BLOCKBUSTER INC, S-1, 1999-05-06

BLOCKBUSTER INC
S-1, 1999-05-06

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1999

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------

BLOCKBUSTER INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 7841 52-1655102
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

--------------------------

1201 ELM STREET
DALLAS, TEXAS 75270
(214) 854-3000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------

EDWARD B. STEAD
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
BLOCKBUSTER INC.
1201 ELM STREET
DALLAS, TEXAS 75270
(214) 854-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------

Copies to:

<TABLE>
<S> <C> <C>
STEPHEN T. GIOVE MICHAEL D. FRICKLAS KENNETH A. LEFKOWITZ
SHEARMAN & STERLING VIACOM INC. HUGHES HUBBARD & REED LLP
599 LEXINGTON AVENUE 1515 BROADWAY ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10004-1482
(212) 848-4000 (212) 258-6000 (212) 837-6000
</TABLE>

--------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective. If any of the
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
--------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C>
Class A Common Stock, $.01 par value $100,000,000 $27,800
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be used
in connection with a U.S. and Canadian offering of the registrant's class A
common stock and one to be used in connection with a concurrent international
offering of the class A common stock. The international prospectus will be
identical to the U.S. prospectus except that it will have different front and
back cover pages. The form of U.S. prospectus is included herein and is followed
by the alternate pages to be used in the international prospectus which differ
from those used in the U.S. prospectus. Each of the alternate pages for the
international prospectus included herein has been labeled "Alternate Page for
International Prospectus." Final forms of each prospectus will be filed with the
Securities and Exchange Commission under Rule 424(b) of the General Rules and
Regulations under the Securities Act of 1933.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED , 1999
P R O S P E C T U S
SHARES
[BLOCKBUSTER LOGO]
BLOCKBUSTER INC.

CLASS A COMMON STOCK
$ PER SHARE
---------

We are selling shares of our class A common stock. Of the shares
of class A common stock that we are selling, shares are being offered in
the United States and Canada by a syndicate of U.S. underwriters and
shares are being offered concurrently outside the United States and Canada by a
syndicate of international underwriters.

In addition, the U.S. underwriters may purchase up to additional
shares of our class A common stock under certain circumstances. The
international underwriters may also purchase up to additional shares of
our class A common stock under certain circumstances.

This is an initial public offering of our class A common stock. We currently
expect the initial public offering price to be between $ and $ per share, and
have applied to have the class A common stock listed on the New York Stock
Exchange under the symbol "BBI."

Following this offering, we will have two classes of authorized common
stock, the class A common stock and class B common stock. The rights of the
holders of class A common stock and class B common stock are identical, except
with respect to voting and conversion.
--------------

INVESTING IN THE CLASS A COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS"
BEGINNING ON PAGE 10.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about ,
1999.
--------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Initial Public Offering Price.................................................................. $ $
Underwriting Discounts and Commissions......................................................... $ $
Proceeds to Blockbuster Inc. (before expenses)................................................. $ $
</TABLE>

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JOINT BOOK-RUNNING MANAGERS
SALOMON SMITH BARNEY BEAR, STEARNS & CO. INC.
---------

CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
ING BARING FURMAN SELZ LLC
NATIONSBANC MONTGOMERY SECURITIES LLC
PAINEWEBBER INCORPORATED
SCHRODER & CO. INC.
SG COWEN
WIT CAPITAL CORPORATION

, 1999
<PAGE>
[ARTWORK]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF CLASS A COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES
ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS
OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF CLASS A COMMON STOCK.
--------------

TABLE OF CONTENTS

<TABLE>
<S> <C>
Page
---
Prospectus Summary................................................................... 4
Risk Factors......................................................................... 10
Separation from Viacom............................................................... 20
Use of Proceeds...................................................................... 22
Dividend Policy...................................................................... 23
Capitalization....................................................................... 24
Dilution............................................................................. 25
Selected Combined Historical and Pro Forma Financial and Operating Data.............. 26
Unaudited Pro Forma Combined Financial Data.......................................... 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 32
Video Industry Overview.............................................................. 43
Business............................................................................. 47
Management........................................................................... 67
Agreements Between Viacom and Us..................................................... 79
Principal Stockholder................................................................ 85
Description of Capital Stock......................................................... 86
Description of Credit Agreement...................................................... 93
Shares Eligible for Future Sale...................................................... 94
Material United States Federal Tax Consequences to Non-United States Holders......... 95
Underwriting......................................................................... 98
Legal Matters........................................................................ 102
Experts.............................................................................. 102
Where You Can Find More Information.................................................. 102
Index to Audited Combined Financial Statements....................................... F-1
</TABLE>

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At our request, certain of the underwriters have reserved up to % of the
shares of class A common stock for sale at the initial public offering price to
persons who are directors, officers or employees of us, or who are otherwise
associated with us and our affiliates, and who have advised us of their desire
to purchase these shares through a directed share program. The number of shares
of class A common stock available for sale to the general public will be reduced
to the extent of sales of shares under the directed share program to any of the
persons for whom they have been reserved. Any shares not so purchased will be
offered by the underwriters on the same basis as all other shares of class A
common stock offered in this offering.

Until , 1999 (25 days after the commencement of this offering), all
dealers that buy, sell or trade our class A common stock, whether or not they
are participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

This preliminary prospectus is subject to completion prior to this offering.
Among other things, this preliminary prospectus describes us as we currently
expect to exist at the time of this offering.

For investors outside the United States: neither we nor any underwriter has
taken or will take any action in any jurisdiction that would permit a public
offering of the class A common stock or possession or distribution of this
prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. Both we and the underwriters require that persons who
come into possession of this prospectus must inform themselves about and observe
any restrictions as to the offering of the class A common stock and the
distribution of this prospectus.

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<PAGE>
------------------------

BLOCKBUSTER-Registered Trademark-, BLOCKBUSTER VIDEO-Registered Trademark-,
BLOCKBUSTER FAVORITES-TM-, BLOCKBUSTER GIFTCARD-Registered Trademark-,
BLOCKBUSTER GIFTCARDS-TM-, BLOCKBUSTER REWARDS-TM-, BLOCKBUSTER ENTERTAINMENT
AWARDS-Registered Trademark-, KIDPRINT-Registered Trademark-, BLOCKBUSTER
MUSIC-Registered Trademark- and XTRA-VISION are our trademarks.

DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION

This prospectus contains forward-looking statements relating to our
operations that are based on our current expectations, estimates and projections
about us and the home video industry. Words such as "expects," "intends,"
"plans," "projects," "believes," "estimates" and similar expressions are used to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions that
are difficult to predict. Further, certain forward-looking statements are based
upon assumptions as to future events that may not prove to be accurate.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements. We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.

A number of important factors could cause actual results to differ
materially from those indicated by such forward-looking statements. Such factors
include, among others, those set forth in this prospectus under the heading
"Risk Factors."

ORGANIZATION OF BLOCKBUSTER

Our business and operations were previously conducted by Blockbuster
Entertainment Corporation which was incorporated in Delaware in 1982 and entered
the movie rental business in 1985. On September 29, 1994, Blockbuster
Entertainment Corporation was merged with and into Viacom Inc. Since the merger,
our business and operations have been conducted by various subsidiaries of
Viacom. Recently, our business and operations were either (1) merged into
Blockbuster Inc. or (2) purchased by Blockbuster Inc. or one of its
subsidiaries. Blockbuster Inc., an indirect subsidiary of Viacom, was
incorporated on October 16, 1989 in Delaware. We refer you to "Prospectus
Summary -- Separation from Viacom" and "Separation from Viacom."

Unless otherwise indicated or unless the context otherwise requires, all
information in this prospectus gives effect to: (1) the reorganization described
in "Prospectus Summary -- Separation from Viacom" and "Separation from Viacom --
Pre-Offering Transactions" and (2) the amendment to our certificate of
incorporation to, among other things, change the amount and type of common stock
that we can authorize.

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<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR CLASS A COMMON STOCK. YOU SHOULD READ THIS
ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND THE
COMBINED FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS.

OUR COMPANY

We are the world's leading retailer of rentable home videocassettes, DVDs
and video games, with about 6,500 stores in the United States and 26 other
countries as of March 31, 1999. We operate primarily under the highly recognized
BLOCKBUSTER brand name, which, according to The Gallup Organization, achieves
nearly 100% recognition with active movie renters in the United States. Based on
1998 industry estimates from Paul Kagan Associates, Inc., a leading video
industry expert, we estimate that our company-operated and franchised stores
attained a U.S. market share in excess of 27%, over three times greater than
that of our nearest competitor. In the United States, our customer transaction
database contains information on about 87 million accounts, and we estimate that
about 65% of the population lives within three miles of one of our stores. Our
revenues in 1998 increased 17.5% from 1997, with about 79% of these revenues
generated in the United States and about 21% generated outside of the United
States. Nearly 60 million people worldwide have rented in excess of 970 million
movies and video games from us or our franchisees within the last 12 months. For
the year ended December 31, 1998, we and our franchisees recorded worldwide
revenues of about $4.7 billion, $3.9 billion from our company operations and
$0.8 billion from our franchised stores.

Under the management team led by John F. Antioco, our chairman, president
and chief executive officer, we developed and implemented a new business model
that focuses on our core rental business and significantly improves customer
satisfaction. Most significantly, we entered into domestic revenue-sharing
agreements with all of the major Hollywood movie studios. Under these
agreements, we agree to share our U.S. rental revenue with the studios for a
limited period of time. We believe that these agreements have significant
benefits to us, including:

- substantially increasing the number of newly released videos in our stores
to better satisfy customer demand;

- contributing to an increase in revenues resulting from an increase in the
total number of transactions and the number of videocassettes rented per
transaction; and

- aligning the studios' economic interests more closely with ours because
they share a portion of the rental revenue with us for a period of time.

Under our new business model, quarterly domestic same store rental revenues
increased 8.6%, 17.5%, 20.0%, 20.5% and 23.1% in the first through fourth
quarters of 1998 compared to 1997 and the first quarter of 1999 compared to the
first quarter of 1998, respectively.

INDUSTRY OVERVIEW

According to Paul Kagan Associates, the U.S. videocassette and DVD rental
and sales industry grew from $15.7 billion in revenue in 1997 to $17.1 billion
in 1998 and is expected to reach $22.0 billion in 2002. Paul Kagan Associates
estimates that in 1998, 83.5 million, or 81.5%, of the 102.5 million total U.S.
households owned a VCR. According to Paul Kagan Associates, 19.7 million VCRs
and DVD players were sold in the United States in 1998, and this expert expects
sales to reach 21.5 million units by 2002.

The home video industry is highly fragmented, with single store owners
currently operating about 49% of all locations that rent video titles. We
believe that there are several competitive advantages of being a

4
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large home video chain and therefore believe individual stores and small chains
in the home video industry will continue to consolidate with national and
regional chains.

STRATEGY

BUSINESS MODEL

We believe our business model gives us an advantage over other large home
video chains and a significant advantage over our single store competitors. The
key elements of our business model are to:

- provide a large number of copies and a broad selection of movie titles;

- operate conveniently located and highly visible stores;

- offer superior and consistent customer service;

- optimize our pricing to local market conditions;

- nationally advertise and market our BLOCKBUSTER brand name and the
differences between us and our competitors;

- use our extensive customer transaction database to effectively operate and
market our business; and

- improve our efficiency and lower our costs through self distribution.

GROWTH STRATEGY

The goal of our growth strategy is to increase our U.S. systemwide market
share from 27%, as of December 31, 1998, to over 40% within the next three years
and to significantly increase our market share in those countries outside the
United States where it is profitable to do so. The key elements of our growth
strategy are to:

- increase our same store revenues;

- expand our domestic store base;

- expand our international store base;

- expand our worldwide franchise program;

- apply the benefits of our greater size by spreading fixed costs across our
expanding operations;

- pursue strategic acquisitions; and

- pursue new technologies and products related to rentable home
entertainment which capitalize on our brand name.

SEPARATION FROM VIACOM

We are currently an indirect wholly owned subsidiary of Viacom. Immediately
after the completion of this offering, Viacom will own none of the outstanding
shares of our class A common stock and 100% of the outstanding shares of our
class B common stock. Accordingly, Viacom will own common stock representing
about % of our equity value, or about % if the underwriters exercise
their over-allotment options in full, and about % of the combined voting
power of our outstanding common stock, or about % if the underwriters
exercise their over-allotment options in full. Viacom has rights protecting its
ability to control at least 80% of our equity value and the combined voting
power of our two outstanding classes of common stock. We refer you to
"Agreements Between Viacom and Us -- Initial Public Offering and Split-off
Agreement" for additional information with respect to these rights. Viacom has
announced that, if it receives a favorable tax ruling from the Internal Revenue
Service, it currently intends to distribute all of its holdings in our common
stock to certain of its stockholders in a transaction

5
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intended to qualify for tax-free treatment under Section 355 of the Internal
Revenue Code. Viacom has the sole discretion to determine if and when such
split-off will occur and all terms of such split-off. If Viacom determines to
make the distribution, it will occur some time after the later of (1) September
29, 1999, the five-year anniversary of the merger of Viacom and Blockbuster
Entertainment Corporation and (2) unless the underwriters consent to an earlier
date, 180 days after the completion of this offering. For additional information
on the risks associated with Viacom not completing the split-off, we refer you
to "Risk Factors -- Risk Factors Relating to Our Separation from Viacom."

THIS OFFERING

This offering is for shares of our class A common stock in the United
States and Canada and the concurrent offering of shares of our class A
common stock outside of the United States and Canada. In this prospectus, a
reference to each offering is a reference to both offerings. The closing of each
offering is conditioned upon the closing of the other.

