Viacom Inc. Chairman Sumner Redstone, 77, has had an extraordinary year. He acquired CBS Inc., found a likely successor in Chief Executive Mel Karmazin, and whipped two younger media moguls, Barry Diller and Herb Siegel, in court battles over broadcast assets.

But there's still one thorn in Redstone's side: Blockbuster Inc., the video-store chain.

Viacom purchased Blockbuster in 1994 for its huge cash flow, to help pay for its acquisition of Paramount Communications in Hollywood that same year. But Blockbuster was dogged, even then, by predictions that its business would erode when new technologies delivered on-demand movies to the home.

Blockbuster, the world's largest video-store chain, is still growing, but at a slower rate than most of Viacom's businesses. Viacom has wanted to shed the company for years. It took the first step last August when it sold 18 percent to the public at $15 a share. It has been stymied in shedding the rest.

Blockbuster has fared poorly with investors. Except for a brief period last August, and in November and December, the stock has been trading below its offering price since the stock sale almost a year ago. The stock closed Aug. 1 at $11.94 a share. That's up from a low of $9 in June, but a long way from the $20 level that Redstone says is necessary for Viacom to proceed with a "split-off" by exchanging its Blockbuster shares for Viacom stock.

Blockbuster has embarked on a campaign to reinvent itself as a "new media" company, even while it insists that its bricks-and-mortar video rental business will continue to expand. Investors seem skeptical.

Clouds ahead

With each "new-media" announcement, Blockbuster fuels some concern that its core video rental business will become obsolete.

Why, after all, should consumers continue driving to stores to rent videocassettes or DVDs if they can download movies over cable or telephone lines? And are consumers ready to buy new services, such as DirecTV or high-speed phone lines, from their local Blockbuster clerk?

Blockbuster said last month that it will offer a video-on-demand service over high-speed telephone lines, starting the service with 300 to 500 movie titles in two cities by the end of the year. It was a bold announcement, made bolder by the fact that Blockbuster hasn't obtained rights from Hollywood studios to distribute their films over any video-on-demand service. Not even Paramount Pictures a wholly-owned Viacom subsidiary has granted such rights to Blockbuster yet.

For reprint and licensing requests for this article, CLICK HERE.

Prev