1085734--3/1/2007--BLOCKBUSTER

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Changes in studio pricing policies have resulted in increased competition, in particular from mass merchant retailers, which has impacted consumer rental and purchasing behavior. We cannot control or predict future studio decisions or resulting consumer behavior, and future changes could negatively impact our profitability. Our business would lose a competitive advantage if the movie studios were to shorten or eliminate the home video retailer distribution window or otherwise adversely change their current practices with respect to the timing of the release of movies to the various distribution channels. We cannot predict the impact that the following may have on our business: (i) new or improved technologies or video formats, (ii) alternative methods of content delivery or (iii) changes in consumer behavior facilitated by these technologies or formats and alternative methods of content delivery. We also compete generally for the consumer s entertainment dollar and leisure time. The widespread availability of additional channels on satellite and digital cable systems may significantly reduce public demand for our products The availability of content through personal video recorders, video-on-demand and other technologies may significantly reduce the demand for our products or otherwise negatively affect our business. We believe that some degree of industry consolidation will be necessary in the in-store home video rental industry over the coming years. Should we not be successful in capitalizing on this industry consolidation, our financial results may be adversely affected. Overall revenues generated from the in-store home video industry are projected to continue to decline. A faster than anticipated decline in the in-store industry has in the past and may in the future adversely affect our business and our ability to implement our strategic initiatives. Our revenues could be adversely affected due to the variability in consumer appeal of the movie titles and game software released for rental and sale. We are dependent on the introduction and supply of new and enhanced game platforms and software to attract and retain our video game customers. Our financial results are impacted by seasonality, including the adverse impact caused by improved weather conditions. Piracy of the products we offer or the disregard of release dates by other retailers may adversely affect our operations. We have made significant investments in our business, including in our online rental service. These investments have adversely affected and may continue to adversely affect our profitability. We have had limited experience with certain new customer proposition initiatives and cannot assure you when or if these or future initiatives will have a positive impact on our profitability. If the average sales and rental prices for our product are not at or above expected prices, our expected gross margins may be adversely affected. Our business plan contemplates continued cost management efforts. Should we not achieve our cost management objectives, our financial results could be adversely affected. Our level of indebtedness may make it more difficult for us to pay our debts and more necessary for us to divert our cash flow from operations to debt service payments. We may not have sufficient cash flows from operating activities, cash on hand and available borrowings under our credit facilities to service our indebtedness. Any failure by us to comply with any of the restrictions in our debt agreements could result in acceleration of our debt. Were this to occur, we might not have, or be able to obtain, sufficient cash to pay our accelerated indebtedness. Uncertainty surrounding our ability to meet our financial obligations has in the past adversely impacted and could in the future adversely impact our ability to obtain sufficient product on favorable terms. Our financial results could be adversely affected if we are unable to manage our inventory effectively or if we are unable to obtain or maintain favorable terms from our suppliers. Our results of operations could be materially adversely affected if our franchisees failed to pay our franchise fees. Any failure or inadequacy of our information technology infrastructure could harm our business. Our business model is substantially dependent on the functionality of our distribution centers. Our financial results have been and could further be negatively impacted by impairments of goodwill or other intangible assets required by SFAS 142 and the application of future accounting policies or interpretations of existing accounting policies. We are subject to various litigation matters that could, if judgments were to be rendered against us, have an adverse effect on our operating results. Our business and operations have been, and could further be, negatively impacted as a result of the proxy fight during 2005 and election of three dissident nominees to our Board of Directors. Further, if a subsequent proxy fight is waged against us and is successful or if dissidents otherwise gain control of our Board, we could be in default under our credit agreement and may be unable to finance a change of control offer under the indenture governing our senior subordinated notes or repay our bank debt should it become accelerated. We have experienced senior management departures and if we lose key senior management or are unable to attract and retain the talent required for our business, our operating results could suffer. We are subject to governmental regulation particular to the retail home video industry and changes in U.S. or international laws may adversely affect us. Any acquisitions we make involve a degree of risk. We have assumed obligations pursuant to agreements with Viacom relating to certain real estate leases guaranteed by Viacom, which obligations may adversely affect our ability to negotiate renewals or modifications to a subset of such leases. We have also assumed obligations pursuant to the IPO agreement to maintain letters of credit in favor of Viacom, which obligations reduce our borrowing capacity. We, along with Viacom and certain of Viacom s related entities, are a party to two judgment sharing agreements arising out of two revenue-sharing antitrust cases. Should we, Viacom or Viacom s related entities incur liability with respect to such cases, we would be responsible for satisfying a portion of that liability. Provisions in our charter documents and Delaware law could make it more difficult to acquire our Company.

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1085734--3/1/2007--BLOCKBUSTER_INC