Blockbuster + Circuit City?

Yep, looks like it...

Blockbuster yesterday announced that it has made an offer for Circuit City via a letter sent to Circuit City CEO "Phil" Schoonover about 60 days ago, for at least $6/ share (it closed on Friday at just under $4/ share).  From the press release:

"Blockbuster noted the combination of the two companies would result in an $18 billion global retail enterprise uniquely positioned to capitalize on the growing convergence of media content and electronic devices. The transaction would allow both companies to benefit from the revenue growth generated by their complementary products, while the resulting synergies would substantially improve consolidated financial performance, thereby increasing shareholder value."

From the letter in the press release  (emphasis added):

"Our vision for the "new" Blockbuster is to be the most convenient source for media entertainment. We have undertaken a series of strategic initiatives including enhancement of our core rental business; a transition from solely rental to a concentration on consumer retail; and development of the fast-growing digital download market...

We would seek to differentiate products in both Blockbuster and Circuit City stores by offering exclusive content and content-enabled devices."

The blogosphere, while hardly abuzz, hasn't reacted too strongly to this either, with only a couple of notable nods from Engadget, Phil Swann's TV Predictions, and i4u; the latter noting:

"At some point in the next 5-10 years there will be no need for Blockbuster stores as movies will be downloaded and not rented via a disk. It seems to me that Blockbuster tries to stay a brick and mortar business also in a digital movie rental future."

I think Blockbuster's going up against Apple more than anyone.  Apple has become the #1 music retailer in the US, selling content that can ONLY be played back on their devices!  Microsoft, Amazon, and Wal*Mart have ALL tried their hand at digital downloading, and Apple is the only one ringing it in.  Moreover, music and movies are only part of the deal; games are big business and those, soon, too will be bits instead of atoms.

Despite what Engadget and i4U are saying, the media-enabled gadgets of the future will be always-on media devices, with high-speed access virtually everywhere.  Blockbuster sees that it's no longer able to be a middle-man here, satisfied with being the c0mmerce part of the content-conduit-commerce part of entertainment value chain.  They've recognized (as have Sony & Apple), that they need to own a bigger chunk of the pie in order to compete.

Steve Jobs (and thus Apple) have Pixar, plus deep relationships to Hollywood, Sony has it's own movie studio and music shops (a big reason why they won the HD format war).  Blockbuster needs a way to control the gadgets (the conduit) and is even leaning towards deploying some of the content to make it work.

It's a smart play, and they're right, they'll need something else to sell when everything goes digital.  They know home entertainment, and that's what Circuit City is selling.

Update:
Ars Technica has weighed in: Link
So has The New York Times: Link