Blockbuster Expansion Scaled Back Decision Rekindles Speculation About Spinoff Of Video Chain

Viacom Inc. said it scaled back the number of Blockbuster video stores it plans to open this year to 600 from 800, prompting speculation the company may be considering spinning off the struggling video retailer.

Viacom said it cut back on store construction to reduce its debt, which totals about $9.5 billion in bonds, commercial paper and bank loans. Viacom also owns Paramount Pictures and television networks including MTV.

While Viacom has said it hopes to boost its earnings and share price by trimming its debt, the company must ultimately move toward spinning off Blockbuster if the stock is to return to its former heights, analysts said.

“They are trying to preserve capital and send a message to the market,” said Arnhold & S. Bleichroeder analyst Richard Read, “but I would see slower store expansion as a part of Bill Fields’ plan to make this chain more solid for a spinoff.”

Blockbuster Chairman Bill Fields has put several changes in place since he came on board a year ago from Wal-Mart Stores Inc. The company has opened up new stores and remodeled existing ones, adding products like concessions and books to help draw in more customers.

The Fort Lauderdale, Fla.-based chain, which operates more than 5,000 video and music stores in the U.S. and 26 other countries, has for years battled sluggish sales and price competition from big retailers.

The growing presence of pay-per-view movies, which allow consumers to access films directly from home, has also given investors reason to question how much longer video rentals will be a viable market.

New York-based Viacom took a fourth-quarter charge of $67 million, or 18 cents a share, to close Blockbuster stores and make other moves.

Spinning off Blockbuster, which drags down Viacom’s profits, is the only way to get the stock back to its September 1993 high of $66.50, where it crested in September 1993, Read said. The stock closed Thursday up 50 cents at $33.