BLOCKBUSTER PLAYS INTO NEW AVENUES SOFTWARE IS THE FUTURE FOR ENTERTAINMENT GIANT

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Just seven years ago, H. Wayne Huizenga shelled out $18.6 million for a 19-store Dallas-based operation called Blockbuster Video.

Today, Blockbuster Entertainment Corp. is well on its way to becoming the nation's one-stop entertainment shopping experience, with video rental stores, music stores, music and TV production facilities, and $2.9 billion in systemwide revenue in 1993, up 47.5% from the previous year.

Blockbuster Video alone, with 3,755 stores systemwide as of June 30, is larger than its next 300 competitors combined.

But if rapid-fire growth-at one point, the chain was opening a new store every 17 hours-was the hallmark of the past seven years, software is the operative word for the future. It is a future that analysts believe will see the decline of video rentals due to video on demand and other viewing options.

To George D. Johnson Jr., president of Blockbuster's domestic division, software means music, movies and videogames, along with developing videogames and alternative entertainment delivery systems.

Though he would not discuss any so-called "Blockbuster Channel," there has been much speculation about whether Blockbuster will eventually develop an on-demand channel.

Also essential to future success is database and cross marketing. This month, the company began is- suing "universal" membership cards for use in any company store systemwide. Now being tested in Richmond, Va., is the Take 10 sampler program. An in-store kiosk uses Blockbuster's database to inform customers about videos they may enjoy based on previous rentals.

Blockbuster's laundry list of achievements and acquisitions beyond music and video retailing shows how diverse the company has become in a short time:

Blockbuster Games: This summer's World Videogame Championships are positioning the company as a place to buy and rent videogames. Already, the $1.5 billion videogame rental business represents upward of 10% of Blockbuster's revenues.

Movie and television production: A 77% stake in Spelling Entertainment Group, merged earlier this year with Republic Pictures.

New technology: A partnership with IBM Corp. created NewLeaf Entertainment Corp., offering technology that will allow music or videogame store patrons to create out-of-stock title immediately-digitally and with complete liner notes. Another project, Catapult, will allow game players at home to compete via telephone link with other players anywhere.

Blockbuster Parks: The centerpiece to this emerging division is a proposed 2,500-acre site in south Florida, known locally as "Wayne's World." The development would include a 48,000-seat stadium for Mr. Huizenga's Florida Marlins baseball team, a 20,000-seat arena for his Florida Panthers hockey franchise, movie and recording studios, golf courses, pedestrian mall, video arcade and amusement park. Another prototype site is Blockbuster Golf & Games, an amusement site that opened in June 1993 in Fort Lauderdale, Fla.

Discovery Zone: Blockbuster now owns a majority stake in this chain of indoor children's play facilities, which itself recently purchased rival Leaps & Bounds from McDonald's Corp.

To those who express concern that Blockbuster is spending too much on acquisitions and growing too quickly, Mr. Johnson has one retort: "Look at the earnings." If others say the company is too dependent upon the core video rental business, he responds: "I think you'll see it come down as a percentage of [overall revenues], even though it's a fabulous business."

But even giants have growing pains.

An early 1993 marketing deal with CBS and video production company Good Times Video died this January after Good Times couldn't sell enough ad space on the "Hot Pix" videomagazine. "Hot Pix" was a 10-minute video given to renters that previewed new releases.

Then there was Blockbuster's decision to move its $100 million marketing business to D'Arcy Masius Benton & Bowles, St. Louis, last December. It was a wrenching shift on more than one front. For starters, Bob Bernstein, chairman-CEO and president of former agency Bernstein-Rein, Kansas City, Mo., is a Blockbuster franchisee.

Then in May, William Melzer, DMB&B's managing partner in St. Louis and the executive who had led the successful pitch, quit after the agency's New York management initially failed to provide local media buying support for the account.

On another front, the company has until Sept. 30 to decide whether to proceed with its September 1993 $600 million investment in Viacom's bid for Paramount Communications. But Viacom's stock since has fallen, so the deal is worth $2 billion less to Blockbuster shareholders than originally proposed.

There also has been executive turmoil. Blockbuster has been through three marketing chiefs in three years and five presidents in seven years.

The latest to leave: Senior VP-Chief Marketing Officer Jim Hilmer, who resigned in July after disagreements with Mr. Johnson on direction and oversight of marketing operations, and who had the final authority.

Executive turnover is to be expected in a fast-growing company, said Carol Feinberg, one of Mr. Hilmer's predecessors who is now looking for her own start-up venture. "It's not unusual in a company that is growing as rapidly as Blockbuster is," she said. "Even with the marketing position, as the corporation develops and grows, there are new challenges and ways to advance."

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