Blockbuster's Circuit City bid deemed Netflix boon

By Sue Zeidler - Analysis

LOS ANGELES (Reuters) - Blockbuster Inc (BBI.N: Quote, Profile, Research, Stock Buzz) still needs to sell Wall Street on its pursuit of Circuit City Inc (CC.N: Quote, Profile, Research, Stock Buzz), yet analysts give the deal a thumbs-up in one respect: what it means for Blockbuster rival Netflix Inc.

Netflix (NFLX.O: Quote, Profile, Research, Stock Buzz) in February raised its quarterly and full-year forecasts, bolstered recently by cutbacks from video rental market leader Blockbuster in its aggressive and costly battle with Netflix over the online DVD rental sector.

Analysts see Blockbuster's $1.3 billion Circuit City bid as a further pulling away, at least in the short term, from the online DVD business to focus on retail and real estate.

"If Blockbuster spends the bulk of its time trying to execute on this big, high-profile plan that really isn't mapped to where the market is going, that only helps players like Netflix who are looking forward," said John Barrett, director of research for Parks Associates.

Barrett and others note both companies face the threat of more competition as the movie rental market heads towards digital distribution in the next few years and players like Apple Inc (AAPL.O: Quote, Profile, Research, Stock Buzz) and Amazon.com Inc (AMZN.O: Quote, Profile, Research, Stock Buzz) enter the sector.

Both Netflix and Blockbuster have said they plan to provide ways for customers to get films from the Web to TV sets.

But while Blockbuster touts its Circuit City bid as a way to converge hardware and software in a one-stop shop, much the way Apple devices work with its services in its stores, the plan has drawn Wall Street skepticism over its financing and whether it makes sense to marry two struggling retailers.

"If I were Blockbuster, I'd be worried about what I'd do with all these stores, not how to get more," Barrett said.