New store concept at heart of Blockbuster/Circuit City deal

DALLAS —Blockbuster Entertainment provided more detail on its vision of a merger with Circuit City, saying new stores would be more interactive and engaging for customers and feature elements of Blockbuster’s ‘Rock the Block’ concept stores.

Blockbuster ceo Jim Keyes outlined the plans during a May 15 earnings call with analysts. He said the stores would focus more on creating an “entertainment retail environment,” rather than just “selling electronic products.” As an example, he mentioned a handful of ‘Rock the Block’ stores that Blockbuster is testing. “Those stores have a gaming presence, present portable devices and are really more an entertainment environment than a video store.”

Keyes also said there’s no timeline for deciding on whether the proposed $1.2 billion merger will take place, but said the due diligence process initiated in early May would “take weeks, not months.”

His description provided a clearer idea of what Blockbuster has in mind for Circuit City if it buys the struggling CE chain. Previously, Keyes said the merger would create a chain “uniquely positioned for the convergence of media content and electronic devices.”

“It’s a much better message than they had before,” said analyst Andy Hargreaves of Pacific Crest Securities in Portland, Ore. “At least they’re talking about creating stores that are more interactive and experimental.”

For its first quarter ended April 6, Blockbuster reported net income of $45.4 million, compared to a $49 million loss in 2007. Total revenue fell 5.4% to $1.39 billion, due mainly to the closing of 412 stores in the previous year.

While there’s still plenty of skepticism about the merger, the fact that Circuit City has opened its books for Blockbuster is a sign that it may happen. Also, with Blockbuster’s largest shareholder, billionaire Carl Icahn, pushing for it, makes the merger even more likely.

And that may add some pressure for Keyes, given what happened in 2005 when Blockbuster was angling to acquire Hollywood Video. Icahn was highly critical of former ceo John Antioco for not making that merger happen and it kicked off a two-year battle that ended when Antioco left the company late last year.

Hollywood Video was sold instead to Movie Gallery, which was the country’s third-largest video rental chain at the time. It has struggled since the acquisition and filed for Chapter 11 bankruptcy protection last October.