Blockbuster Inc. said Tuesday that it will begin selling DirecTV satellite television systems this year in an effort to diversify beyond its traditional video rental business.
The move is the Dallas-based company's latest effort to capitalize on newer technologies in light of incursions into its traditional video market by the Internet, cable and satellite systems, which promise entertainment on demand.
The announcement also raised the specter of new competition for the leading retailer of satellite systems, Tandy Corp.'s Radio Shack chain. Investors pounded shares of the Fort Worth-based retailer on Tuesday.
Blockbuster executives think their brand of mixing the medium (satellite) with the message (movies) is a winner.
"We believe that through our store traffic, our direct mail and blockbuster.com we can acquire more DirecTV customers than anyone else," said John Antioco, chairman and chief executive of Dallas-based Blockbuster.
As part of the deal, Blockbuster will also pair with DirecTV to co-brand a pay-per-view service.
"DirecTV and Blockbuster are two of the most recognized brand names in home entertainment," said Bill Casamo, president of DirecTV Merchandising Inc.
Blockbuster executives said the video rental chain has been strategizing about how to use its stores as a way to distribute other entertainment technologies and determined that a revenue-sharing alliance with DirecTV would be a good fit.
"We can use our database marketing skill to drive buy rates for DirecTV and pay-per-view," said Jim Notarnicola, chief marketing officer. DirecTV has 8.5 million customers, including those who subscribe to Primestar.
Radio Shack, which derives about 7 percent of its revenue from sales of satellite systems, could lose business to Blockbuster, according to PaineWebber analyst Aram Rubinson. On Tuesday, he downgraded Tandy shares to "neutral" from "buy," which in turn bounced the stock from the brokerage's closely watched "Highlighted Stock List."
Shares of Tandy fell as much as 13 percent in trading and were priced at $45.75, down about $4.06, at 4:45 p.m. Dallas time.
Blockbuster will offer the satellite systems in 5,000 of its more than 7,000 stores. The company set a goal of selling 1 million units each year for two years, starting in 2001.
Radio Shack has 7,100 outlets and estimates that it will sell 1 million DirecTV systems this year.
Mr. Casamo of DirecTV said the agreement with Blockbuster will not "cannibalize our existing share" with other retailers.
Dave Edmondson, executive vice president and chief operating officer of Tandy/Radio Shack, characterized Blockbuster's entry into the market as neutral at worst and helpful at best.
"DirecTV is doing this to expand demand for their product," he said, "and that's good for us."
But selling satellite systems is "a very different sale" than renting movie titles, Mr. Edmondson said.
"The reason we have the largest share of the market is that people come to us in droves when they have reception problems, which allows us the opportunity to sell them an antenna and a satellite system. Going out to rent a movie is a very different mindset. You want to get in and get out and home to the popcorn," he said.
Mr. Notarnicola said the near-term vision for Blockbuster is to reshape its stores into "interesting neighborhood technology centers."
Radio Shack stores, he said, are destinations for specialty electronics. "They do that well. But we have a relationship with customers in and around movies and we can convert them [to DirecTV] when they are in our stores."
He said Blockbuster employees will be retrained to explain and sell DirecTV. The stores also will be reconfigured with kiosks to display the service.
The service is expected to start sometime in the third quarter. DirecTV Home Services Network will coordinate installation of systems purchased by Blockbuster customers.
Also this summer, as part of its plan to take advantage of the Internet, Blockbuster expects to have all its 7,153 locations hooked up to its Web site, so customers can make online reservations for movie and game rentals and then pick up their choices at neighborhood stores.
Blockbuster is a publicly traded subsidiary of Viacom Inc.