The Many Errors of Blockbuster

So continuing our discussion of Blockbuster and its many follies - the aged movie rental chain has recently put in a bid to buy electronics retailer Circuit City. I'll spare you the financial details, but suffice it to say, financial gurus everywhere are scratching their collective heads. This takeover bid is eerily similar to the purchase of Sears by Kmart almost four years ago. Both instances star two aging retailers with slumping sales who are getting beat by newer and quicker competition. As some analysts have already pointed out, why would Blockbuster want to expand it's brick and mortar base when the trend is clearly towards the digital realm?

While I understand the idea that content and hardware are merging into one-size-fits-all devices, you still have to remember - the content is being distributed through the internet. Wouldn't it make more sense for a video rental service to put as much money into the high margin (storage is cheap!) digital content distribution business then the low margin brick and mortar retail business? I just don't understand. Maybe I need to be on the board of a major corporation first - who knows.