Dish Network is going to buy Blockbuster out of bankruptcy for $320 million. I am frankly floored there is that much value. I have found that one can make a surprising amount of money riding an obsolete business down over the years if it is managed correctly -- but this is generally for product businesses. Retail businesses are really hard to ride down because you need to be closing stores every year and that is hard to do cost-effectively given typical lease terms. Never-the-less, I expected the winning bid to be from a liquidation company, someone like the folks who took wound down Circuit City.
But the purchase by Dish Network implies that the buyer wants to continue operating Blockbuster in some form, and the identity of the buyer implies some sort of on-demand or streaming service. But what does Blockbuster offer? Is the brand valuable in this context, or a liability? Does it have customer loyalty with a segment (old people?) who have so far shied away from Netflix / Hulu? Does Blockbuster have favorable royalty / licensing contracts with studios that are transferable to other video delivery models?
If I had to guess, I would bet on the latter. There have been examples of whole businesses built from legacy contracts. One of the best examples is a little noticed contract Carl Icahn had with TWA, which spawned a huge new travel agency and later really helped to build Priceline.com. Here was the story:
When TWA got a loan from Carl Icahn, an almost unnoticed part of the deal was that a certain travel agency owned by Icahn, small at the time, would be guaranteed TWA tickets at a healthy discount off the lowest published fares. This agency, with this boondoggle, grew to enormous size as Lowestfare.com. TWA, beyond the reasons listed above, therefore had a second reason for not wanting to publish their lowest possible fare. Normal limitations that most airlines could set on how many seats would be available at their lowest fare could not be enforced by TWA. If they offered a new $100 fare, Lowestfare.com could blow out an unlimited number of tickets at $80 or less and TWA would have to accept it. Therefore, by offering discounts unpublished via Priceline, TWA prevented the travel agency from getting inventory even cheaper. And so, a huge portion of the early Priceline inventory was TWA. (ironically, after the American Airlines acquisition of TWA killed the deal, the Lowestfare.com URL was bought by … Priceline.
I wonder if Blockbuster has something of similar value in their royalty / licensing agreements?
After a couple of days here, some impressions:
- The airline flights that dump you off in Europe at 7am which seemed so convivial when I was consulting are less so when I am a tourist. We had the experience of arriving at our hotel about 8am, which of course did not yet have a room anywhere near ready. We had a nice day walking around, but we sure were exhausted by the time we got to our room and had a nap. Note: American Airlines 767's have very very uncomfortable business class seats - really a disgrace nowadays.
- The Louvre is magnificent, but is ridiculously big. It is impossible to digest. You really have to find a branch of art, like the Flemish painters, and stay in that area. The Musee d'Orsay, which focuses on 19th century French art, is much more digestible. Also, it has a cool location in a train station, which was a very important part of 19th century life.
- The French smoking thing has been joked about so much it is almost a caricature, but it is still a shock the first time in a restaurant. We observed many American smokers reveling in their smoking freedom. I wonder if there is a business opportunity to sponsor smoking trips to Paris, much like those Asia sex trips to Thailand.
- Wow, the food is expensive! $50-80 entrees in some places, and for that you can get two slices of tenderloin. It was good though, and we have yet to have a bad, or even so-so, meal.
- I would feel safer in a golf cart than some of the cars here. You can really see the trade-offs with fuel economy we make in the US by having crash test standards. Over here with no crash tests and $6.00 gas, you get lots of tiny cars. Mini-coopers look average to large-sized here.
- The Champs d'elysees was amazing on Sunday afternoon - a sea of people going up the hill. It looked like those pictures of the start of the NY marathon, but it went as far as the eye can see. Amazingly, with all this foot traffic past the door, half the businesses were closed that day (welcome to Europe, I guess)
- There are more shoe stores here than fast food restaurants in Phoenix. And my wife has stopped in every one of them
Virginia Postrel has an article begging for repeal of the Wright Amendment.
What is this law? Years ago, when they built the D/FW airport, they wanted to make sure they routed all local traffic through that airport and strangled all the competitive airports. The Wright Amendment says that other local airports, particularly Dallas Love Field, can only have flights to Texas and adjoining states.
Well, this sounds just like a bit of municipal priority setting, until one other fact is thrown in. Love Field is Southwest Airlines home field. By placing this limitation on Love field, and keeping it that way, American Airlines and Delta get an effective subsidy, ensuring that they have no low-cost competition on their longer routes.
I lived in Dallas for years and trevelled far and wide by air. The Wright Ammendment cost me and my company at least $10,000 over that time in higher air fares.
For several years, I worked for a major supplier to the commercial airline industry. Eventually, I had to leave, because the entire industry just drove me nuts - some of the worst structural problems in any industry I have seen combined with an incredible unwillingness to do anything about them. Marginal Revolution reminds me about the airline industry with this post.
Through the 1990s, the average weight of Americans increased by 10 pounds, according to the Centers for Disease Control and Prevention. The extra weight caused airlines to spend $275 million to burn 350 million more gallons of fuel in 2000 just to carry the additional weight of Americans, the federal agency estimated in a recent issue of the American Journal of Preventive Medicine (fee req'd).
As entertaining as this is, the industry is still totally unwilling to address the real problems in the industry.
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