<TABLE>
<S> <C>
Class A common stock offered by us:

Offering in the United States and Canada... shares

Offering outside of the United States and
Canada................................... shares

Total offering........................... shares

Common stock outstanding after this offering:

Class A common stock....................... shares(1)

Class B common stock....................... shares(2)

Total common stock....................... shares(1)

Voting rights; Conversion.................... The holders of class A common stock and class
B common stock have identical rights, except
with respect to voting and conversion.
Holders of class A common stock are entitled
to one vote per share and holders of class B
common stock are entitled to five votes per
share. Holders of the class A common stock
and class B common stock generally vote
together as a single class. We refer you to
"Description of Capital Stock -- Common Stock
-- Voting rights." Under certain
circumstances, the class B common stock
converts automatically or at the option of
Viacom into class A common stock. We refer
you to "Description of Capital Stock --
Common Stock -- Conversion."

Use of proceeds.............................. We intend to use all of the net proceeds from
this offering to repay certain borrowings
under our credit agreement which we describe
in "Description of Credit Agreement." For a
full discussion of the use of proceeds, we
refer you to "Use of Proceeds."
</TABLE>

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<TABLE>
<S> <C>
Dividend policy.............................. Subject to our financial performance and
action by our board of directors, we
currently intend to pay dividends on a
quarterly basis, at an initial rate of $
per share, commencing with the first
declaration in for payment in . We
refer you to "Dividends."

Risk factors................................. You should consider the risks involved in an
investment in our class A common stock. We
refer you to "Risk Factors."

Proposed NYSE symbol......................... BBI.
</TABLE>

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(1) This assumes that the underwriters do not exercise their over-allotment
options. We refer you to "Underwriting."

(2) Viacom beneficially owns all of the class B common stock.

OUR COMPANY INFORMATION

Our principal executive offices are located at 1201 Elm Street, Dallas,
Texas 75270 and our telephone number is (214) 854-3000.

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SUMMARY COMBINED FINANCIAL DATA

The summary combined historical and pro forma financial data presented below
should be read in conjunction with the combined financial statements and notes
thereto, the "Unaudited Pro Forma Combined Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
PRO FORMA
ADJUSTED FOR
THIS
OFFERING
1996 1997 1998 1998(1)
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE AND WORLDWIDE
STORE DATA)
STATEMENT OF OPERATIONS DATA(2):
Revenues....................................................... $ 2,942.1 $ 3,313.6 $ 3,893.4
Gross profit................................................... 1,928.4 1,953.1 1,937.0
Operating income (loss)........................................ 267.6 (214.6) (359.2)
Income (loss) before income taxes.............................. 249.2 (269.3) (394.7)
Net income (loss).............................................. 77.8 (318.2) (336.6)
Pro forma net income per share--basic and diluted(3)...........
Pro forma weighted average shares outstanding--basic and
diluted(3)...................................................

BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 58.6 $ 129.6 $ 99.0
Rental library, net............................................ 676.0 734.5 441.2
Intangibles, net............................................... 6,309.6 6,192.7 6,055.6
Total assets................................................... 8,794.6 8,731.0 8,274.8
Long-term debt, less current portion(4)........................ 249.0 331.3 1,715.2
Stockholders' equity(4)........................................ 7,784.4 7,617.6 5,637.9

OTHER DATA:
EBITDA(5)(9)................................................... $ 599.3 $ 207.9 $ 23.7
EBITDA as adjusted(6)(9)....................................... 649.5 383.1 448.0
Net income (loss) plus intangible amortization, net of
tax(7)(9).................................................... 239.6 (155.0) (172.5)
Net income (loss) plus intangible amortization, net of tax, as
adjusted(8)(9)............................................... 269.7 19.7 100.6
Cash flows from operating activities........................... 985.0 991.3 1,234.5
Cash flows from (used for) investing activities................ (1,235.1) (1,188.1) (1,022.2)
Cash flows from (used for) financing activities................ 208.8 269.3 (241.1)
Amortization of intangibles.................................... 166.2 168.7 170.2
Depreciation................................................... 165.5 253.8 212.7
Capital expenditures(10)....................................... 323.7 262.2 175.0

WORLDWIDE STORE DATA:
Company-operated stores at end of period....................... 4,472 5,105 5,283
Franchised and joint venture stores at end of period........... 845 944 1,098
Total stores at end of period.................................. 5,317 6,049 6,381
Same store revenues increase (decrease)(11).................... 5.1% (1.8)% 13.3%
</TABLE>

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(1) For information regarding the pro forma adjustments made to our historical
financial data, we refer you to "Unaudited Pro Forma Combined Financial
Data."

(2) The statement of operations data for the years presented do not fully
reflect the trends in our business as we had significantly different
business models during this period resulting in significant charges. As a
result, our statement of operations data for the years presented are not
comparable.

(3) Our historical capital structure is not indicative of our prospective
capital structure because no direct ownership relationship existed among all
the various units comprising our company. Accordingly, historical earnings
per share has not been presented in the combined financial statements. Pro
forma weighted average shares outstanding reflect all shares of class B
common stock issued and outstanding which are owned by Viacom and the class
A common stock to be issued in this offering as if these shares had been
outstanding since January 1, 1998.

(4) This reflects the December 31, 1998 declaration of a $1.4 billion dividend
payable to Viacom in the form of an interest-bearing promissory note.

(5) EBITDA represents net income (loss) before equity in loss of affiliated
companies (net of tax), benefit (provision) for income taxes, interest
expense and other items (net), depreciation and amortization of intangibles.

(6) EBITDA as adjusted excludes: (1) the $50.2 million restructuring charge
recorded in 1996 primarily related to our corporate relocation and
elimination of third-party distributors; (2) the $175.2 million effect on
EBITDA of the $250 million charge recorded in 1997 primarily related to
inventory write downs, closure of underperforming stores and expenses
associated with our corporate relocation; and (3) the $424.3 million charge
recorded in 1998 related to a change in accounting for videocassette and
game rental amortization. We refer you to notes 3 and 4 of our combined
financial statements included elsewhere in this prospectus.

(7) This represents net income (loss) plus intangible amortization, net of tax,
which is primarily related to goodwill.

(8) Net income (loss) plus intangible amortization, net of tax, as adjusted: (1)
excludes the $50.2 million restructuring charge recorded in 1996 primarily
related to our corporate relocation and elimination of third-party
distributors; (2) excludes the $250 million charge recorded in 1997
primarily related to inventory write downs, closure of underperforming
stores and expenses associated with our corporate relocation; (3) excludes
the $424.3 million charge recorded in 1998 related to a change in accounting
for videocassette and game rental amortization; and (4) offset by the
related tax benefits associated with these charges. We refer you to notes 3
and 4 of our combined financial statements included elsewhere in this
prospectus.

(9) "EBITDA," "EBITDA as adjusted," "net income (loss) plus intangible
amortization, net of tax" and "net income (loss) plus intangible
amortization, net of tax, as adjusted" are presented here to provide
additional information about our operations. These items should be
considered in addition to, but not as a substitute for or superior to
operating income, net income, cash flow and other measures of financial
performance prepared in accordance with generally accepted accounting
principles.

(10) This excludes cash used for acquisitions.

(11) A store is included in the same store revenue calculation after it has been
opened and operated by us for more than 52 weeks. An acquired store becomes
part of the same store base in the 53rd week after its acquisition and
conversion. The percentage change is computed by comparing total net
revenues for same stores as defined above at the end of the applicable
reporting period with total net revenues from these same stores for the
comparable period in the prior year.

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RISK FACTORS

You should carefully consider the risks described below and the other
information contained in this prospectus before making a decision to invest in
our class A common stock. We have separated the risks into three groups:

- risks that relate to our business and industry;

- risks that relate to our expected separation from Viacom; and

- risks that relate to the securities market and ownership in our stock.

In addition, the risks described below are not the only ones facing us. We
have only described the risks we consider to be the most material. However,
there may be additional risks that are viewed by us as not material or are not
presently known to us.

If any of the events described below were to occur, our business, prospects,
financial condition, results of operations or cash flows could be materially
adversely affected. When we say below that something could or will have a
material adverse effect on us, we mean that it could or will have one or more of
these effects. In any such case, the price of our common stock could decline,
and you could lose all or part of your investment in our company.

This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.

RISK FACTORS RELATING TO OUR BUSINESS AND INDUSTRY

We are subject to the following risks, which include risks that relate to
our industry:

OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED BY NEW TECHNOLOGIES

New digital technologies, such as near-video-on-demand, video-on-demand and
Digital Video Express (commonly referred to as Divx), and others could have a
material adverse effect on us, especially if newly released movies are made
widely available by the studios to these technologies at the same time, or
before, they are made available to the video stores for rental and these
technologies are widely accepted by consumers.

THE WIDESPREAD AVAILABILITY OF ADDITIONAL CHANNELS ON SATELLITE AND DIGITAL
CABLE SYSTEMS MAY SIGNIFICANTLY REDUCE PUBLIC DEMAND FOR OUR PRODUCTS. Recent
advances in direct broadcast satellite and cable technologies may adversely
affect public demand for video store rentals. If this were to occur, it could
have a material adverse effect on us. Direct broadcast satellite providers
transmit numerous channels of programs by satellite transmission into
subscribers' homes. Recently developed technology has presented cable providers
with the opportunity to use digital technology to transmit many additional
channels of programs over cable lines to subscribers' homes. If direct broadcast
satellite and digital cable were to become widely available and accepted, this
could cause a smaller number of movies to be rented due to viewers favoring the
expanded number of conventional channels and expanded programming offered
through these services. In addition, because of this increased availability of
channels, direct broadcast satellite and digital cable providers have been able
to:

- substantially increase the number and variety of movies they can offer
their subscribers on a pay-per-view basis; and

- provide more frequent and convenient start times for the most popular
movies.

This is referred to within our industry and by others as
near-video-on-demand. If near-video-
on-demand were to become more widely available and accepted, pay-per-view
purchases could significantly

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increase. Near-video-on-demand allows the consumer to avoid trips to the video
store for rentals and returns of movies which also eliminates the chance they
will incur an extended viewing fee. However, newly released movies are currently
made available by the studios for rental prior to being made available on a
near-video-on-demand basis, and near-video-on-demand does not allow the consumer
to start, stop and rewind the movie. Increases in the size of this pay-per-view
market could lead to an earlier distribution window for movies on pay-per-view
if the studios perceive this to be a better way to maximize their revenue.

WE MAY EVENTUALLY HAVE TO COMPETE WITH THE WIDESPREAD AVAILABILITY OF
VIDEO-ON-DEMAND, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON US. Some digital
cable providers have begun testing technology designed to transmit movies on
demand with interactive capabilities such as start, stop and rewind. This is
referred to within our industry and by others as video-on-demand.
Video-on-demand is currently available in certain test markets. However,
video-on-demand competes with other uses of cable infrastructure, such as the
ability to provide internet access and basic telephone services, some of which
may provide higher returns for operators. If video-on-demand could be profitably
provided at a reasonable price and newly released movies were made available at
the same time, or before, they were made available to the video stores for
rental, video-on-demand could have a material adverse effect on us.

WE CANNOT PREDICT THE IMPACT ON US IF DIVX BECOMES WIDELY AVAILABLE AND
ACCEPTED. Divx has recently been introduced in the United States as an
alternative to the videocassette and DVD. A Divx is a digital disc that has been
specially encoded to permit viewing for a period of time and is priced similar
to a rental transaction. After the initial viewing period is completed, the
consumer may view the movie again or buy the movie by authorizing additional
charges. Consumers are not obligated to return the Divx. Based upon public
statements from Divx, we believe there were over 100,000 U.S. households that
owned a Divx player in 1998 as compared to Paul Kagan Associates' estimate that
over 80 million U.S. households owned a VCR in 1998 and over one million U.S.
households owned a DVD player in 1998. We cannot predict the impact on us if
Divx were to become widely available and accepted.

OUR INDUSTRY WOULD LOSE A SIGNIFICANT COMPETITIVE ADVANTAGE IF THE MOVIE STUDIOS
ADVERSELY CHANGE THEIR CURRENT DISTRIBUTION PRACTICES

A significant competitive advantage that our industry currently enjoys over
most other movie distribution channels except theatrical release is the early
timing of our distribution "window" which is exclusive against most other forms
of non-theatrical movie distribution, such as pay-per-view, premium television,
basic cable and network and syndicated television. The length of the window for
movie rental varies, typically ranging from 30 to 90 days for domestic video
stores and from 120 to 180 days for international video stores. Thereafter,
movies are made sequentially available to television distribution channels.

We could be materially adversely affected if:

- the video store windows were no longer the first following the theatrical
release;

- the length of the video store windows were shortened; or

- the video store windows were no longer as exclusive as it is now.

Although we believe that the studios have a significant interest in
maintaining a viable home video rental industry, because the order, length and
exclusivity of each window for each distribution channel is determined solely by
the studio releasing the movie, we cannot predict the impact, if any, of any
future decisions by the studios.

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WE OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT

We cannot assure you that competing pressures we face will not have a
material adverse effect on us. We believe our most significant competition comes
from (a) non-videocassette providers of home viewing entertainment and (b) video
stores and other retailers that rent or sell movies.

WE COMPETE WITH NON-VIDEOCASSETTE PROVIDERS OF HOME VIEWING
ENTERTAINMENT. These providers include direct broadcast satellite, cable,
digital terrestrial, network and syndicated television. We believe that our most
significant competitive risk in this area comes from direct broadcast satellite
and digital cable television. As mentioned above, further growth in the direct
broadcast satellite and digital cable subscriber bases could cause a smaller
number of videocassettes and DVDs to be rented with viewers favoring the
expanded number of conventional channels and expanded programming, including
sporting events, offered through these services. Direct broadcast satellite,
digital cable and "traditional" cable providers not only offer numerous channels
of conventional television, but they also offer pay-per-view movies, which
permit a subscriber to pay a fee to see a selected movie. We cannot assure you
that competing pressures we face from the pay-per-view industry will not have a
material adverse effect on us.

