Circuit City Real Estate

April 15th, 2008

by David Barnes, Vice President, Strategic Analysis

If I read the news correctly, commercial real estate and the regional “thrifts” that provide most of the loans for the empty office buildings and retail blocks I notice driving around Austin may be the next shoe to drop. According to its fiscal 2007 10-K filing, Blockbuster (NYSE: BBI) has more than 22 million square feet of retail space in the USA. The time to have started selling bricks and buying clicks seems over, but BBI is just now getting ‘round to buying a hardware outlet for its potential combination of Movielink and set top boxes. Apparently, BBI has been circling Circuit City (NYSE: CC) for several months and recent disclosure of activist shareholder interest in management changes at CC and possible asset sales has emboldened BBI.

From a display point of view, the interesting thing is not this deal. It may or may not happen. The interesting thing is that so many companies seek opportunity in a new consumer marketplace that severs the ties between broadcasters and viewers. TV-As-We-Know-It (TAWKI) is dying. Technology enables distribution of video content to handsets, notebook PC and so-called TV sets. Content can come from the internet via wired or wireless links or from proprietary cable/satellite links. The preferred choice of link may change over time as new business models develop, but internet video technology is here to stay.

Blockbuster, Netflix (NASDAQ: NFLX) and Apple (NASDAQ: AAPL) are among the players jockeying for position. Their efforts are making notebook PCs the new portable TV. Indeed, leading TFT LCD makers are introducing HDTV (16:9) formats for notebook PCs because it makes less sense to offer legacy 15:9 or 16:10 aspect ratios. Browsers and spreadsheets can adapt to the new display format and HDTV programs look better. In addition, some panel makers obtain manufacturing efficiencies with the 16:9 ratio. Looks like a win-win situation.

This raises an important question in my mind, “What is the difference between a handset and a TV set?” Consumers may want to see or handle both at a store before purchase but a Nokia TV makes as much sense as a Sony handset. People definitely want more display space—but what about all that retail space?
 

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