Blockbuster Wants Stake In Viacom's Pay-TV Channel

Blockbuster (BBI) wants to buy Circuit City, but here’s a deal that might make more sense: the WSJ reports Blockbuster has been in talks to join Viacom (VIA) which, along with MGM and Lions Gate, is launching a pay-TV channel to take on Showtime (CBS), HBO (TWX) and Starz. As part of the deal, Blockbuster would get digital rights to the channel in return for an investment.

Such a deal might allow Blockbuster to become the online distributor of Viacom’s as-yet-unnamed channel, which would fit into Viacom CEO Phillippe Daumann’s strategy. Daumann has said that the channel would be distributed digitally as well as on cable and satellite TV platforms. Blockbuster might think it could distribute the channel through Movielink, the failed online movie download service it acquired last summer.

One big question: does Viacom really want to hand over online distribution of the channel to Blockbuster whose online strategy has been, for the most part, a failure?

Another one: What is Blockbuster thinking? Here’s Pali Research’s Stacey Widlitz (reg. required), whose colleague Rich Greenfield has been predicting the Blockbuster deal for days:

But most importantly, the company continues to simply think too big. Instead of focusing on improving fundamentals, they blindsided investors with the CC offer. Investors did not react well. Now it seems they are considering another large investment that would likely pay little to small dividends. And investors will become even more frightened. Our best advice to BBI is to stop thinking big and sell investors on their improving fundamentals. Keyes is an operations guy. He is improving BBI’s operational profitability. He should stick to what he does best.

Earlier: Circuit City Shareholder Trying To Force Sale To Blockbuster

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