-old chief executive, who branched into videos after building Waste Management Inc. into one of the world's biggest disposal and environmental services companies.
Huizenga and analysts predict Blockbuster, incorporated in 1982, will have $10 billion in "spare cash" in the next four to five years - a lot of money for further growth and diversification.
Wall Street appears pleased by those prospects. Blockbuster's stock, which languished below $5 per share through much of the 1980s, took off in 1988 and has traded as high as $20.12 1/2 this year on the New York Stock Exchange.
Huizenga's prime targets in Huizenga 1993 have been Spelling Entertainment Group, of "Terminator 2" and "Twin Peaks" fame, and Republic Pictures, which owns the John Wayne film library and TV's "Beauty and the Beast."
Blockbuster this week reported profits of $39.2 million for the first quarter, which ended before the Spelling purchase, a 54 percent jump over last year's quarter. Revenue was up 54 percent to $391 million.
"By the vast distribution center that we have, it only makes sense to own some of the rights that go with the videos," Huizenga said. "We think that's a good business for us to be in, and we think it complements what we can do in our video stores."
Blockbuster's expansion has followed two lines - branching vertically into the entertainment business and building its video lines abroad.
"They've run out of interesting targets in the video business," said analyst Tom Adams with Paul Kagan Associates, a media research firm. "They're going to diversify."
The company bought the 253-store Sound Warehouse and Music Plus retail chains in December, and is joining with Branson on a set of sprawling, 20,000-square-foot music outlets. The first Blockbuster Virgin store will open in September in Orange County, Calif.
"It makes a . . . lot of sense for him to diversify into audio retailing," said Adams. "I think the film and television production investments are less synergistic and have less to do with their core business, but get them an education in the production end."
The purchase for $10 million of 20 percent of Discovery Zone Inc. gives Blockbuster a share of a company that franchises indoor playgrounds for malls - once again targeting family entertainment.
"Some people are beginning to compare Blockbuster to sort of an East Coast version of Disney," said Charles LaLoggia, publisher of the Special Situation Report newsletter on high-performance stocks. "Anything that smacks of family entertainment I think would fit in."
But Blockbuster, with $1.9 billion in revenue last year, is far from catching up with Disney's $7.5 billion-a-year volume.
Some think the days of video rentals are numbered, that they'll last only until the 21st century information highway makes 500-channel interactive television the living-room standard.
Huizenga has his doubts. "I firmly believe that in the year 2000 we'll still be renting videos like we are today," he said
by CNB