Blockbusted

The merger that wasn't: Yahoo! News carries an AP report that Blockbuster decides Hollywood Video isn't worth the effort.

I'm agnostic on whether, in a perfect world, this would have been a good idea. Perhaps Hollywood really is better off in the hands of Movie Gallery.

The only comment to make here is that the Cranky Economist doesn't quite see why a Blockbuster deal should have elicited reaction from Federal trust-busters. On its face, it's not hard to see why it would have. Blockbuster is the No. 1 in the industry, and Hollywood is No. 2. Together they would have made one enormous rental chain with enormous price-setting power in the bricks-and-mortar rental trade.

Yet, arguably the commodity here isn't DVDs-rented-in-a-bricks-and-mortar-store. The commodity is movies. Actually, the commodity is entertainment. And right now that marketplace is fiercer than it has ever been. First, Blockbuster-Hollywood would have had to compete with new-release movies, sports, books, television programs, the Internet, exotic adventure vacation packages -- you name it -- for entertainment dollars. And even once they had sold us on the idea of watching non-new-release movies, they'd have to convince us to get in our cars to go to their stores to get those movies, instead of watching them on one of the zillions of premium movie channels and on-demand video products now available on cable and satellite, or getting them through the mail via Netflix. The sheer inconvenience factor of the bricks-and-mortar concept should have been enough to control their rapacious gouging.

So I don't quite understand how being the top dog in one particular sector of this vast entertainment marketplace would have helped them very much. Looks to me like another case of possibly overactive anti-trust regulators. (To be clear, there was never a ruling; the two parties pulled the plug before seeking approval, but after getting strong signals that approval would be denied.)

Again, I have no idea what the relative merits of this deal would have been without the threat of regulatory interference. And it's a shame that investors won't get the chance to consider all the options that might have (should have?) been on the table.