Only yesterday I was musing on how long things to accomplish in government. Time be a relative thing. So when I read about the Blockbuster Circuit City proposed merger, I couldn’t help but put that in the perspective of convergence time.
It was early fall in 1993 and I was at a “convergence” conference in Santa Monica. The conference was the first of many that attempted to mix the upstart tech companies fueling gaming and edutainment with the slick producers and kingmakers of film and television. This one was particularly memorable since the Malibu-Topanga fire raged during the two day event. While huge flakes of ash rained down on the patios where the worlds of tech and entertainmnet were sizing each other up, the backdrop was a Pompeii-like flaming hillside. A visual cue that the business models in play were about to be gutted. Even then, nascent video game industry I was a part of , was just passing the $4 billion in revenues on a march past the movie industry. Then, the main topic of conversation was what industry was going to drive the convergence deals, the content makers, meaning Hollywood, or the technology makers.
In many ways not much has changed, content is still king, but the the distribution and delivery has been upended by the Internet, which is a technology that the entertainment industry has always poorly understood. So now Blockbuster, the neighborhood video store killer, on the ropes from the Internet bred Netflix was acquiring an electronics retailer. Convergence, not just from a retailer perspective, but the marriage between technology and content distribution is now a pathetic attempt to diversify at the tail end of a retail downward spiral.
Businessweek had this to say:
When disruption strikes an industry, market incumbents can use acquisition as a strategic way to remove increasingly redundant capacity from a market. For example, Arcelor Mittal has become a powerhouse by acquiring integrated mills that struggled to respond to the disruption of steel minimills. Mittal has become a giant by acquiring assets cheaply and taking advantage of massive scale economies.
The combination of Blockbuster and Circuit City would be a different beast. A reasonable analogy could be the combination a couple of years ago of K-Mart and Sears. Like Circuit City, K-Mart had decisively lost the discount retailing battle to Wal-Mart and Target. Like Blockbuster, Sears was sagging under the pressure of disruptive attackers like Wal-Mart and Amazon.com.
Eddie Lampert, the investing wizard who fashioned the Sears/K-Mart deal and is the Chairman of the reconstituted Sears Holdings, has seen the business continue to spiral downwards over the past few years.
Unless there’s a non-obvious way to combine Blockbuster’s and Circuit City’s assets to create a new growth business, a merger could serve as a way to hasten the demise of two former high-flyers.
I don’t see how merging retail oriented stores will make shareholders happy. The business model is access to content, and the distribution method is wireless. But its been 15 years, and the idea of convergence that was so murky then, hasn’t exactly been crystallized now. Which gets me back to time being quite the arbitrary measure of all things.
