Blockbuster stock drops, rebounds on Apple news

By Ned Randolph -- Video Business, 1/16/2008

JAN. 16 | While the U.S. stock markets experienced a broad sell-off Tuesday, Blockbuster fell particular far, dropping 17%, which had more to do with an announcement in Silicon Valley than Citigroup's record $18 billion write-down.

Apple CEO Steve Jobs had just unveiled a movie rental service on iTunes and a new Apple TV device that would allow users to watch rented movies on iPods as well as on their living room HDTVs.

Blockbuster investors feared that Apple was out to dominate the digital movie space and fled the world's largest movie rental service -- that is until cooler heads prevailed, said analyst Michael Pachter with Wedbush Morgan Securities.

"They panicked. They thought if Apple is in the market, they're going to own it," he said. "They realized today, no they're not."

In one day, Blockbuster shares regained all of their losses on Wednesday to close 17% higher.

One thing protecting Blockbuster is that iTunes rentals will fall in the pay per view window, 30 days after their DVD street date when Blockbuster gets them.

The other is that studios are not going to allow Apple or any other digital download service cut into their own DVD sale profits.

"If they wanted people to view movies with a set-top box in their living room the same day as a DVD release, they would allow Comcast to do it, which they are not," Pachter said.

"Apple's move should accelerate consumer awareness and usage of movies via digital downloading, and we believe Blockbuster is well positioned to take advantage of this potential increased demand by way of our Movielink service, which has one of the largest libraries of downloadable movie content and a large array of TV content as well," said Randy Hargrave, Blockbuster spokesman.

Movielink touts 6,000 titles, including 4,000 among video-on-demand rental and electronic sell-through from all six major studios and independent distributors.

Jobs said iTunes would offer 1,000 titles for rent from all the major studios by the end of February. That is a fraction of Movielink titles available, as well as those available on Netflix's Instant Watching feature, which streams movies onto the PC. The competitive advantage for Apple is that iTunes is the only service that works with the No. 1 portable media device, the iPod.

Studios finally see a way to reach portable users through Apple in a way that no one else can, Pachter said.

Blockbuster shares closed Wednesday up nearly 18% at $3.17 and had slipped to $3.13 in after hours trading.

Apple shares closed Wednesday down $9.40, or 5.5%, to $159.64.