No Music To The Shorts' Ears

Blockbuster, the nation's largest video retailer, remains high on short sellers' lists. But the company, already on the rise partly because of its recent decision to buy two musical-record retailers, may deliver an even bigger headache to the shorts. Now at 14 a share, up from 11 in July, Blockbuster could wing to 25 over the next 12 months, says Charles LaLoggia, editor of the Special Situation Report newsletter.

Here's the scoop: Whispers are that Blockbuster has developed a new technology--with a big assist from IBM and Digital Equipment--that would "revolutionize" the retailing of videos and recorded music. The technology, says two analysts familiar with Blockbuster's "secret plan," will enable customers to listen to a selection of recorded music or videos in private booths. The store will then produce the selections right at the site without the need to carry inventory.

The digital music and videos would be stored in a computer at a central location, explains an analyst, and then downloaded over high-capacity phone lines to in-store production equipment. This "music-on-demand" service, he says, could become a big profit maker for the company. Blockbuster is expected to earn 75 cents a share this year, vs. last year's 56 cents, and $1 next year.

The new system will be introduced early next year, says this analyst. He says Blockbuster is looking for a partner that could supply the hardware for the system. The candidates include: IBM, Digital Equipment, and Philips, the Dutch electronics giant, which owns 7.9% of Blockbuster.