WE COMPETE WITH VIDEO STORES AND OTHER RETAILERS THAT RENT OR SELL
MOVIES. These retailers include, among others: (1) other local, regional and
national video stores; (2) mass merchant retailers; (3) supermarkets, pharmacies
and convenience stores; and (4) Internet sites. Although we believe that we
currently compete favorably with these retailers, if any of our competitors were
to grow and/or increase their presence in our markets, the continued success of
our business would become further challenged.

WE COULD BE MATERIALLY ADVERSELY AFFECTED IF A GREATER PROPORTION OF NEWLY
RELEASED MOVIES WERE INITIALLY PRICED AS A SELL-THROUGH PRODUCT IN THE UNITED
STATES AND CONSUMERS WANTED TO OWN THESE MOVIES

In general, studios initially price their movies at prices that are too high
to generate significant consumer demand for purchase. Recently, however, the
studios have released a limited number of movies at prices intended to generate
consumer demand to purchase rather than rent them. This is referred to as
sell-through pricing. Movies priced for sell-through are not subject to our
revenue-sharing agreements. Although we believe that industry economics will
dictate that most new releases on videocassettes and DVDs will continue to be
initially priced for rental, we could be materially adversely affected if (1) a
greater proportion of either release format were initially priced as a
sell-through product in the United States and (2) consumers wanted to own, and
not rent, these movies. This is because sell-through retail margins are
generally lower than rental margins. In addition, other competitors, such as
mass merchandisers, retailers, warehouse clubs and Internet sites, can
distribute and sell these sell-through movies at lower costs and/or may operate
at lower margins than us. Our sell-through business in the United States
represented only 7.0% of our domestic 1998 revenues. However, if enough
consumers desire to rent rather than own these movies the adverse effect of
sell-through would be offset, in part or in full, by the improved margins we
would obtain from renting sell-through movies because these movies have low
initial wholesale prices and are not subject to revenue-sharing.

SIGNIFICANT BENEFITS WOULD BE LOST AND WE WOULD BE MATERIALLY ADVERSELY AFFECTED
IF OUR REVENUE-SHARING AGREEMENTS WERE MATERIALLY ADVERSELY CHANGED OR
DISCONTINUED

Historically, we paid the major studios or their licensees between $60 and
$70 per videocassette for major theatrical releases that were priced for rental
in the United States. In 1998, we entered into revenue-sharing agreements with
the major studios in the United States. These agreements generally have terms
ranging from two to five years. Under these agreements, we pay only a minimal up
front cost per videocassette and agree to share our U.S. rental revenue with the
studios for a limited period of time. In addition, we agree to take a minimum
number of copies of each movie title that is released by a studio in

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any U.S. movie theater. We also agree to take, in some cases, a minimum number
of movies that are not released by a studio in any U.S. movie theater.

If our revenue-sharing agreements are materially adversely affected or
discontinued, this will have a material adverse effect on us.

IF THE AVERAGE SALES PRICE FOR THE PREVIOUSLY VIEWED TAPES OBTAINED UNDER
REVENUE-SHARING IS NOT AT OR ABOVE AN EXPECTED PRICE, OUR EXPECTED GROSS MARGINS
MAY BE ADVERSELY AFFECTED

Under our revenue-sharing agreements, we expect to earn revenues in two
ways: (1) revenues resulting from the rental of the videocassettes and (2)
revenues resulting from the sales of the previously viewed tapes to the public
after the period of time after their useful lives as rental products. To achieve
our expected gross margins, we need to sell these previously viewed tapes at or
above an expected price. If the average sales price of these previously viewed
tapes is not at or above this expected price, our gross margins under our
revenue-sharing agreements may be adversely affected. As a result of
revenue-sharing, we will need to sell significantly more previously viewed tapes
than in the past. Even though revenue-sharing was not fully implemented during
all of 1998, domestically we sold about 17.6 million previously viewed tapes in
1998, as compared to 1997 when we sold about 7.8 million previously viewed
tapes. This represents about a 126% increase in sales. We cannot assure you that
we will be able to sell, on average, these previously viewed tapes at or above
the expected price since we do not have extensive experience in selling
previously viewed tapes in these quantities. Other factors that affect our
ability to sell these previously viewed tapes at expected prices, include: (1)
consumer desire to own the particular movie; and (2) the number of previously
viewed tapes available for sale by others to the public. In addition, after the
expiration of the video store distribution window, the sales of previously
viewed tapes also compete with newly released videos which are priced for
sell-through.

OUR REVENUES MAY SIGNIFICANTLY FLUCTUATE

Our revenues are subject to significant fluctuations, which are generally
caused by the following factors:

- CONSUMER APPEAL OF NEWLY RELEASED MOVIES. We are highly dependent upon
rental revenues from newly released movies. About 81% of our 1998 domestic
rental revenues were from the rentals of newly released movies. Each week
different movies are released for rental. Our rental revenues will
fluctuate depending upon the level of consumer acceptance with respect to
these newly released movies.

- SEASONALITY. Our business generally experiences revenue declines in April
and May, due in part to improved weather and Daylight Savings Time, and in
September and October, due in part to the start of school and the
introduction of new television programs.

- SPECIAL EVENTS. Special sporting events, such as the Olympics and the
World Cup, and other events may negatively affect our revenues.

Fluctuations in revenues may adversely affect our near-term earnings, which
in turn could adversely affect our year-to-year and quarter-to-quarter
comparisons of revenues and earnings.

WE HAVE EXPERIENCED SIGNIFICANT LOSSES IN OUR RECENT FINANCIAL HISTORY

We have experienced significant losses during the most recent two fiscal
years, primarily as a result of unusual charges taken in 1997 and 1998. Our net
losses were $318.2 million in 1997 and $336.6 million in 1998. For a discussion
of our operating results, the substantial net losses incurred during the periods
indicated and the unusual charges, we refer you to "Management's Discussion and
Analysis of Financial Condition and Results of Operations." We cannot assure you
that we will have net income in future periods.

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IF WE DETERMINE THAT WE NEED TO WRITE OFF A SIGNIFICANT PORTION OF OUR
INTANGIBLE ASSETS FROM OUR FINANCIAL STATEMENTS, THIS ACCOUNTING ADJUSTMENT WILL
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, WHICH MAY ADVERSELY AFFECT THE PRICE
OF OUR COMMON STOCK

We have a substantial amount of intangible assets on our combined financial
statements. At December 31, 1998, we had net intangible assets of $6,055.6
million, which represented about 73% of our total assets and about 107% of our
stockholders' equity. Our intangible assets consist primarily of goodwill. This
goodwill was primarily created when Viacom acquired our company in 1994 for a
purchase price in excess of the fair market value of our tangible assets and
liabilities at that time. This goodwill was originally recorded on Viacom's
financial statements but has been "pushed-down" to us as an asset on our
combined financial statements. This goodwill generally represents our
BLOCKBUSTER name. We cannot assure you that the value of these intangible
assets, including goodwill, will ever be realized by us. These intangible assets
are amortized over their estimated remaining economic life, which in the case of
goodwill does not exceed 40 years.

Currently, we believe that the carrying value of our intangible assets is
appropriate. However, we evaluate on a regular basis whether or not events and
circumstances have occurred that indicate that all or a portion of the carrying
amount of these intangible assets may require adjustment. If future events
determine that (1) a significant portion of unamortized intangible assets,
including goodwill, is not recoverable and must be written off or (2) the
amortization period for these intangible assets has to be significantly
shortened, these events will adversely affect our results of operations. We
refer you to our combined financial statements and the related notes contained
elsewhere in this prospectus.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR GROWTH STRATEGY

WE MAY BE UNABLE TO FULLY EXECUTE OUR NEW STORE EXPANSION. We intend to
proceed with a significant expansion. Over each of the next three years, we
expect to open:

- about 500 new company-operated stores in the United States;

- about 200 new franchise stores in the United States;

- about 170 new company-operated stores in markets outside the United
States; and

- about 125 new franchise and/or joint venture stores in markets outside the
United States.

In order to meet our store expansion goals within this three-year period, we
will be required to invest considerable time in implementing these plans.
Although we believe that we have personnel and other resources required to
implement our store expansion goals, we cannot assure you that we will be able
to execute our new store expansion within the expected time frame.

WE CANNOT ASSURE YOU AS TO THE PROFITABILITY OF NEWLY OPENED OR PREEXISTING
STORES. In connection with this growth strategy, we expect to open
company-operated stores in markets, regions or countries where we have limited
or no operating history. We cannot assure you (1) that these newly opened stores
will achieve revenue or profitability levels comparable to those of our existing
stores or (2) that these stores will achieve such revenue or profitability
levels within the time periods estimated by us. Conversely, we expect to open
smaller company-operated stores in markets where we already have significant
operations in order to maximize our market share within these markets. Although
we have a customized store development approach, we cannot assure you that these
smaller newly opened stores will not negatively impact the revenues of those
preexisting stores in any given market.

WE MAY BE UNABLE TO SUCCESSFULLY GROW AND OPERATE PROFITABLY WITH RESPECT TO
OUR INTERNATIONAL OPERATIONS. The international home video and video game
industry varies from country to country which may affect our ability to grow and
operate profitably within a particular country. Factors that may vary include,
among others (1) political and economic systems and risks and (2) legal
standards and regulations, such as those relating to foreign ownership rights,
unauthorized copying, intellectual property rights, labor

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and employment matters, trade regulation and business practices, franchising and
taxation. Although we believe that we are generally able to apply our overall
domestic and international experiences to achieve success in our individual
international operations, we cannot assure you that we will be able to grow and
operate profitably in markets outside the United States.

WE MAY BE LIABLE FOR LEASE PAYMENTS RELATED TO BLOCKBUSTER MUSIC STORES

In October 1998, about 380 BLOCKBUSTER MUSIC stores were sold to Wherehouse
Entertainment Inc. Certain of the leases transferred in connection with this
sale had previously been guaranteed either by Viacom or its affiliates. As of
March 31, 1999, the average remaining term of these leases was 4.1 years. We
have agreed to indemnify Viacom with respect to any amount paid under these
guarantees. As of the time of the sale, we estimated that we were contingently
liable for about $93 million with respect to the remaining term of these leases
if Wherehouse defaults on all of these leases. This amount has not been
discounted to present value. Our contingent liability will vary over time
depending on the lease terms remaining. We have not recorded any reserves
related to this contingent liability in our combined financial statements. If
Wherehouse defaults, related losses could adversely affect our future operating
income.

WE DEPEND ON OUR EXECUTIVE MANAGEMENT TEAM

We are highly dependent on the efforts of our executive officers,
particularly John F. Antioco, our chairman, president and chief executive
officer. While we believe that we could find replacements for these key
personnel, the loss of their services could have an adverse effect on us. Mr.
Antioco has entered into an employment contract with us through 2002. We refer
you to "Management -- Employment Agreements."

WE COULD BE MATERIALLY AND ADVERSELY AFFECTED IF OUR CENTRALIZED DOMESTIC
DISTRIBUTION CENTER IS SHUT DOWN

Our domestic distribution system is centralized. This means that we ship
nearly all of the products to our U.S. company-operated stores, including newly
released videos purchased under the revenue-sharing agreements, through our
distribution center. If our distribution center is shut down for any reason we
could incur significantly higher costs and longer lead times associated with
distributing our videocassettes and other products to our stores.

WE ARE SUBJECT TO GOVERNMENTAL REGULATION

We are subject to various international, U.S. federal, state and local laws
affecting our business, including laws that govern the offer and sale of
franchises, the disclosure and retention of video rental records, access and use
of our video stores by disabled persons and state and local licensing, zoning,
land use, construction and environmental regulations. Any finding that we have
been or are in noncompliance could result in, among other things, governmental
penalties or private litigant damages which could have a material adverse effect
on us. Furthermore, changes in existing laws, including environmental and
employment laws, new laws or increases in the minimum wage may increase our
costs.

WE MAY BE ADVERSELY AFFECTED IF OUR YEAR 2000 REMEDIATION EFFORTS ARE NOT
SUCCESSFUL

We are highly dependent upon the proper functioning of our computer and
infrastructure systems as well as those of our third party vendors. The failure
of our systems, or those of our third party vendors, to be year 2000 compliant
could have a material adverse effect on us. The possible consequences of a
failure include, among others:

- incomplete or inaccurate accounting, recording or processing of rentals
and sales of videocassettes, DVDs, video games and other products and the
reporting of this information;

- delays or failures in ordering, shipment and distribution of
videocassettes, DVDs, video games and other products;

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- the creation of uncertainty about our customer database; or

- the inability to consummate credit and debit card and check transactions.

If a potential Year 2000 problem is not remedied, potential risks to us
include business interruption, financial loss, harm to our reputation and legal
liability. We refer you to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional information.

RISK FACTORS RELATING TO OUR SEPARATION FROM VIACOM

We are subject to the following risks in connection with our expected
separation from Viacom:

WE WILL BE CONTROLLED BY VIACOM AS LONG AS IT OWNS A MAJORITY OF THE COMBINED
VOTING POWER OF OUR TWO CLASSES OF COMMON STOCK AND OUR OTHER STOCKHOLDERS WILL
BE UNABLE TO AFFECT THE OUTCOME OF STOCKHOLDER VOTING DURING THIS TIME

AFTER THE COMPLETION OF THIS OFFERING, WE WILL BE CONTROLLED BY VIACOM. We
have two classes of common stock: class A common stock, which entitles the
holder to one vote per share, and class B common stock, which entitles the
holder to five votes per share, on all matters submitted to our stockholders.
After the completion of this offering, Viacom will own 100% of our outstanding
shares of class B common stock. Accordingly, Viacom will own common stock
representing about % of our equity value, or about % if the underwriters
exercise their over-allotment options in full and about % of the combined
voting power of our outstanding common stock, or about % if the underwriters
exercise their over-allotment options in full. As long as Viacom owns a majority
of the combined voting power of our common stock outstanding, Viacom will be
able to determine the outcome of all corporate actions requiring stockholder
approval. For example, Viacom will continue to control decisions with respect
to:

- the direction and policies of our company, including the election and
removal of directors;

- mergers or other business combinations involving us;

- the acquisition or disposition of assets by us;

- future issuances of our common stock or other securities;

- the incurrence of debt by us;

- the payment of dividends, if any, on our common stock; and

- amendments to our certificate of incorporation and bylaws.

