News rotten for B'buster as DVD takes hit

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Apple CEO Steve Jobs said in his Macworld keynote Tuesday that his company's iTunes will rent movie downloads, and Wall Street reacted as if DVDs are headed for the trash heap.

Shares of Blockbuster, the world's leader in DVD rentals, sunk 16.7% on Tuesday to $2.69 after setting an all-time low of $2.66, making it the biggest decliner on The Hollywood Reporter Showbiz 50 stock index. Netflix, the leader in the DVD-by-mail subscription business, saw its shares sink 3.2% to $22.05.

While Blockbuster and Netflix were particularly hard hit, there was carnage on Wall Street in general after a big Citigroup write-down because of the subprime mortgage crisis. Even Apple shares dropped 5.4% to $169.04, while the S&P 500 fell 2.5%.

But even after Apple's drop, it still sported a market capitalization of $148 billion, making it the second-most-valuable company on the Showbiz 50 by far — more than doubling the value of the next-closest entertainment giant. Apple was the biggest Showbiz 50 gainer last year and quickly has grown its financials, explaining in part its current clout when striking entertainment deals.

Only Google was more valuable after Wall Street's bloodbath Tuesday, boasting a $199.5 billion market cap. News Corp. remained the biggest media conglomerate.

A Blockbuster spokeswoman responded to the company's loss in market value, saying Tuesday that the rental giant feels "the Apple news is a positive" and validates the strategy of its relatively new CEO James Keyes.

"This should accelerate consumer acceptance of digital usage" of film and TV content whether for sale or rental, the spokeswoman said. "Blockbuster feels well positioned to take advantage of increased awareness and demand via its Movielink service," which offers more than 4,000 TV and film titles in deals with all major studios and about 35 indies, she added.

At the same price points, Blockbuster and Apple's offerings might compete mainly on selection and brand. "We've got a great brand," the Blockbuster spokeswoman said when asked whether Apple will be able to transfer its dominance in digital music into the video space.

Shares of the other big DVD rental firm, Movie Gallery, which trades for just 3 cents a share, were unchanged. The financially unstable firm recently reported that top officials have been unloading their shares for as little as a penny apiece.

Apple's news pits it against TiVo, whose shares were off 1% on Tuesday, and Amazon, which lost 3%.
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