Blockbuster in retreat on eastern front
Video rental giant to exit Hong Kong
January 31 2004
Blockbuster is to exit operations in Hong Kong and will close its 24 stores in the city over the next 18 months, as leases expire.
The world’s largest video rental chain has also dropped plans to expand onto mainland China in the face of widespread piracy in what is rapidly becoming the DVD bootleg capital of the world.
Blockbuster, which is owned by entertainment giant Viacom, moved into Hong Kong four yearswith the acquisition of 19 stores from bankrupt video chain KPS. However, high rentals demanded by Hong Kong landlords have meant only a handful of stores have been added to the chain.
Chris Wyatt, president of Blockbuster’s international arm, said: “Hong Kong has always been one of the film capitals of Asia, but it has been a very expensive market to develop and operate, with store lease costs being among the highest we have anywhere in the world.
“As a result, we have added only five stores to the original 19 locations we purchased four years ago, and this has not given us sufficient critical mass to generate an acceptable level of return. We have decided to withdraw from Hong Kong and focus our resources on other markets.”
Blockbuster had also seen Hong Kong as a stepping stone to China, one of the fastest growing consumer markets. However, the Chinese appetite for home entertainment is being more than met by its booming DVD piracy industry.
Michael Wong of Blockbuster said: “Because of piracy issues, cost of products and habits of video watching, we think investing in China may not be up to our expectations. Over the past months, our international management has been studying the China market and they felt that it would not give them an acceptable rate of return relative to other markets.”
Blockbuster has more than 8,700 stores in the Americas, Europe, Asia and Australia. However the growth of the DVD home sales market and the increasing availability of video downloads from the Internet have led some observers to raise questions about Blockbuster’s long term viability, at least in its current model.
In the UK, Blockbuster acquired the Gamestation console games chain 18 months ago in a move to diversify its operations. It has also trialled home deliveries of DVDs, and extended food sales, including gaining alcohol licences in some stores.