VIACOM HAS NO OBLIGATION TO COMPLETE THE SPLIT-OFF. Viacom has the sole
discretion to determine the timing and all terms of any split-off and is under
no obligation to effect the split-off. We cannot assure you as to whether or not
or when the split-off will occur, or as to the terms of the split-off.

THERE ARE POTENTIAL CONFLICTS OF INTEREST WITH RESPECT TO OUR RELATIONSHIP WITH
VIACOM

There are potential conflicts of interest between Viacom and us regarding,
among other things:

- our past and ongoing relationship with Viacom, including, but not limited
to, Viacom's control of our tax matters for years in which we are
consolidated with Viacom for tax purposes, the acquisition of
videocassettes from Paramount Pictures Corporation, an indirect subsidiary
of Viacom, and the agreements between Viacom and us relating to this
offering and the split-off;

- potential competitive business activities; and

- sales or distributions by Viacom of all or part of its ownership interest
in our company.

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We cannot assure you that we will be able to resolve any potential conflicts
or that, if resolved, we would not be able to receive a more favorable
resolution if we were dealing with someone who was not controlling us.

THREE OF OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST BECAUSE THEY ARE ALSO
DIRECTORS AND EXECUTIVE OFFICERS OF VIACOM

Prior to our split-off from Viacom, we expect that three members of our
board of directors will be directors and executive officers of Viacom. These
directors will have obligations to us as well as to Viacom and may have
conflicts of interest with respect to matters potentially or actually involving
or affecting us. Our certificate of incorporation contains provisions designed
to facilitate resolution of these potential conflicts which we believe will
assist our directors in fulfilling their fiduciary duties to our stockholders.
These provisions do not, however, alter the fiduciary duty of loyalty of our
directors under applicable Delaware law. Subject to applicable Delaware law, by
becoming a stockholder in our company, you will be deemed to have notice of and
have consented to these provisions of our certificate of incorporation. Although
these provisions are designed to resolve such conflicts between us and Viacom
fairly, we cannot assure you that any conflicts will be so resolved. We refer
you to "Description of Capital Stock -- Certain Provisions of Our Certificate of
Incorporation and Bylaws" for more information.

OUR HISTORICAL COMBINED FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR
RESULTS AS A SEPARATE COMPANY

Since September 1994, our operations have been conducted by various entities
owned directly or indirectly by Viacom. Following this offering, we will be
required to supplement our financial, administrative and other resources to
provide services necessary to operate successfully as an independent public
company. In addition, the financial information included in this prospectus may
not necessarily reflect our results of operations, financial position and cash
flows in the future or what the results of operations, financial position or
cash flows would have been had we been a separate, stand-alone entity during the
periods presented. The financial information included in this prospectus does
not reflect many significant changes that will occur in our capital structure,
funding and operations as a result of our separation from Viacom and this
offering. For additional information, we refer you to "Agreements Between Viacom
and Us," "Unaudited Pro Forma Combined Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

RISK FACTORS RELATING TO THE SECURITIES MARKET AND OWNERSHIP OF OUR STOCK

There are risks related to the securities market that you should consider in
connection with your investment in and ownership of our stock. These risks
include limitations on our ability to execute certain business combinations and
change of control transactions.

WE CANNOT PREDICT THE EFFECT THAT THE SPLIT-OFF WILL HAVE ON THE PRICE OF OUR
COMMON STOCK; THE PRICE OF OUR COMMON STOCK COULD BE MATERIALLY AND ADVERSELY
AFFECTED BY SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC
MARKET

We cannot predict the effect that the split-off will have on the price of
your class A common stock. The split-off could involve the distribution of about
shares of our common stock by Viacom to its stockholders, representing about
% of the equity value of our company. All of those shares would be eligible
for immediate resale in the public market, other than any shares held by our
affiliates. Viacom has the sole discretion to determine the timing, structure
and terms of the split-off or other distribution of its shares of our common
stock.

Conversely, if the split-off or other similar transaction is not completed,
Viacom will have the right to require us to register its shares of our common
stock under the U.S. securities laws for sale in the public

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market. For a further explanation of this right, we refer you to "Agreements
Between Viacom and Us -- Registration Rights Agreement." Sales by Viacom or
others of substantial amounts of our common stock in the public market, or the
perception that such sales might occur, could have a material adverse effect on
the price of your class A common stock.

THERE MAY BE AN ADVERSE EFFECT ON THE PRICE OF OUR CLASS A COMMON STOCK DUE TO
DISPARATE VOTING RIGHTS OF OUR CLASS A COMMON STOCK AND OUR CLASS B COMMON STOCK
AND, POSSIBLY, DIFFERENCES IN THE LIQUIDITY OF THE TWO CLASSES

The differential in the voting rights of the class A common stock and class
B common stock could adversely affect the price of the class A common stock to
the extent that investors or any potential future purchaser of our common stock
ascribe value to the superior voting rights of the class B common stock. The
holders of class A common stock and class B common stock generally have
identical rights except that holders of class A common stock are entitled to one
vote per share while holders of class B common stock are entitled to five votes
per share on all matters to be voted on by stockholders. Holders of class A
common stock and class B common stock are entitled to separate class votes on
amendments to our certificate of incorporation that would alter or adversely
affect the powers, preferences or special rights of the shares of their
respective classes. In addition, it is possible that differences in the
liquidity between the two classes may develop, which could result in price
differences. We refer you to "Description of Capital Stock."

OUR ANTI-TAKEOVER PROVISIONS MAY DELAY OR PREVENT A CHANGE OF CONTROL OF OUR
COMPANY, WHICH COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK

The existence of some provisions in our corporate documents and Delaware law
may delay or prevent a change in control of our company, which could adversely
affect the price of our common stock. Our certificate of incorporation and
bylaws contain some provisions that may make the acquisition of control of our
company more difficult, including provisions relating to the nomination,
election and removal of directors and limitations on actions by our
stockholders. In addition, Delaware law also imposes some restrictions on
mergers and other business combinations between us and any holder of 15% or more
of our outstanding common stock. Viacom, however, is generally exempted from
these provisions and will have special rights so long as it owns at least a
majority of the combined voting power of our two classes of common stock
outstanding. We refer you to "Description of Capital Stock" for a summary of
these anti-takeover provisions.

In addition, we have entered into a tax matters agreement with Viacom with
respect to certain tax matters relating to this offering and the split-off,
which will require, among other things, that until two years after the
completion of the split-off, we cannot voluntarily enter into certain
transactions, including any merger transaction or any transaction involving the
sale of our capital stock without the consent of Viacom. In addition, we have
agreed under this tax matters agreement to indemnify Viacom for any tax
liability incurred as a result of the failure of the split-off to qualify as a
tax-free transaction due to a takeover of our company or any other transaction
involving our capital stock, assets or businesses regardless of whether or not
such transaction is within our control. We refer you to "Agreements Between
Viacom and Us -- Tax Matters Agreement."

OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY FOLLOWING THE OFFERING AND YOU COULD
LOSE ALL OR PART OF YOUR INVESTMENT AS A RESULT

We, Viacom and the underwriters will negotiate to determine the initial
public offering price. You may not be able to resell your shares at or above the
initial public offering price due to a number of factors. These factors, some or
all of which are beyond our control, include:

- actual or anticipated fluctuations in our operating results;

18
<PAGE>
- changes in expectations as to our future financial performance or changes
in financial estimates of securities analysts;

- success of our operating and growth strategies;

- operating and stock price performance of other comparable companies; and

- realization of any of the risks described in these Risk Factors.

In addition, the stock market recently has experienced extreme volatility
that often has been unrelated or disproportionate to the operating performance
of particular companies. These broad market and industry fluctuations may
adversely affect the trading price of our common stock, regardless of our actual
operating performance.

WE CANNOT ASSURE YOU TO WHAT EXTENT A PUBLIC MARKET FOR OUR COMMON STOCK WILL
DEVELOP

Prior to this offering, there has been no public market for our common
stock. We have filed an application to list our class A common stock for trading
on the New York Stock Exchange. We do not know the extent to which investor
interest in our company will lead to the development of a trading market for our
class A common stock or how our class A common stock will trade in the future.

19
<PAGE>
SEPARATION FROM VIACOM

SET FORTH IN THIS SECTION IS VIACOM'S CURRENT INTENTION AS TO OUR POSSIBLE
SEPARATION FROM VIACOM. VIACOM HAS THE SOLE DISCRETION TO DETERMINE THE TIMING
AND ALL TERMS OF ANY SPLIT-OFF AND IS UNDER NO OBLIGATION TO EFFECT THE
SPLIT-OFF. WE CANNOT ASSURE YOU AS TO WHETHER OR NOT OR WHEN THE SPLIT-OFF WILL
OCCUR, OR AS TO THE TERMS OF THE SPLIT-OFF.

OVERVIEW

Our business and operations were previously conducted by Blockbuster
Entertainment Corporation, which was incorporated in Delaware in 1982 and
entered the movie rental business in 1985. On September 29, 1994, Blockbuster
Entertainment Corporation was merged with and into Viacom. Since the merger, our
business and operations have been conducted by various subsidiaries of Viacom.
Recently, our business and operations were either (1) merged into Blockbuster
Inc. or (2) purchased by Blockbuster Inc. or one of its subsidiaries.
Blockbuster Inc., an indirect subsidiary of Viacom, was incorporated on October
16, 1989 in Delaware.

Viacom has announced that, if it receives a favorable tax ruling from the
Internal Revenue Service, it currently intends to distribute all of its holdings
in our common stock to certain of its stockholders in a transaction intended to
qualify for tax-free treatment under Section 355 of the Internal Revenue Code.
Viacom has the sole discretion to determine if and when such split-off will
occur and all terms of such split-off. If Viacom determines to make the
distribution, it will occur some time after the later of (1) September 29, 1999,
the five-year anniversary of the merger of Viacom and Blockbuster Entertainment
Corporation and (2) unless the underwriters consent to an earlier date, 180 days
after the completion of this offering. For additional information of the risks
associated with Viacom not completing the split-off, we refer you to "Risk
Factors -- Risk Factors Relating to Our Separation from Viacom."

Viacom is not obligated to consummate the split-off, and neither Viacom nor
we have any intention of purchasing or redeeming the shares issued in this
offering if the split-off is not consummated. In addition, if the split-off is
ultimately consummated, Viacom does not have any obligation with respect to the
timing or any of the terms of the split-off. We refer you to "Risk Factors --
Risk Factors Relating to Our Separation from Viacom -- Viacom has no obligation
to complete the split-off."

The split-off is intended to establish us as a stand-alone entity with
objectives separate from those of other businesses of Viacom. We and Viacom
believe that the split-off will resolve management, systemic and other problems
that have arisen from the operation of the two groups of businesses under a
common parent corporation. In addition, although we have no specific plans, we
believe that the split-off will allow us to facilitate the expansion of our
business by making acquisitions by issuing our stock and by entering into
partnerships and other agreements. The split-off will also allow us to modify
our compensation structure to be more in line with that used by other retailers
and provide incentives to our employees that are more closely linked to our
performance. In order to accomplish the split-off, we and Viacom have undertaken
or intend to undertake the transactions described below.

PRE-OFFERING TRANSACTIONS

CONSOLIDATION OF BLOCKBUSTER SUBSIDIARIES. In September and November 1998,
numerous U.S. subsidiaries of Viacom International Inc., a wholly owned
subsidiary of Viacom, each of which were directly or indirectly involved in our
business, were merged with and into our current legal entity (Blockbuster Inc.).
At the same time we entered into our credit agreement discussed below, we and/or
certain of our subsidiaries purchased stock or assets from affiliates of Viacom
in order to acquire certain non-U.S. operations of our business with borrowings
under our credit agreement.

DIVIDEND NOTE AND ACQUISITION NOTES. On December 31, 1998, we declared a
dividend in the form of a promissory note in the principal amount of $1.4
billion to Viacom International Inc. (the "Dividend

20
<PAGE>
Note"). In addition, in the first quarter of 1999, we issued promissory notes in
the aggregate principal amount of about $77 million to Viacom International Inc.
in order to obtain funds for an acquisition of video stores (the "Acquisition
Notes"). We will pay the Dividend Note, the Acquisition Notes and any other
notes owed to Viacom International Inc. or its affiliates, together with any
accrued and unpaid interest, with the proceeds of the borrowings under the
credit agreement described below.

CREDIT AGREEMENT. On , 1999, we entered into a $2.0 billion term and
revolving credit agreement with a syndicate of lenders. For a more complete
description of the credit agreement, we refer you to "Description of Credit
Agreement." On such date, we borrowed $ billion under this credit
agreement, all of which was used to (1) acquire certain non-U.S. operations of
our business from affiliates of Viacom and (2) repay the Dividend Note, the
Acquisition Notes and any other note owed to Viacom International Inc. or its
affiliates, together with any accrued and unpaid interest. We refer you to "Use
of Proceeds."

AGREEMENTS BETWEEN VIACOM AND US. In order to complete this offering and
the split-off, we and Viacom have entered into a number of agreements. In
addition, there are other agreements between Viacom and us not related to either
this offering or the split-off. We refer you to "Agreements Between Viacom and
Us."

THE OFFERING

We expect to offer about % of our class A common stock in this offering.
As a result, immediately after the completion of this offering, Viacom will own
none of the outstanding shares of our class A common stock and 100% of the
outstanding shares of our class B common stock, which will represent about %
of the equity value and % of the voting power of our outstanding common stock.
Until such time as Viacom holds less than 50% of the combined voting power of
all classes of our common stock outstanding, Viacom will be able to control the
vote on all matters submitted to our stockholders, including the election of
directors and the approval of extraordinary corporate transactions. We refer you
to "Risk Factors -- Risk Factors Relating to Our Separation from Viacom -- After
the completion of this offering, we will be controlled by Viacom."

