June 16, 2019
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Behind big deals: No one wants to be Blockbuster Video

 Hollywood blockbuster movies 'The Amazing Spiderman' and 'The Dark Knight Rises' are advertised as coming at the end of August in central Beijing, China, Aug. 24, 2012. EPA/FILE/ADRIAN BRADSHAW

Hollywood blockbuster movies 'The Amazing Spiderman' and 'The Dark Knight Rises' are advertised as coming at the end of August in central Beijing, China, Aug. 24, 2012. EPA/FILE/ADRIAN BRADSHAW

By John D. Stoll

New York (USA), May 30 (efe-epa).- The last of the 9,000 Blockbuster Video stores that once roamed the Earth sits at 211 NE Revere Ave. in Bend, Ore., a strip-mall storefront trapped in amber right down to dot-matrix printers and computers booted up with floppy disks, according to a Dow Jones Newswires report made available to EFE on Thursday.

It didn't have to end this way. Netflix Inc. offered to sell itself to Blockbuster Inc. for $50 million two decades ago. Executives pursued deals with rival rental chains like Hollywood Entertainment Corp. instead.

Oops.

Blockbuster failed to see the transition from companies spending big mainly to get bigger to companies spending big to get smarter.

Fiat Chrysler Automobiles’ pursuit of a merger with Renault is the latest in a growing list of deals motivated by corporate executives' abiding desire to avoid becoming the next Blockbuster.

Some companies are buying up everything in sight in hopes of finding a tech wunderkind like Netflix. Others are combining forces with rivals to answer tech puzzles that have yet to be solved.

The shift is evident at firms ranging from Walt Disney to Walmart. "Look at this as pursuing scale in a different way," Mark Fields, the former Ford Motor Co. chief now working as an adviser for TPG Capital, told me. "This is about aligning yourself with the right business model."

Fiat Chrysler, a small player in the global car business, has long been interested in finding a merger partner.

The company's architect, Sergio Marchionne, reinvigorated interest in consolidation when many other auto executives had abandoned it as unworkable.

He unsuccessfully flirted with Volkswagen AG and General Motors Co. hoping to find a partner before the industry transformed.

Marchionne died last year, but his urgency lives on. Now, it's up to his successor, Mike Manley.

To get a view into Manley's thinking, consider what his proposed $40 billion tie-up with Renault SA doesn't immediately include.

Factory closures - once seen as a primary reason for any global auto deal - aren't on the table.

There is no talk of trimming a combined workforce that would surpass 350,000, a formidable number for any car maker.

Instead, FCA says it needs to seize "opportunities created by the transformation of the auto industry in areas like connectivity, electrification and autonomous driving."

Focusing attention on technology rather than market domination or plant consolidation helps answer concerns regulators and government officials could have about market domination or job cuts.

But it also indicates a company long considered to be Detroit's No. 3 player is charting a big future.

Fields, the former Ford executive, says that even if a combined FCA and Renault simply uses its bigness to become an attractive partner for a tech company, like Alphabet Inc.'s Waymo driverless car unit, a tie-up might be worth it.

Like FCA, Renault is watching revenues shrink as the need to spend on technology balloons. That's bad news in an industry where rivals like Tesla Inc. and Ford are showing how hard it is to profit on innovation.

Tesla has raised more than $11 billion to pave the way for electric cars, and that effort remains mired in red ink despite some impressive vehicles.

Ford, under Fields' successor Jim Hackett, is losing $2 million a day on its Smart Mobility unit, a hodgepodge of projects that includes a "City of Tomorrow," driverless cars and ride sharing.

Michelle Avary, a former Toyota manager now heading World Economic Forum mobility programs, said it will be a decade before projects like autonomous vehicles offer any type of meaningful return. Partnerships like a recent collaboration between Ford and Volkswagen, she says, are being formed to lessen the blow, but full-on mergers may be a more effective way to combine resources.

Fiat Chrysler's financial position has strengthened in recent years, but it is still just a minnow, Dow Jones added in a report made available to EFE.

What it shells out on R&D annually is a shadow of the $8 billion, $10 billion, $14 billion spent respectively by GM, Toyota Motor Corp. and VW every year.

"In this business, sometimes you've got to make one plus one equal three, " said Steve Girsky, a former GM executive who now heads an advisory firm called VectoIQ. "The industry's found that the cost of bringing new technologies to market is expensive and a lot of times you're better off sharing those costs."

Here's how that math works in Manley's deal: Fiat Chrysler's $3.5 billion in annual R&D plus Renault's roughly $4 billion equals real money to work with.

This get-bigger-to-get-smarter thesis isn't exclusive to cars. Some deals are less about solving tomorrow's puzzles and more about responding to today's emerging threats.

Why did Walmart Inc. spend $16 billion for control of a money-losing Indian retailer called Flipkart Group?

The answer: Amazon.com Inc. Walmart is the biggest merchant in the world, but the fact that online sales represent only about 5 percent of revenue suggests it has room to learn from Flipkart's in-house payment system or its ability to tap into growing the e-commerce market in the world's second-most populous nation.

Walt Disney Co.'s $71.3 billion acquisition of 21st Century Fox entertainment assets gave Disney more studios and networks.

But Chief Executive Bob Iger told analysts the deal fuels a broader pursuit in the media business of "transformative technology," including a majority stake in Hulu's streaming service. Viewers want to cut the cords, and several companies are accumulating assets or combining forces to meet that demand.

It will be interesting to see how this movie plays out in entertainment, the car business and beyond. If you plan on renting the DVD from Blockbuster, though, you're going to have to make a trip to Bend, Ore.

dj/hh

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