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Virgin, Blockbuster Enter Megastore Partnership

November 16, 1992

LONDON (AP) _ Blockbuster Entertainment Corp. and Virgin Retail Group Ltd. said Monday they are beginning a joint venture to operate big entertainment stores throughout the United States, continental Europe and Australia.

The move would give Blockbuster a greater presence in the recorded music business it entered with the recent $185 million acquisition of the U.S.-based Sound Warehouse and Music Plus chains.

It also will put Virgin head Richard Branson into the United States with an entertainment partnership similar to those Virgin operates in Britain and Japan with dozens of stores.

Terms were not immediately disclosed for the deal between London-based Virgin and Blockbuster, the world’s largest home video retail company based in Fort Lauderdale, Fla.

But the companies said Blockbuster will acquire a 50 percent stake in some 15 Virgin Megastores operating in Paris, Marseilles and Bordeaux, France; Berlin; Milan, Italy; Vienna, Austria; Amsterdam in the Netherlands; and Sydney, Melbourne and Adelaide, Australia.

Also included are Virgin Megastores soon to open in Hamburg, Germany; and Los Angeles.

Virgin will continue to manage and operate the stores, which sell recorded music, videos and games.

Virgin and Blockbuster also plan to develop a large chain in the United States that will be owned 75 percent by Blockbuster and 25 percent by Virgin. The two companies will equally share control of the stores, which will be managed by Virgin and called Blockbuster Virgin Megastores.

Securities analysts said the deal should be a winner for both companies.

″Blockbuster knows how to open locations, they know the U.S. market and they also have capital,″ said Gary M. Jacobson, a senior vice president at Kidder, Peabody & Co. in New York. ″Virgin knows the industry. You’ve got money and knowledge. What more do you need?″

A Chicago-based analyst who follows Blockbuster said the company has developed a strategy of operating huge entertainment stores that cater to entire families, unlike many recorded music stores that target a generally youthful clientele.

″I think it’s part of their game plan to do to the record industry what they did to the video industry, to expand the music stores and make them more user-friendly to people over 40,″ said Gary L. Wirt, a vice president at Chicago Corp.

Blockbuster has been raking in profits despite the recession and seems to be in a good position to expand. The company reported last month its third- quarter profits jumped 51 percent to a new record of $41.3 million, while profits for the first nine months of the year were up 50 percent, at $96.9 million.

″They’ve just generated so much cash that it gives them an opportunity to expand and diversify a bit, and also cross-promote,″ Wirt said.

The companies would not say how many stores they might build.

″We don’t have a defined number yet, but we have targeted all the major markets,″ Blockbuster vice chairman Steven R. Berrard said in a telephone interview.

Blockbuster will put up the money for the stores in the United States, according to a source familiar with the deal who spoke on condition of anonymity.

H. Wayne Huizenga, Blockbuster chairman and chief executive, said the deal with Virgin will supplement Blockbuster’s entry into the music business. The purchase of Sound Warehouse and Music Plus last month gave Blockbuster 236 music stores in the United States.

Branson’s move is similar to joint ventures set up in Britain with W.H. Smith Group PLC and in Japan with Marui Co. Ltd. Virgin operates a total of 51 stores as part of those partnerships.

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