NCR Deal May Be Blockbuster's Salvation

Blockbuster hasn't had it easy lately with financial maladies such as maturing loans compounding the problems caused by acute competition in it major business, movie rentals, but the retailer may pull through yet as it has adopted one of the simpler of survival strategies: If you can't beat 'em join em'.

A shift in Blockbusters fortunes may be hidden within another recently announced deal. NCR Corp., which manufactures a range of consumer self-service transaction devices, from ATMs to airline ticketing machines, has purchased the remaining assets of TNR Holdings, the second largest operator of DVD rental kiosks behind leader Redbox. NCR made an investment in TNR last summer and became, in turn, its exclusive hardware provider. At the time, TNR operated about 2,200 DVD kiosks under the names MovieCube and The New Release, with a focus on grocery store placement of its rental machines. Even as it invested in TNR, NCR formed a partnership with Blockbuster to test DVD kiosks under the name Blockbuster Express in the Dallas and Oklahoma City areas.

Now that it has purchased the rest of TNR, NCR plans a rapid expansion of its DVD rental business with placement targeted not only for groceries but convenience and drug stores as well. Reaching an immediate growth goal for the company is dependent upon how fast agreements can be signed, said NCR spokesman Jeff Dudash, but the company plans on having 10,000 DVD kiosks in operation by sometime in 2010.

Plans call for the roll out to focus on Blockbuster Express branded kiosks, Dudash said, as the initial test demonstrated that consumers respond to the familiar Blockbuster name. Also, Blockbuster has experience in DVD sales and video game sales and rentals. As NCR brings its technical expertise to bear, the company plans to expand kiosk capabilities. To the extent it expands operations into business areas that Blockbuster has explored, such as video game rentals, NCR can apply its partner's expertise to its own execution. As of now, there is no plan to integrate DVD kiosk operations with Blockbuster's own. Customers won't be able to rent a movie at a kiosk and return it to a store, for example, said Blockbuster spokesman Randy Hargrove. However, that kind of integration remains a possibility as the NCR kiosk operation becomes more widespread and complex.

Argus analyst John Staszak, who has a sell rating on Blockbuster shares, said in a research note, that he sees "little opportunity" to boost earnings per share beyond estimates of 15 cents for fiscal 2008, 27 cents in for fiscal 2009 and 24 cents for fiscal 2010. However, he did note that he would consider upgrading the stock if Blockbuster gained DVD kiosk distribution