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Investors bet against Blockbuster

Grab some munchies, press a few buttons to order a movie and _ bingo _ it's show time. That's what some people think watching movies at home will be like by the end of the decade: No stressful drive to the video store. No disappointment because the store's hit movies have all been rented. In fact, no video store.

That futuristic vision has been sending shudders through the stockholder ranks at Blockbuster Entertainment Corp. As the nation's premier video retailer, Fort Lauderdale-based Blockbuster has a lot to lose if pay-per-view systems give movie fans a way to bypass the video store.

The company's prospects are of special interest in the Tampa Bay area because its chairman, H. Wayne Huizenga, is heading the rival effort to win a major league baseball team for South Florida.

In the last few months, a lot of grim talk about the future and a slowdown in earnings growth have sent Blockbuster's stock plummeting from a high earlier this year of $15.25 a share to as low as $7.75. Tuesday's close was $9.50 a share.

However, publication of Blockbuster's obituary

may well be premature. Although the technology exists to eliminate the video store, pay per view is more than just a technological issue. It still faces some big political and economic hurdles and questions about consumer acceptance.

"I'm not saying it can't happen someday, but it's just far too early to tell," said Gary Wirt, an analyst for First Chicago Corp. and a Blockbuster defender.

So far, pay per view has had limited success. Most homes don't have access to it, and its main use has been to promote expensive, big-time sporting events such as the Evander Holyfield-George Foreman boxing match.

Two telephone companies are experimenting with video uses for the fiber optic technology that could make pay per view widely available.

In a test in the Orlando area, Southern Bell Telephone Co. is bringing customers their cable television and telephone service over the same fiber optic line. When a viewer changes channels, the signal is transmitted to a central station, which then beams the new channel into the viewer's home. A GTE Corp. test in Cerritos, Calif., gives viewers a variety of movie choices, adding the prices for those selected to the customer's monthly bill.

So far both tests offer video on demand to a limited number of trial customers.

Many cable companies, including Vision Cable of Pinellas, and many hotels offer a limited form of pay per view. Customers can order movies that begin at set times every few hours. The new form of pay per view, known as video on demand, would allow viewers to start any movie at any time.

One of the main obstacles to expansion of pay per view is the fact that wiring the nation for fiber optics will be very expensive _ one estimate is $250-billion. Furthermore, there are turf issues to be settled. Under current federal law, cable companies _ not telephone companies _ have the right to deliver video signals into people's homes.

"It's all possible, but at this point it's still rather expensive, and there are a number of questions that have to be answered," said Jeannette Noyes, an analyst for the Yankee Group, a Boston-based consulting firm.

The anti-Blockbuster contingent has been very vocal with its predictions of the company's inevitable demise.

California money manager Pam Weingarten went so far as to label the company a "casket case" last month. Another money manager _ James S. Chanos _ expounded on Blockbuster's dim prospects in this week's issue of Barron's financial publication.

"This won't be a business in somewhere between five and 10 years," he predicted.

Chanos isn't just talking about Blockbuster's downfall. He's betting on it by shorting Blockbuster stock _ and so are a lot of other people.

Short sellers sell borrowed stock, betting that the price will decline and they will be able to replace what they borrowed with cheaper shares. By mid-May, investors had shorted and not yet replaced 10.9-million shares of Blockbuster _ the third highest short position of any company on the New York Stock Exchange.

Their position got a boost when Cox Cable Communications recently announced that it wants to sell its 82 franchised stores, Blockbuster's third-largest franchise operator.

However, Blockbuster has been fighting back. Tuesday, the company let it be known that it has the ability to buy back $100-million worth of its own shares. Although it did not say it intends to buy the shares, Blockbuster stock rose 75 cents. A continued price rise could send the short sellers scrambling to buy replacement shares.

"There's been a lot of emotionalism and a lot of misinformation given out," said Blockbuster spokesman Wally Knief. He said his company is not the only one interested in the preservation of the video retailing _ Hollywood moviemakers and Japanese VCR manufacturers also have a lot at stake.

"During 1990, pay per view contributed $47-million to Hollywood's revenue stream, and home video contributed $2-billion," he said. "Regardless of what transmission technique you have, you have to have movie product, and Hollywood controls that."

Analyst Wirt said he is still recommending Blockbuster stock to people who don't mind taking risks.

"This stock will always have extreme volatility, and you have to be able to withstand that," he said.