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Blockbuster's Rise and Fall: The Long, Rewinding Road

Act 3: Blockbuster Goes Into Wide Release
By 1993 there were more than 3,400 stores and Blockbuster was looking beyond its core video chain business to fuel growth. Its next conquest -- the music industry. The company purchased music chains Sound Warehouse and Music Plus and entered a partnership with Virgin Retail to open music mega-stores in the U.S., Europe and Australia that were later called Blockbuster Music.

Huizenga had grandiose dreams when he dove into the music business, envisioning entertainment centers that rented movies, sold music, computer programs, video games and featured virtual reality entertainment arcades. Blockbuster entered into a deal with IBM to develop a system for instant duplication of CDs in-stores, creating a digital database. Huizenga was, technically, making the first foray into digital music. In his "music stores of the future" Huizenga foresaw customers to come in, browse a vast music selection, and then make their own customizable CDs of their favorite songs and artists.

Of course, music studios and record labels didn't react favorably to these ideas.

The company also invested in computer technology and added stakes in production companies, Spelling Entertainment and Republic Pictures, as well as Discovery Zone, a children's entertainment center. There were even discussions to build an entertainment complex to house Huizenga's growing roster of sports teams.

With a potential growth pipeline that could have made Blockbuster the McDonald's (MCD) of media, not just video stores, the company made a decision that could only be viewed as the catalyst that paved the way to its eventual downfall.

Act 4: Blockbuster Loses Its Way
In September 1993, Blockbuster proposed a $4.7 billion merger with media giant Viacom (VIA - Get Report), which, at the time, was in a bidding war for Paramount Communications with QVC.

Blockbuster, eager to get in on this deal and grow its new media initiatives, heavily invested in Viacom to help sweeten its bid. But the prolonged takeover battle became a drain on both Viacom and Blockbuster, and merger talks stalled, driving down the stock of both companies. Viacom ultimately ended up purchasing Blockbuster for $8.4 billion.

The buyout ignited an executive shakeup, where Blockbuster saw CEOs resign at a rate of one a year for three years. Huizenga stepped down in September 1994 and was replaced by President Steven Berrard. Berrad held the post for just a year-and-a-half, before former Wal-Mart (WMT) executive, Bill Fields, stepped in. Fields unexpectedly resigned in spring 1997 and John Antioco took over that summer.

Antioco inherited a company in tatters: new releases weren't making it to the stores on time, a cutback in employees left store operations in shambles, and cash flow for the second-quarter of 1997 had plunged 70%. Its Blockbuster Music initiative wasn't growing as fast as Viacom would have liked, and had resulted in substantial losses for the parent company.
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