Change Is Double-Edged

All the presidential contenders have been pushing the word "change" during their campaigns with the implied message that change is good. As we all know, change can be a double-edged sword.

It looks like this industry is on the "change" bandwagon too. How else can you explain the two major stories in the past couple of weeks? Those two are Funai signing up to take over Philips' TV business and Blockbuster attempting to take over Circuit City.

Philips' decision to license its North American TV brand rights to Funai makes plenty of sense. Funai gets two well-known brands and can become more important to retailers and a more powerful force with panel suppliers. Funai, with the Philips and Magnavox brands, plus its existing Sylvania, Funai, Symphonic and Emerson brands, could come up with a "good, better, best" TV strategy. It could enable them to serve different retail distribution types with each brand.

Funai gets the support of Philips' R&D operation, which has always been the strength of the Dutch company. Retail distribution and marketing strategies for its TV lines over the past couple of decades, at least in the United States, have perplexed dealers. So with the deal, Funai does the heavy lifting (manufacturing, marketing and sales) while Philips gets to sit back, collect royalties from its TV brands and still develop technology. This looks like a good move all around.

Blockbuster's bid to take over Circuit City is a bit more complicated. The merger is described as a way for Blockbuster to combat the coming HD download revolution through the sale of proprietary black boxes that would provide content from its Movielink download service.

But couldn't Blockbuster market that black box without Circuit City? It does have CE sales experience.

We all know that Circuit City is in battered shape, but Blockbuster has been beaten up by Netflix. And while it reported $38.1 million in net income for its fiscal fourth quarter, ended Jan. 6, Blockbuster still posted a net loss of $85.1 million for the year.

Circuit City and analysts question whether Blockbuster has the resources to pull the deal off, even with the backing of superstar financier Carl Icahn, who happens to be a Blockbuster investor. Proposed mergers make strange bedfellows. Blockbuster and Icahn have an ally in Circuit City shareholder and agitator Mark Wattles, who currently runs Ultimate Electronics and is a former competitor of Blockbuster when he ran the now-departed Hollywood Entertainment chain. Icahn was an investor in Hollywood and Blockbuster at the time.

There has been talk in the financial media that Icahn and Wattles are friendly, with some theorizing that their interest in Circuit City is no accident. I'll leave that one to financial analysts and business pundits to sort out.

The bottom line for Circuit City is that it needs to make a change and turn itself around. But will Circuit City be better off if this merger happens? I'll stick with the opinion from my blog at www.TWICE.com — this change doesn't add up.