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Summary:

Throughout its conference call explaining the deal, Blockbuster (NYSE: BBI) CEO Jim Keyes touted the opportunity for Circuit City to sell me…

Throughout its conference call explaining the deal, Blockbuster (NYSE: BBI) CEO Jim Keyes touted the opportunity for Circuit City to sell media services as an add-on to its traditional sales, much the same way it already sells warranties and technical support services. But this wouldn’t be new ground for Circuit City. The company already has a deal with Napster (NSDQ: NAPS), based around the same concept, but specifically to music. That offering, called creatively Circuit City + Napster, hasn’t exactly caused the earth to move. So how would the addition of Blockbuster — not really a powerhouse yet in digital media — work any better? The company didn’t exactly say.

While Keyes pointed to Apple (NSDQ: AAPL) as an example of a company that has successfully converged device and media sales, that’s an example of convergence on the product and technology side. But could you really achieve the same value by combining two very different retail outlets? The whole thing leaves far more questions than answers. Where would online music services fit into the picture? What would the company’s attitude be towards other providers of online video? Even if they downplayed it, it still seems like nuts and bolts advantages, like the shuttering of certain locations and other basic costs, would be needed for this combination to make sense.

Predictably, Blockbuster shares are getting crushed on the news, currently falling about 11 percent, while Circuit City is up about 32 percent to $5.15.

The investor presentation is embedded below:

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  1. Blockbuster's purchase of Napster would seem to make more sense. Napster has the foundation of a subscriber based media business that could be leveraged into digital music/video subscription powerhouse.

  2. Circuit City has tried movie rentals before. See: DIVX.

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