POST-OFFERING TRANSACTIONS

EXCHANGE OFFER. Viacom intends to offer to exchange its shares of our
common stock for shares of Viacom's class A common stock and Viacom's class B
common stock. In connection with the request for a tax ruling from the Internal
Revenue Service, Viacom has represented that National Amusements, Inc., the
largest single stockholder of Viacom, will not participate in the exchange
offer. If the amount of Viacom's common stock held by its stockholders tendered
in the exchange offer is not sufficient to result in a distribution of all of
our shares of common stock held by Viacom, Viacom will distribute in a "backup
distribution" all of its remaining shares of our common stock that it holds to
its stockholders in proportion to their Viacom shareholdings. Conditions to
completion of the exchange offer are expected to include:

- the acceptance of the offer by a sufficient number of Viacom's
stockholders to result in a distribution of shares of our common stock
held by Viacom such that, if the backup distribution is necessary,
National Amusements, Inc. will not receive more than 10% of the total
number of our outstanding shares of common stock in the backup
distribution; and

- the receipt of a favorable tax ruling from the Internal Revenue Service.

21
<PAGE>
USE OF PROCEEDS

The net proceeds to be received by us from the sale of shares of class
A common stock in this offering are estimated to be about $ million, or
about $ million if the underwriters exercise their over-allotment options
in full, after deducting underwriting discounts and commissions and estimated
offering expenses. All of the net proceeds of this offering will be used to
repay some of the borrowings under our credit agreement. The first $ million
will be used to repay the $ million revolving loan maturing on , 2000.
Any remaining proceeds will be used to repay a portion of the $ million
revolving loan maturing on , 2004.

On , 1999, we entered into a $2.0 billion term and revolving credit
agreement with a syndicate of lenders.

Our credit agreement is comprised of:

- a $ million revolving loan maturing on , 2000;

- a $ million revolving loan maturing on , 2004; and

- a $ million term loan maturing on , 2004.

Borrowings under the credit agreement accrue interest at a rate equal to the
interest rates prevailing on the date of determination in the London interbank
market for the interest period selected by us, plus a margin over this rate. For
a more complete description of the credit agreement, we refer you to
"Description of Credit Agreement."

We have used the borrowings under the credit agreement:

- to purchase certain non-U.S. operations of our business from affiliates of
Viacom in an aggregate amount of $ ;

- to repay a promissory note issued by us to Viacom International Inc. in
the principal amount of $1.4 billion plus accrued and unpaid interest to
satisfy dividends declared by us in favor of Viacom International Inc.;

- to repay promissory notes issued by us to Viacom International Inc. in the
aggregate principal amount of about $77 million plus accrued and unpaid
interest for the acquisition of video stores; and

- for working capital and general corporate purposes.

22
<PAGE>
DIVIDEND POLICY

Following this offering, our dividend practices with respect to our common
stock will be determined and may be changed from time to time by our board of
directors. Under Delaware law and our certificate of incorporation, our board of
directors is not required to declare dividends on our common stock. We currently
intend to pay dividends on a quarterly basis, at an initial rate of $ per
share, commencing with the first declaration in for payment in . Our
board of directors is free to change our dividend practices at any time from
time to time and to decrease or increase the dividend paid, or to not pay a
dividend, on our common stock on the basis of our results of operations,
financial condition, cash requirements and future prospects and other factors
deemed relevant by our board of directors.

23
<PAGE>
CAPITALIZATION

The following table sets forth our cash and cash equivalents, short-term
borrowings and capitalization:

(1) at December 31, 1998; and

(2) giving pro forma effect to:

- the borrowings under the credit agreement and the application of the
amounts borrowed thereunder;

- this offering and the application of the net proceeds to be received
from the sale of the shares of class A common stock offered hereby at
an initial offering price of $ per share, after deducting the
underwriting discounts and commissions and the estimated offering
expenses; and

- the conversion of Viacom's net equity investment in our company into
shares of class B common stock.

We refer you to "Use of Proceeds" and "Description of Credit Agreement" for
additional information relating to the application of the net proceeds from this
offering and the credit agreement.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------
PRO FORMA
ADJUSTED FOR
THIS
HISTORICAL OFFERING(1)
----------- ---------------
<S> <C> <C>
(DOLLARS IN MILLIONS)

Cash and cash equivalents............................................................. $ 99.0 $
----------- ---------------
----------- ---------------

Debt: (2)

Short-term borrowings, including current portion of credit agreement and capital
lease obligations................................................................. 22.2
----------- ---------------

Long-term debt:

Notes payable to Viacom........................................................... 1,576.4

Long-term debt, third party credit agreement, less current portion................ --

Capital lease obligations, less current portion................................... 138.8
----------- ---------------

Total long-term debt, less current portion...................................... 1,715.2
----------- ---------------

Total debt...................................................................... 1,737.4
----------- ---------------

Stockholders' equity:

Class A common stock, par value $0.01 per share, shares authorized, shares
issued and outstanding pro forma (3)(4)........................................... --

Class B common stock, par value $0.01 per share, shares authorized, shares
issued and outstanding pro forma (4).............................................. --

Additional paid-in capital.......................................................... --

Viacom's net equity investment...................................................... 5,695.8

Accumulated other comprehensive loss-foreign currency translation adjustment........ (57.9)
----------- ---------------

Total stockholders' equity (4).................................................. 5,637.9
----------- ---------------

Total capitalization.................................................................. $ 7,375.3 $
----------- ---------------
----------- ---------------
</TABLE>

- ------------------------------

(1) We refer you to "Unaudited Pro Forma Combined Financial Data."

(2) For a description of our borrowings, we refer you to note 7 of our combined
financial statements.

(3) Excludes shares of class A common stock issuable upon conversion of
the class B common stock and shares reserved for the exercise of
options granted under our employee compensation plans. We refer you to
"Management."

(4) The pro forma assumes that the underwriters have not exercised their
over-allotment options. If the underwriters exercise their over-allotment
options in full, the number of issued and outstanding shares of class A
common stock and class B common stock will increase to and ,
respectively. In addition, it is estimated that stockholders' equity will
increase to $ , with a corresponding decrease in the amount outstanding
under our credit agreement. We refer you to "Use of Proceeds."

24
<PAGE>
DILUTION

As of December 31, 1998, we had a net tangible book value of $ or
$ per share. After giving effect to our sale of shares of class A common
stock offered hereby (assuming the underwriters do not exercise their
over-allotment options) at an initial public offering price of $ per
share, after deducting the underwriting discount and commission and estimated
offering expenses, our pro forma net tangible book value as of December 31, 1998
would have been about $ or $ per share. This represents an
immediate increase in net tangible book value of $ per share to the
existing stockholder and an immediate dilution of $ per share to new
investors. The following table illustrates this per share dilution.

<TABLE>
<CAPTION>
PER SHARE
----------
<S> <C>
Initial public offering price per share........................................... $
Net tangible book value before this offering(1)................................. $
Increase attributable to new investors.......................................... $
Pro forma net tangible book value after this offering............................. $
----------
Dilution per share to new investors (2)........................................... $
----------
----------
</TABLE>

- ------------------------

(1) This represents our net tangible book value (tangible assets less total
liabilities) as of December 31, 1998 divided by the number of shares of
class B common stock owned by Viacom.

(2) If the underwriters' over-allotment options are exercised in full, the
dilution per share to new investors will be per share.

The following table summarizes, as of December 31, 1998, the relative
investment of the existing stockholder and new investors, giving pro forma
effect to the sale by us of the shares of class A common stock offered in this
offering.

<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
-------------------- -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholder....................................... % $ %
New Investors.............................................. % %
--------- --------- --------- --------- ---------
Total.................................................. 100.0% $ 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

The foregoing computations do not include shares of class A common stock
issuable upon the exercise of options granted under our employee compensation
plans. We refer you to "Management."

25
<PAGE>
SELECTED COMBINED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

The following table sets forth our selected combined historical and pro
forma financial data as of the dates and for the periods indicated. The selected
statement of operations and balance sheet data for the years ended December 31,
1996 through 1998 are derived from our audited combined financial statements.
The selected statement of operations data for the nine months ended September
30, 1994, the three months ended December 31, 1994 and the year ended December
31, 1995 and the selected balance sheet data as of December 31, 1994 and 1995
are derived from our unaudited combined financial statements prepared by us,
which in our opinion, include all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair presentation of the financial
position at such dates and the results of operations for such respective
periods. The financial information herein may not necessarily reflect results of
operations, financial position and cash flows of our company in the future or
what the results of operations, financial position and cash flows would have
been had we been a separate, stand-alone entity during the periods presented.

The pro forma financial data have been derived from the unaudited pro forma
combined financial data which were prepared by us to illustrate the estimated
effects of the transactions to reorganize our company and the application of the
net offering proceeds. For a more complete description of these transactions we
refer you to "Unaudited Pro Forma Combined Financial Data" and notes thereto
included elsewhere in this prospectus. In addition, the unaudited pro forma
combined financial data do not purport to represent what the results of
operations or financial position of our company would actually have been if the
transactions to reorganize our company and the application of the net offering
proceeds had in fact occurred on such dates or to project the results of
operations or financial position of our company for any future period or date.

The following data should be read in conjunction with, and are qualified by
reference to, the combined financial statements and related notes thereto, the
"Unaudited Pro Forma Combined Financial Data" and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.

26
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 29, DECEMBER 31,
1994(1) 1994 1995 1996(2) 1997(3) 1998(4)
------------- --------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE AND WORLDWIDE STORE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 1,468.0 $ 546.3 $ 2,403.3 $ 2,942.1 $ 3,313.6 $ 3,893.4
Gross profit............................... 1,030.9 431.0 1,705.4 1,928.4 1,953.1 1,937.0
Operating expenses......................... 742.9 273.6 1,275.2 1,660.8 2,167.7 2,296.2
Operating income (loss).................... 288.0 157.4 430.2 267.6 (214.6) (359.2)
Interest expense and other items, net...... (16.6) (2.4) (11.0) (18.4) (54.7) (35.5)
Income (loss) before income taxes.......... 271.4 155.0 419.2 249.2 (269.3) (394.7)
Benefit (provision) for income taxes....... (127.1) (71.8) (227.7) (167.4) (30.0) 59.4
Equity in income (loss) of affiliated
companies, net of tax.................... 1.7 -- (48.6) (4.0) (18.9) (1.3)
Net income (loss).......................... $ 146.0 $ 83.2 $ 142.9 $ 77.8 $ (318.2) $ (336.6)
Pro forma net income (loss) per
share--basic and diluted (6).............
Pro forma weighted average shares
outstanding--basic and diluted (6).......

BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 55.2 $ 100.3 $ 58.6 $ 129.6 $ 99.0
Rental library, net........................ 291.1 519.5 676.0 734.5 441.2
Intangibles, net........................... 6,147.1 6,531.3 6,309.6 6,192.7 6,055.6
Total assets............................... 8,249.7 8,570.9 8,794.6 8,731.0 8,274.8
Long-term debt, less current portion (7)... 296.3 168.3 249.0 331.3 1,715.2
Stockholders' equity (7)................... 7,274.9 7,737.2 7,784.4 7,617.6 5,637.9

WORLDWIDE STORE DATA:
Company-operated stores at end of period... 3,067 3,692 4,472 5,105 5,283
Franchised and joint venture stores at end
of period................................ 1,002 821 845 944 1,098
Total stores at end of period.............. 4,069 4,513 5,317 6,049 6,381
Same store revenues increase
(decrease)(8)............................ 5.1% (1.8)% 13.3%

<CAPTION>
PRO FORMA
ADJUSTED
FOR THIS
OFFERING
1998(5)
----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................
Gross profit...............................
Operating expenses.........................
Operating income (loss)....................
Interest expense and other items, net......
Income (loss) before income taxes..........
Benefit (provision) for income taxes.......
Equity in income (loss) of affiliated
companies, net of tax....................
Net income (loss)..........................
Pro forma net income (loss) per
share--basic and diluted (6).............
Pro forma weighted average shares
outstanding--basic and diluted (6).......
BALANCE SHEET DATA:
Cash and cash equivalents..................
Rental library, net........................
Intangibles, net...........................
Total assets...............................
Long-term debt, less current portion (7)...
Stockholders' equity (7)...................
WORLDWIDE STORE DATA:
Company-operated stores at end of period...
Franchised and joint venture stores at end
of period................................
Total stores at end of period..............
Same store revenues increase
(decrease)(8)............................
</TABLE>

- ------------------------------

(1) The statement of operations data for the nine months ended September 29,
1994 represents Blockbuster Entertainment Corporation as an independent
company relating solely to the videocassette and video game rental business
prior to its acquisition by Viacom. In September 1994, Blockbuster
Entertainment Corporation merged with and into Viacom. All financial data
subsequent to September 29, 1994 reflects Viacom's basis of accounting
established in purchase accounting effective with its acquisition and pushed
down to our company.

(2) During 1996 we recognized a restructuring charge of $50.2 million primarily
relating to our corporate relocation and elimination of third party
distributors.

(3) During 1997 we recognized charges totaling $250 million primarily related to
inventory write-downs, closure of underperforming stores, write-offs
attributable to international joint ventures and expenses incurred in
connection with our corporate relocation.

(4) During 1998 we changed our method of amortizing our videocassette and video
game rental inventory. This newly adopted method represents a more
accelerated method of amortization. The adoption of this new method of
amortization was accounted for as a change in accounting estimate effected
by a change in accounting principle and, accordingly, we recorded a non-cash
charge of $424.3 million recognized as cost of sales.

(5) For information regarding the pro forma adjustments made to our historical
financial data, we refer you to "Unaudited Pro Forma Combined Financial
Data."

(6) Our historical capital structure is not indicative of our prospective
capital structure since no direct ownership relationship existed among all
the various units comprising our company. Accordingly, historical earnings
per share has not been presented in the combined financial statements. Pro
forma weighted average shares outstanding reflect all shares of class B
common stock issued and outstanding which are owned by Viacom and the class
A common stock to be issued in this offering as if these shares had been
outstanding since January 1, 1998.

