Reports have been circulating since late yesterday that Blockbuster Inc. (Pink Sheets: BLOAQ) has put itself up for sale rather than trying to emerge as a new operating company that can healthily exit bankruptcy.  Figures vary wildly, but the WSJ has targeted “more than $300 million plus the assumption of certain liabilities…”  Here is some food for thought: Netflix, Inc. (NASDAQ: NFLX) or Amazon.com Inc. (NASDAQ: AMZN) should consider buying Blockbuster.  Major risks, potential great rewards…

It is true that Netflix, Inc. (NASDAQ: NFLX) eventually wants to move mostly to a streaming and digital download business model rather than a snail mail and digital model.  The problem is that many users still refuse to join that aspect of the digital age and want to just play the actual discs.  Will that hold true in 10 years?  Not nearly as much as today, but many will still likely be playing discs in ten years.

Buying Blockbuster would generate immediate disc return locations for Netflix that users could drop movies off for nearly nothing and ultimately it could allow for Netflix to consolidate its shipping costs.  Of course it also means that Netflix would be increasing its cost structure and bringing down its margins due to the brick and mortar costs rather than virtual costs.

And what about Amazon.com Inc. (NASDAQ: AMZN)?  Amazon.com has fought the physical location and storefront model from its start.  Most likely that will remain the case.  It is very possible that this would compress its already shrinking margins too much and it might only contribute to its ongoing margin compression that has been seen of late.  This could give central location pickups and would allow it to change is shipping cost model that has has had mixed results its finances for those who buy too much online where shipping costs eat into profits.  Amazon.com has an $83 billion market cap, and if it did not want to acquire Blockbuster in cash to and assume the liabilities it could always do an offering.

If not Netflix or Amazon, perhaps Coinstar Inc. (NASDAQ: CSTR) should consider this an opportunity to secure it Redbox business (even if that means a Bluebox down the road).  Coinstar has a $1.36 billion market cap today.  Unfortunately, this might be the least ‘synergistic’ of the three.

Here is the REAL food for thought outside of an all or none acquisition… Forget about the call for these firms to buy Blockbuster outright.  What if any of these firms went into a joint-venture where they put up the capital for a super-minority or even a majority stake in the venture, but had a turnaround retail acquirer familiar with post-bankruptcy operations in the mix?  There are many private equity firms that would jump at the opportunity to partner with any of these larger firms as a means to reduce the risks.  The model could even be scaled down to where the firms only plan to operate in major metro areas down the road.  Literally there could be 100 different ways to skin the cat here.

This is currently just some food for thought on an outright buyout, but the joint venture scenario could lead to a very interesting situation.  Any of these deal possibilities would have some serious risks and some serious caveats.  If structured properly, it could bring free money and ultimately could bring cost savings under the right terms.

Stay tuned…

JON C. OGG

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