(7) This reflects the December 31, 1998 declaration of a $1.4 billion dividend
payable to Viacom in the form of an interest-bearing promissory note.

(8) A store is included in the same store revenue calculation after it has been
open and owned by us for more than 52 weeks. An acquired store becomes part
of the same store base in the 53rd week after acquisition and conversion.
The percentage change is computed by comparing total net revenues for same
stores as defined above at the end of the applicable reporting period with
total net revenues from these same stores for the comparable period in the
prior year.

27
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The unaudited pro forma combined statement of operations of our company for
the year ended December 31, 1998, and the unaudited pro forma combined balance
sheet as of December 31, 1998 have been prepared based on our combined financial
statements and related notes presented elsewhere in this prospectus. This data
is based on various assumptions and includes the adjustments explained in the
related notes. The unaudited pro forma combined statement of operations and the
unaudited pro forma combined balance sheet have been prepared as if the
transactions described in the following paragraph had occurred as of the
beginning of the period presented, and as of December 31, 1998, respectively.

On December 31, 1998, we declared a dividend in the form of an
interest-bearing promissory note to Viacom of $1.4 billion. Prior to or at the
same time as this offering, the following transactions occurred:

- we entered into a $2.0 billion credit agreement;

- we purchased certain non-U.S. operations of our business from affiliates
of Viacom in an aggregate amount of $ using borrowings under the
credit agreement;

- we repaid the $1.4 billion promissory note to Viacom using borrowings
under the credit agreement;

- we used all of the proceeds of this offering net of underwriting discounts
and commissions and estimated offering expenses to repay $ of
borrowings under the credit agreement; and

- we and Viacom will enter into a transition services agreement with respect
to cash management, accounting, financial and tax services as well as
employee benefit plan and insurance administration.

We refer you to "Description of Credit Agreement," "Use of Proceeds" and
"Agreements Between Viacom and Us."

The unaudited pro forma combined financial data do not purport to represent
what the results of operations or financial position of our company would
actually have been if this offering and the other transactions described above
had in fact occurred on such dates or to project the results of operations or
financial position of our company for any future date or period. This data
should be read in conjunction with the combined financial statements and related
notes, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.

We believe the estimates and assumptions used to prepare the unaudited pro
forma combined financial data provide a reasonable basis for presenting the
significant effects of this offering and the transactions discussed above, and
that the pro forma adjustments give appropriate effect to the estimates and
assumptions and are properly applied in the unaudited pro forma combined
financial data.

28
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998

(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTED FOR
PRO FORMA OFFERING THIS
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS OFFERING
--------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Revenues................................... $ 3,893.4 $ $ $ $
Cost of sales.............................. 1,956.4
Operating expenses, excluding amortization
of intangibles........................... 2,126.0 (1)
Amortization of intangibles................ 170.2
--------- ------ ----------- ----- ------------
Operating income (loss).................... (359.2)
Interest expense and other items, net...... (35.5) (2) (4)
--------- ------ ----------- ----- ------------
Income (loss) before income taxes.......... (394.7)
Benefit for income taxes................... 59.4 (3) (5)
Equity in loss of affiliated companies, net
of tax................................... (1.3)
--------- ------ ----------- ----- ------------
Net income (loss).......................... $ (336.6) $ $ $ $
--------- ------ ----------- ----- ------------
--------- ------ ----------- ----- ------------
Earnings per share -- basic and diluted.... $ (6)
------------
------------
Weighted average shares outstanding --
basic and diluted........................ (6)
</TABLE>

- ------------------------

(1) This reflects additional general and administrative expense resulting from
the transition services agreement and from the addition of personnel to
fulfill certain functions previously provided by Viacom, net of $12.5
million of allocated general and administrative expense from Viacom.

(2) This reflects additional interest expense resulting from the payment of the
$1.4 billion promissory note payable to Viacom and the purchase of certain
non-U.S. operations of our business from affiliates of Viacom with
borrowings under the credit agreement. The additional interest expense was
calculated by multiplying the $1.576 billion of debt outstanding at December
31, 1998 by an annual interest rate of %, and subtracting the
historical related party interest cost of $8.4 million. This rate represents
the average of the one-month LIBOR rate as of the end of each month in 1998
plus %. If interest rates were to increase or decrease by .125 of 1%,
our company's related interest expense would be expected to increase or
decrease by about $2.0 million annually.

(3) This reflects the income tax benefit associated with adjustments described
in footnotes (1) and (2) above.

(4) This reflects the reduction in interest expense as a result of the use of
all of the net proceeds of this offering to repay $ of borrowings under
the $2.0 billion credit agreement.

(5) This reflects the reduction of the income tax benefit associated with the
adjustment in footnote (4) above.

(6) The pro forma basic earnings per share includes both the class A common
stock and class B common stock expected to be outstanding as of the date of
this offering. The pro forma diluted earnings per share does not differ from
basic earnings per share as the exercise price of employee stock options
expected to be outstanding will be equal to the initial public offering
price. Therefore, no dilution is expected.

29
<PAGE>
PRO FORMA COMBINED BALANCE SHEET

DECEMBER 31, 1998

(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA OFFERING ADJUSTED FOR
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS THIS OFFERING
----------- --------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Cash and cash equivalents....... $ 99.0 $ $ $ $
Receivables, net................ 124.8
Merchandise inventories......... 277.4
Prepaid assets.................. 130.5
----------- ------- ------------- ------- ---------------
Total current assets...... 631.7
Rental library, net............. 441.2
Deferred income taxes........... 92.5
Property and equipment, net..... 995.3
Intangibles, net................ 6,055.6
Other assets.................... 58.5
----------- ------- ------------- ------- ---------------
Total assets.............. $ 8,274.8 $ $ $
----------- ------- ------------- ------- ---------------
----------- ------- ------------- ------- ---------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable................ $ 448.6 $ $ $ $
Accrued expenses................ 361.8
Current portion of long-term
debt and capital lease
obligations................... 22.2 (1) (4)
Deferred income taxes........... 13.6
----------- ------- ------------- ------- ---------------
Total current
liabilities............. 846.2
Notes payable to Viacom......... 1,576.4 (1)
Long-term debt.................. (1) (4)
Capital lease obligations....... 138.8
Other liabilities............... 75.5
----------- ------- ------------- ------- ---------------
Total liabilities......... 2,636.9

Stockholders' equity:
Class A common stock, par
value $.01 per share;
shares authorized,
shares issued and
outstanding pro forma....... -- (3)
Class B common stock, par
value $.01 per share;
shares authorized,
shares issued and
outstanding pro forma....... -- (2)
Additional paid-in capital.... -- (2) (3)
Viacom's net equity
investment.................. 5,695.8 (2)
Accumulated other
comprehensive loss-foreign
currency translation
adjustment.................. (57.9)
----------- ------- ------------- ------- ---------------
Total liabilities and
stockholders' equity.... $ 8,274.8 $ $ $
----------- ------- ------------- ------- ---------------
----------- ------- ------------- ------- ---------------
</TABLE>

30
<PAGE>
PRO FORMA COMBINED BALANCE SHEET

DECEMBER 31, 1998

(UNAUDITED)

- ------------------------

(1) This reflects the application of $1.576 billion in borrowings under our $2.0
billion credit agreement to repay the $1.4 billion promissory note payable
to Viacom as a dividend and to purchase and retire the historical
intercompany debt as part of the purchase of certain non-U.S. operations of
our business from affiliates of Viacom. Should the ultimate amount paid to
Viacom and its affiliates for non-U.S. operations differ from the recorded
intercompany debt, such difference will be recognized as an increase or
reduction of stockholders' equity.

(2) This reflects conversion of Viacom's net equity investment in our company
into shares of class B common stock.

(3) This reflects the receipt of $ in net proceeds from this offering.
Proceeds are calculated based on the assumed sale of shares at $
per share, net of underwriting discounts and commissions of $ million,
and estimated offering expenses of $ million. The pro forma adjustments
assume that the underwriters have not exercised their over-allotment
options. If the underwriters exercise their over-allotment options in full,
the number of issued and outstanding shares of class A common stock and
class B common stock will increase to and , respectively and it is
estimated that stockholders' equity will increase to $ with a
corresponding decrease to the amount outstanding under our credit agreement.
We refer you to "Use of Proceeds."

(4) This reflects the use of all of the net proceeds from this offering to repay
$ of borrowing under the $2.0 billion credit agreement as described in
"Use of Proceeds."

31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMBINED FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.

GENERAL

Blockbuster entered into the video rental business in 1985 and is the
world's leading retailer of rentable home videocassettes, DVDs and video games.
Our 6,500 stores offer a wide selection of entertainment products for rent or
purchase. Our business model was significantly modified in 1997 to refocus on
videocassette rental, improving the customer experience and satisfying customer
demand earlier for newly released videos. During 1998, our customers' responses
were very favorable with a revenue increase of 17.5%, an increase in same store
revenues of 13.3% and an increase in domestic rental transactions of 14.4% as
compared to 1997.

The combined financial statements for the years presented do not fully
reflect the trends in our business as we had significantly different business
models during these periods. In addition, the years presented include
significant charges which relate to these business model changes. As a result
and as further explained below, our results of operations for those years are
not comparable.

In connection with our merger with Viacom in 1994, we valued our
videocassette rental inventory at fair market value, which formed the basis for
subsequent amortization of this inventory over a period of up to 36 months. Such
fair market value proved, on average, to be lower than the cost of rental
videocassettes acquired after the merger. As a result, amortization was lower
with respect to rental videocassettes acquired in the 1994 merger than rental
videocassettes purchased after the merger. This lower amortization favorably
affected results in 1996 and, to a lesser extent, in 1997. Amortization in 1996
and in 1997 also increased as a result of increased purchases of videocassettes.

In 1996, we decided to offer not only our traditional video rental and
related merchandise but various other merchandise categories, including
clothing, books and magazines. We also decided to move our corporate
headquarters from Fort Lauderdale, Florida to Dallas, Texas and to build an
850,000 square foot distribution center to handle our existing and new products
and eliminate third party distribution. These changes resulted in a $50.2
million charge.

Following significant management changes in 1997, we determined that the new
merchandise lines that had been added in 1996 were not as profitable as our core
rental business. As a result, we refocused our product lines and in the second
quarter of 1997, we recorded charges amounting to $250 million, $100.8 million
of which related to a reduction in the carrying value of certain retail
merchandise inventory.

In recognizing that we could not purchase enough videocassettes at the
"full" cost to satisfy customer demand without significantly increasing our
risk, we changed our business model. In 1998, in order to increase the quantity
and selection of newly released video titles and satisfy our customers' demand
for newly released video titles earlier, we entered into revenue-sharing
agreements with the major movie studios. Prior to our change to a
revenue-sharing business model, our videocassette rental inventory was purchased
at "full" cost, generally between $60 and $70 per videocassette for major
theatrical releases that were priced for rental in the United States. The
implementation of revenue-sharing dramatically affected our cost of sales as we
changed our business model from a primarily fixed to a primarily variable cost
approach. Starting in the second quarter of 1998, revenue-sharing payments to
the movie studios became a significant component of our cost of sales. In
addition, we shortened the period over which we amortize the up front cost of
acquiring most newly released videocassettes to three months. In connection with
this change in method of accounting for our videocassette rental inventory, we
recorded a $424.3 million charge to reflect a reduction in the carrying value of
this inventory.

32
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth both historical and "as adjusted" results of
operations and other financial data. Historical amounts reflect the actual
results as reported in our combined financial statements. The "as adjusted"
information excludes the charges discussed above. For additional information, we
refer you to notes 3 and 4 of our combined financial statements. We believe the
"as adjusted" amounts better reflect the ongoing trends and operations of our
business and facilitate the comparative discussion of our results of operations.
Amortization of intangibles principally reflects amortization of goodwill
incurred by Viacom in connection with its acquisition of Blockbuster
Entertainment Corporation in 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1997 1998
---------------------- ---------------------- ----------------------

<CAPTION>
AS AS AS
HISTORICAL ADJUSTED(1) HISTORICAL ADJUSTED(2) HISTORICAL ADJUSTED(3)
--------- ----------- --------- ----------- --------- -----------
(IN MILLIONS, EXCEPT MARGIN AND WORLDWIDE STORE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 2,942.1 $ 2,942.1 $ 3,313.6 $ 3,313.6 $ 3,893.4 $ 3,893.4
Cost of sales.................................... 1,013.7 1,013.7 1,360.5 1,259.7 1,956.4 1,532.1
--------- ----------- --------- ----------- --------- -----------
Gross profit..................................... 1,928.4 1,928.4 1,953.1 2,053.9 1,937.0 2,361.3
Operating expenses............................... 1,660.8 1,610.6 2,167.7 2,048.2 2,296.2 2,296.2
--------- ----------- --------- ----------- --------- -----------
Operating income (loss).......................... 267.6 317.8 (214.6) 5.7 (359.2) 65.1
Interest expense and other items, net............ (18.4) (18.4) (54.7) (54.7) (35.5) (35.5)
--------- ----------- --------- ----------- --------- -----------
Income (loss) before income taxes................ 249.2 299.4 (269.3) (49.0) (394.7) 29.6
Benefit (provision) for income taxes............. (167.4) (187.5) (30.0) (93.2) 59.4 (91.8)
Equity in loss of affiliated companies, net of
tax............................................ (4.0) (4.0) (18.9) (1.3) (1.3) (1.3)
--------- ----------- --------- ----------- --------- -----------
Net income (loss)................................ $ 77.8 $ 107.9 $ (318.2) $ (143.5) $ (336.6) $ (63.5)
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
OTHER DATA:
Depreciation..................................... $ 165.5 $ 165.5 $ 253.8 $ 208.7 $ 212.7 $ 212.7
Amortization of intangibles...................... 166.2 166.2 168.7 168.7 170.2 170.2
EBITDA(4)........................................ 599.3 649.5 207.9 383.1 23.7 448.0
Net income (loss) plus intangible amortization,
net of tax(5).................................. $ 239.6 $ 269.7 $ (155.0) $ 19.7 $ (172.5) $ 100.6
MARGINS:
Rental Margin.................................... 74.1% 74.1% 69.6% 69.6% 54.6% 67.8%
Product Margin................................... 19.3 19.3 7.4 24.4 19.8 19.8
Gross Margin..................................... 65.5 65.5 58.9 62.0 49.8 60.6
WORLDWIDE STORE DATA:
Same store revenues increase (decrease).......... 5.1% (1.8)% 13.3%
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total stores at end of period.......... 5,317 6,049 6,381
--------- --------- ---------
--------- --------- ---------
</TABLE>

- ------------------------

(1) This excludes a $50.2 million restructuring charge associated with the
relocation of our headquarters to Dallas, Texas and the elimination of third
party distributors.

(2) This excludes a $250 million charge principally associated with a write-down
of excess inventory of $100.8 million, operating charges for domestic and
international reorganization, store closings and corporate relocation costs.
Also, excludes write-offs attributable to international joint ventures
recorded in equity in loss of affiliated companies, net of tax.

(3) This excludes a $424.3 million charge associated with a change in the method
of accounting for videocassettes and video game rental inventory.

33
<PAGE>
(4) "EBITDA" and "Net income (loss) plus intangible amortization, net of tax" is
presented here to provide additional information about our operations. These
items should be considered in addition to, but not as a substitute for or
superior to, operating income, net income, cash flow and other measures of
financial performance prepared in accordance with generally accepted
accounting principles.

(5) This represents net income (loss) plus intangible amortization, net of tax,
which is primarily related to goodwill.

The following discussion reflects "as adjusted" amounts unless otherwise noted.

COMPARISON OF 1998 TO 1997

REVENUES. Revenues increased $579.8 million, or 17.5%, in 1998 from 1997
largely as a result of 13.3% growth in our same store revenues which increased
primarily as a result of a 14.4% increase in our domestic rental transactions
and the net addition of 178 company-operated stores. Revenue growth consisted
primarily of increases in rental revenues of $555.6 million, or 20.9%, due to an
increase in the number of rental transactions driven by (1) a substantial
increase in the quantity and selection of newly released videos provided through
revenue-sharing agreements, (2) the impact of our advertising campaigns aimed at
marketing the improved customer experience, (3) the implementation of more
competitive pricing and rental terms, and (4) the increased popularity of game
rentals. Product revenues also contributed to revenue growth increasing $24.0
million, or 4.0%, over the prior year largely as a result of the video release
of TITANIC, an increase in the number of company-operated stores and improved
merchandising campaigns in certain markets.

COST OF SALES. Cost of sales increased $272.4 million, or 21.6%, in 1998
from 1997. These costs consist primarily of revenue-sharing payments to movie
studios, amortization costs associated with rental products, residual costs
associated with the sale of previously viewed tapes and cost of retail product.
As a result of the change in accounting in 1998, the operating results for 1998
and 1997 are not fully comparable. Our total cost of product sold increased
$46.4 million, or 10.3%, in 1998 from 1997. This increase exceeds our revenue
increase of 4% due to increased markdowns and promotional activities during
1998.

Including the charges of $424.3 million in 1998 and $100.8 million in 1997,
the total historical cost of sales increased $595.9 million, or 43.8%, in 1998
from 1997.

GROSS PROFIT. Gross profit as a percentage of revenues (gross margin)
decreased slightly to 60.6% in 1998 from 62.0% in 1997. Including the $424.3
million charge in 1998 and $100.8 million charge in 1997, historical gross
margin decreased as a percentage of revenues to 49.8% in 1998 from 58.9% in
1997. Gross margin for 1998 and 1997 is not comparable because of the charges
recorded in the second quarter of each year.

OPERATING EXPENSES. Total operating expenses increased $248.0 million, or
12.1%, in 1998 from 1997 as a result of the following:

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense,
which includes expenses incurred at the store and corporate level, increased
$201.0 million, or 13.1%, in 1998 from 1997, primarily due to compensation
and occupancy expenses. Store labor increased because of an increase in the
number of operating store personnel, an increase in the number of
company-operated stores and an increase in the U.S. minimum wage. The
increase in the number of store personnel reflects our commitment to better
serve our customers and support our revenue growth. The increase in
occupancy expense was primarily attributable to growth in total
company-operated stores and increased expenses associated with existing
store lease renewals. As a percentage of total revenues, general and
administrative expenses decreased to 44.5% in 1998 from 46.2% in 1997.

34
<PAGE>
ADVERTISING EXPENSES. Advertising expenses increased by $41.5 million,
or 29.7%, in 1998 from 1997 due to additional promotional and advertising
activity to increase customer awareness of the greater quantity and
selection of newly released videos, our improved customer service, and the
improved selection of BLOCKBUSTER FAVORITES.

DEPRECIATION. Depreciation expense increased $4.0 million, or 1.9%, in
1998 from 1997. The increase in depreciation reflects our net store growth
in 1998.

Including the 1998 and 1997 charges, the total historical operating expenses
increased $128.5 million, or 5.9%, in 1998 from 1997.

INTEREST EXPENSE AND OTHER ITEMS, NET. Interest expense and other items,
net decreased $19.2 million in 1998 from 1997. During 1998 and 1997, we
recognized non-cash expenses of $10.5 million and $27.1 million, respectively,
to write down certain non-strategic investments to their net realizable value.
In the future, interest expense will increase significantly due to our increase
in debt. We refer you to "-- Liquidity and Capital Resources."

BENEFIT (PROVISION) FOR INCOME TAXES. The historical results recognized a
benefit for income taxes of $59.4 million in 1998 as compared to a provision for
income taxes of $30.0 million in 1997. This change was primarily attributable to
the mix of domestic and foreign income or losses. We do not recognize a benefit
for foreign losses, as it is more likely than not that the benefit will not be
realized. Goodwill associated with Viacom's acquisition of our business and
pushed down to us is not amortizable for tax purposes. Excluding the
non-deductible amortization of intangibles, the annual effective tax rates would
have been 24.6% in 1998 and (25.8%) in 1997.

EQUITY IN LOSS OF AFFILIATED COMPANIES, NET OF TAX. The equity in loss of
affiliated companies, net of tax, decreased primarily due to the fact that we
recognized a pre-tax charge of $29.4 million in 1997 associated with our
investment in our Japanese joint venture.

COMPARISON OF 1997 TO 1996

REVENUES. Revenues increased $371.5 million, or 12.6%, in 1997 principally
due to an increase of 633 company-operated stores over the prior year, partially
offset by a decline in same store revenues. Revenue growth consisted primarily
of an increase in rental revenues of $277.1 million, or 11.6%, driven by the
increase in the number of company-operated stores. This increase was partially
offset by a decline in same store rental revenues resulting from many factors
including a reduction in the number of active customers and rental transactions.
Product revenues increased $102.7 million, or 20.9%, over the prior year due to
our significant focus on domestic retail merchandise during the first half of
1997 and due to improved product offerings in certain international markets.

COST OF SALES. Cost of sales increased $246.0 million, or 24.3%, in 1997
from 1996. This increase was primarily due to an increase in amortization
expense in 1997 as compared to 1996 resulting from a smaller percentage of our
amortization expense in 1997 being attributable to the lower cost rental
videocassette inventory we acquired in 1994.

GROSS PROFIT. Gross profit as a percentage of revenues (gross margin)
decreased to 62.0% in 1997 from 65.5% in 1996. Including the $100.8 million
charge in 1997, gross margin decreased as a percentage of revenues to 58.9% in
1997 from 65.5% in 1996. Gross margin for 1997 and 1996 is not comparable
because of the charges recorded in the second quarter of 1997.

OPERATING EXPENSES. Total operating expenses increased $437.6 million, or
27.2%, in 1997 from 1996 as a result of the following:

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased in 1997 primarily due to increases in compensation and
occupancy expenses. The increase in compensation

35
<PAGE>
expense was due primarily to increases in the minimum wage in late 1996 and
1997 and an increase in the number of company-operated stores. In addition,
in connection with our relocation to Dallas, we incurred higher salary
expense due to the hiring of temporary employees until positions could be
filled in Dallas. We also paid higher salaries overall due to the strong
labor demand in the Dallas market. The increase in occupancy expense was
primarily attributable to growth in our total number of company-operated
stores. As a percentage of total revenues, general and administrative
expenses increased to 46.2% in 1997 from 39.5% in 1996.

ADVERTISING EXPENSES. Advertising expenses increased by $24.2 million,
or 21.0%, in 1997 from 1996 primarily due to increased promotions designed
to increase customer traffic.

DEPRECIATION. Depreciation expense increased $43.2 million, or 26.1%,
in 1997 from 1996 principally due to the higher purchases of equipment,
fixtures and leasehold improvements associated with our store growth and the
accelerated depreciation on the warehouse equipment located at our former
distribution center in Garland, Texas.

Including the 1997 and 1996 charges, total historical operating expenses
increased $506.9 million, or 30.5%, in 1997 from 1996.

INTEREST EXPENSE AND OTHER ITEMS, NET. Interest expense and other items,
net increased $36.3 million in 1997 from 1996. Excluding the $27.1 million
charge in 1997, interest expense and other items, net increased $9.2 million, or
50%, in 1997 from 1996. This increase is primarily attributable to increased
funding from Viacom to support our foreign expansion. In the future, interest
expense will increase significantly due to our increase in debt. We refer you to
"-- Liquidity and Capital Resources."

PROVISION FOR INCOME TAXES. The historical results recognized a provision
for taxes of $30.0 million in 1997 and $167.4 million in 1996. This change was
primarily attributable to the mix of domestic and foreign income or losses. We
did not recognize a benefit for foreign losses, as it is more likely than not
that the benefit will not be realized. In addition, goodwill associated with
Viacom's acquisition of our businesses and operations which was pushed down to
Blockbuster is not amortizable for tax purposes. Excluding the non-deductible
amortization of intangibles, the annual effective tax rates would have been
(25.8%) in 1997 and 41.8% in 1996.

EQUITY IN LOSS OF AFFILIATED COMPANIES, NET OF TAX. The historical amount
of equity in loss of affiliated companies, net of tax, increased $14.9 million
in 1997 over the prior year. This increase was primarily due to the fact that we
recognized a pre-tax charge of $29.4 million in 1997 associated with our
investment in our Japanese joint venture.

GENERAL ECONOMIC TRENDS, QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY

We anticipate that our business will be affected by general economic and
other consumer trends. Our business is subject to fluctuations in future
operating results due to a variety of factors, many of which are outside of our
control. These fluctuations may be caused by, among other things:

- the number, timing and performance of new or acquired stores;

- public acceptance and interest in newly released videos;

- our mix of products rented and sold;

- additional and existing competition and their pricing actions;

- marketing programs and new release acquisition costs;

- changing technologies; and

- other factors affecting retailers in general.

36
<PAGE>
We cannot assure you that we will have positive earnings in any quarter, or that
earnings in any particular quarter will not fall short of either (1) those in
the prior quarter or (2) your expectations. We refer you to "Risk Factors --
Risk Factors Related to Our Business and Industry -- Our Revenues May
Significantly Fluctuate."

The following table sets forth quarterly statement of operations data for
the eight quarters ended December 31, 1998. This unaudited quarterly information
is as adjusted for the charges discussed above and described in notes 3 and 4 of
the combined financial statements and in our opinion, includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the periods covered. This data should be
read in conjunction with the combined financial statements and the notes
thereto. The quarterly operating results are not necessarily indicative of the
operating results for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
JUNE
MARCH 31 30(1)(2) SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------- ------------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
1997
Revenue..................................................... $ 823.8 $ 765.3 $ 817.7 $ 906.8
Gross profit................................................ 538.3 471.3 504.5 539.8
Operating income (loss)..................................... 71.2 (43.3) (14.8) (7.4)
Net income (loss)........................................... (19.3) (52.6) (37.8) (33.8)
Net income (loss) plus intangible amortization,
net of tax................................................ 21.5 (11.8) 3.0 7.0

Same store revenues increase (decrease)..................... (1.2%) (2.3%) (1.5%) (1.0%)

1998
Revenue..................................................... $ 931.2 $ 890.0 $ 985.4 $ 1,086.8
Gross profit................................................ 604.6 524.5 591.7 640.5
Operating income (loss)..................................... 67.0 (32.6) 5.4 25.3
Net income (loss)........................................... 15.8 (44.9) (21.5) (12.9)
Net income (loss) plus intangible amortization,
net of tax................................................ 56.8 (3.9) 19.6 28.1
Same store revenues increase (decrease)..................... 7.6% 12.6% 18.2% 14.5%
</TABLE>

- ------------------------

(1) This excludes the charges recorded in the second quarter of 1997. Historical
gross profit, operating loss and net loss were $370.5 million, $263.6
million and $227.3 million, respectively.

(2) This excludes the charges recorded in the second quarter of 1998. Historical
gross profit, operating loss and net loss were $100.2 million, $456.9
million and $318.0 million, respectively.

There is a distinct seasonal pattern to the home video business with the
peak rental periods tending to coincide with school vacation patterns such as
summer, spring break and holidays. Conversely, our business generally
experiences revenue declines in April and May, due in part to improved weather
and Daylight Savings Time, and in September and October, due in part to the
start of school and the introduction of new television programs. In addition,
factors that affect retailers in general, such as weather patterns and special
or unusual events, also have an impact on the home video business. As we expand
into new markets and geographic locations, we may experience additional seasonal
trends that would create fluctuations in operating results.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY PRIOR TO AND UPON OUR SEPARATION FROM VIACOM

Our capital investments and acquisitions have been financed with a
combination of cash flow from operations and advances from Viacom. We generate
cash from operations predominantly from the rental of videocassettes and we have
substantial operating cash flow because most of our revenue is received in

37
<PAGE>
cash and cash equivalents. Under Viacom's centralized cash management system,
Viacom deposits sufficient cash in our bank accounts to meet our daily
obligations and withdraws excess funds from those accounts. These transactions
are included in advances from Viacom in the combined balance sheets and combined
statements of cash flows. Excess operating cash flow and additional funding from
Viacom had been used primarily for the opening and acquiring of new stores, the
refurbishment, remodeling and relocation of existing stores and the purchase of
videocassette inventory.

We expect to fund our future anticipated cash requirements (including the
anticipated cash requirements for capital expenditures and payments of principal
and interest on any borrowings) with funds generated from our operations in
addition to various external funds which may be available to us. The external
sources of funds may include future issuances of debt, equity or other
securities. We believe that such internally and externally generated funds will
provide us with adequate liquidity and capital necessary upon our separation
from Viacom and for the foreseeable future.

CASH FLOWS

OPERATING ACTIVITIES. Net cash flows from operating activities increased
$243.2 million from $991.3 million in 1997 to $1,234.5 million in 1998 primarily
due to stronger operating results, excluding the non-cash items, and improved
payment terms with vendors, partially offset by prepayments for revenue-sharing
and an increased investment in retail merchandise. Revenue-sharing payments are
reflected as a reduction of cash flow from operating activities. Accordingly,
these payments will have a downward impact on cash flow from operations as
revenue-sharing payments increase. However, this downward impact should be more
than offset by a decline in videocassette purchases included in investing
activities.

Net cash flow from operating activities in 1997 increased $6.3 million from
$985.0 million in 1996 and was primarily attributable to slowing of our
investment in product inventory and accounts receivable in 1997 reflecting our
change in focus from retail to rental.

INVESTING ACTIVITIES. Net cash used for investing activities decreased
$165.9 million from $1,188.1 million in 1997 to $1,022.2 million in 1998
primarily due to the lower up front costs required for revenue-sharing titles
compared to traditional pricing. Capital expenditures decreased due to a
reduction in new store openings in 1998 as compared to 1997 and cash used for
acquisitions decreased as a result of our change in focus from expansions
through acquisitions to enhancing existing store performance.

Net cash used for investing activities decreased $47.0 million in 1997 from
$1,235.1 million in 1996. This decrease was primarily due to the reduction in
new store openings and acquisitions. These decreases were partially offset by
increased rental library purchases and cash received from the disposition of our
Fort Lauderdale headquarters.

The major components of investing activities are detailed below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from investing activities:
Rental library purchases.................................................. $ (751.5) $ (860.2) $ (818.1)
Capital expenditures...................................................... (323.7) (262.2) (175.0)
Cash used for acquisitions................................................ (154.4) (79.0) (34.2)
Other..................................................................... (5.5) 13.3 5.1
---------- ---------- ----------
Net cash flow from (used for) investing activities.......................... $ (1,235.1) $ (1,188.1) $ (1,022.2)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

Our capital expenditures include store equipment and fixtures, remodeling of
certain existing stores, implementation and upgrading of office and store
technology and the opening of new store locations. Each

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<PAGE>
new store opening requires initial capital expenditures, including leasehold
improvements, inventory, equipment and costs related to site location, lease
negotiations and construction permits. We plan to evaluate and pursue new sites
and acquisitions within the video rental industry in both the United States and
in international markets and will require capital and/or ongoing infrastructure
enhancements to support our expansion strategies in developing markets and for
acquisitions

FINANCING ACTIVITIES. Net cash flow from financing activities decreased
$510.4 million to a net cash outflow of $241.1 million in 1998 as a result of
repayments to Viacom.

Net cash flow from financing activities increased $60.5 million from $208.8
million in 1996 to $269.3 million in 1997 as a result of advances from Viacom.

On December 31, 1998, we declared a $1.4 billion dividend in the form of
promissory note to Viacom International Inc. In the first quarter of 1999, we
issued other promissory notes of about $77 million to Viacom International Inc.
relating to our purchase of video stores. We will pay both these notes including
accrued and unpaid interest as well as any other notes owed to Viacom
International Inc. or its affiliates with the proceeds of the borrowings under
the credit agreement described below.

On , 1999, we entered into a $2.0 billion term and revolving credit
agreement with a syndicate of lenders. On such date, we borrowed $
billion, all of which was used to (1) acquire certain non-U.S. operations of our
business from affiliates of Viacom and (2) repay debt owed to Viacom
International Inc. and its affiliates. The revolving credit agreement is
intended to replace our reliance on Viacom's centralized cash management system.
Upon completion of this offering and after giving effect to the foregoing
financing transactions, we expect to have outstanding $ billion of long-term
indebtedness. For a more complete description of the credit agreement, we refer
you to "Description of Credit Agreement."

We believe that cash flow from operations and future borrowings, will
provide us with adequate liquidity and capital necessary to continue to fund our
daily operations and expansion strategy in the forseeable future. Depending upon
our growth opportunities and other factors, we may, from time to time, consider
the issuance of debt, equity or other securities, to refinance debt or for
general corporate purposes. However, we can not assure you that we will be able
to access capital markets in the future on terms that are satisfactory to us.

OTHER FINANCIAL MEASUREMENTS: WORKING CAPITAL

At December 31, 1997 and 1998, we had cash and cash equivalents of $129.6
million and $99.0 million, respectively. Working capital, however, reflected a
deficit of $85.2 million and $214.5 million, respectively, due to the accounting
treatment of our videocassette rental inventory. Under generally accepted
accounting principles, videocassette rental inventories are accounted for as
non-current assets and are excluded from the computation of working capital. The
acquisition cost of videocassette rental inventories, however, is reported as a
current liability and, accordingly, is included in the computation of working
capital. Consequently, we believe working capital is not as significant a
measure of financial condition for companies in the home video industry as it is
for companies in other industries. Because of this accounting treatment, we may,
from time to time, operate with a working capital deficit.

AVAILABILITY OF FOREIGN NET OPERATING LOSSES.

Foreign net operating losses, which are fully reserved, may not be available
to us after the split-off.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks including interest rates on our debt
and foreign exchange rates.

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<PAGE>
INTEREST RATE RISK

Historically, we have had no material interest rate risk associated with
debt used to finance our operations due to limited borrowings and our
relationship with Viacom. Subsequent to this offering, we intend to manage our
interest rate exposure using a mix of fixed and floating interest rate debt and,
if appropriate, financial derivative instruments.

FOREIGN EXCHANGE RISK

Operating in international markets involves exposure to movements in
currency exchange rates. Currency exchange rate movements typically also reflect
economic growth, inflation, interest rates, government actions and other
factors. As currency exchange rates fluctuate, translation of the statements of
operations of our international businesses into U.S. dollars may affect
year-over-year comparability and could cause us to adjust our financing and
operating strategies.

On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between their existing, or local, currencies
and one common currency, the euro. The euro trades on currency exchanges and may
be used in business transactions. Conversion to the euro eliminates currency
exchange risk between the participating member countries. Beginning January
2002, new euro-denominated bills and coins will be issued, and local currencies
will be withdrawn from circulation.

Our operations outside the United States constitute 20.6% of our total
revenues. Our operations in Europe constitute 11.0% of the total revenues. The
majority of these sales are from Great Britain, which has not adopted the euro.

Numerous issues are raised by the euro currency conversion including the
need to adapt computer and financial systems and business processes and
equipment. Due to these uncertainties, we cannot reasonably estimate the
long-term effects one common currency may have on pricing, costs, and the
resulting impact, if any, on financial condition.

RECENT ACCOUNTING PRONOUNCEMENTS

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. The SOP is effective for financial statements
for fiscal years beginning after December 15, 1998. Blockbuster adopted SOP 98-5
effective January 1, 1998. Adoption of SOP 98-5 had no material effect on our
combined financial statements.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133") effective for fiscal years beginning after June
15, 1999. We anticipate that due to our limited use of derivative instruments,
the adoption of SFAS 133 effective January 1, 2000, will not have a material
effect on our financial statements.

YEAR 2000 COMPLIANCE

OVERVIEW

The widespread use of computer programs that rely on two-digit dates to
perform computations and decision-making functions may cause computer systems to
malfunction prior to or in the year 2000 and lead to significant business delays
and disruptions in the United States and internationally. We have implemented a
year 2000 program in order to identify, assess and mitigate our year 2000 risks.
As part of our program, we have hired independent consultants to assist in the
review and oversight of our program, as well as to perform certain testing
operations. In addition, we have established a project management team to
monitor our program.

40
<PAGE>
We are reviewing our year 2000 issues based upon three areas: applications,
infrastructure and business partners.

Applications cover the software systems resident on mainframe,
mid-range, network and personal computers. We define an application as one
or a collection of programs directly related to a common system. For
example, a financial application may include all the general ledger and
accounts receivable software code used to process information. In addition,
our applications have been segregated into critical and non-critical
applications. Critical applications are software systems which, if not
operational, could have a material impact on our business operations.

Infrastructure includes computers, data and voice communications
networks, and other equipment which use embedded chip processors (e.g.,
inventory movement systems, telephone systems, etc.).

Business partners include franchisees, third party vendors, customers
and other service providers whose systems may interface with us or whose own
operations are important to our daily operations.

These three areas have been addressed using a five phase program: inventory,
assessment, remediation, testing and contingency planning.

- Phase 1 inventories the respective applications, hardware and business
partners.

- Phase 2 assesses the possible impact of a year 2000 error on the
continuing operation of each identified application, hardware system or
business partner relationship and subsequently determines the risk of year
2000 noncompliance to operations and assigns priorities.

- Phase 3 establishes and implements specific plans for the remediation of
applications and hardware systems and for the determination of business
partners' compliance.

- Phase 4 tests each application and hardware system and reviews business
partners' compliance under the plans established in phase 3, to ensure
that year 2000 issues no longer exist.

- Phase 5 establishes and implements contingency plans in the event internal
or external systems are not compliant.

Changes may occur to our operations during the implementation of our year
2000 program or subsequent to the completion of each phase, therefore, we may
periodically revise our plans. We continue to review and test systems for year
2000 compliance as changes occur.

STATE OF READINESS

Our year 2000 progress is as follows:

APPLICATIONS

We have completed the inventory and assessment phases. We have identified 16
critical domestic and 6 critical international applications which primarily
relate to point-of-sale, warehousing and distribution and finance/payroll. A
significant number of critical and non-critical worldwide applications have been
remediated and tested and the remaining applications are scheduled for
completion by August, 1999.

INFRASTRUCTURE

We have completed the domestic and international inventory and assessment
phases. A majority of the systems with embedded processors have completed the
remediation and testing phases. The remaining hardware systems remediation will
be completed by August, 1999.

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<PAGE>
BUSINESS PARTNERS

During the course of business operations, we rely on third party business
partners to distribute products and to provide services. These business partners
include financial institutions, governmental agencies and utilities. The
disruption of the ability to receive services or to distribute our products
could adversely affect our financial condition. Although we have little or no
control over the remediation and testing of these third party systems, we are
taking appropriate action to determine the level of year 2000 compliance of
third parties. These actions include, but are not limited to, requesting written
confirmation of a business or business system's year 2000 compliance; directly
meeting with business management; and, performing additional independent tests.

We have substantially completed the inventory phase and are in the
assessment phase of business partners and expect this phase to be completed by
the second quarter of 1999. The determination of third party year 2000
compliance will continue through the end of the year.

CONTINGENCY PLANS AND RISKS

As the remediation, testing and review of each application, infrastructure
item and business partners occurs, we are determining the need for contingency
plans. Where appropriate, plans addressing both operational and technical
alternatives are being developed. This phase has begun and will continue through
the end of 1999.

Our goal is to achieve timely and substantial year 2000 compliance, with
remediation work assigned based upon how critical each system is to our
business. Due to the general uncertainty inherent in the year 2000 problem,
resulting in part from the uncertainty of compliance by third parties upon which
we rely, we are unable to determine at this time what the consequences of the
year 2000 problem will be. Our year 2000 program can only minimize, but cannot
eliminate, the risks of third party non-compliance. If we, or one of these third
parties upon which we rely, fail to adequately address the year 2000 problem, it
could disrupt our business. The possible consequences of a failure include
incomplete or inaccurate accounting, recording or processing of rentals and
sales of videocassettes, video games and other products and the reporting of
this information; delays or failures in ordering, shipment and distribution of
videocassettes, video games and other products; the creation of uncertainty
about our customer database; or inability to consummate credit and debit card
and check transactions. We will continue to devote the necessary resources to
complete our year 2000 program and contingency plans and believe that such
completion will significantly mitigate operational and financial risks.

COSTS

Costs of our year 2000 program have been expensed as incurred. The estimated
costs to complete our year 2000 program is currently expected to total about $11
million, $8 million of which has been incurred to date. We do not expect this to
have a material adverse effect on our results of operations, financial position
or liquidity.

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<PAGE>
VIDEO INDUSTRY OVERVIEW

DOMESTIC HOME VIDEO INDUSTRY

According to Paul Kagan Associates, the U.S. videocassette and DVD rental
and sales industry grew from $15.7 billion in revenue in 1997 to $17.1 billion
in 1998 and this expert expects to reach $22.0 billion in 2002. Paul Kagan
Associates estimates that, in 1998, 83.5 million, or 81.5%, of the 102.5 million
total U.S. households owned a VCR. The number of VCRs that were sold in the
United States in 1998 was estimated by Paul Kagan Associates to be 18.8 million,
a 3.5% increase from 1997, which represents the largest number of VCRs sold in
any single year. In addition, Paul Kagan Associates estimates that about 900,000
DVD players were sold in the United States during 1998. According to Paul Kagan
Associates, the VCR and DVD markets will continue to grow as the number of
multi-VCR households is expected to increase from 37.0 million in 1998 to 43.8
million by 2002 and the number of VCRs and DVD players sold in 2002 is expected
to reach 21.5 million.

As part of a November 1997 survey, the Video Software Dealers Association
revealed that each week nearly one-quarter of all U.S. households make a trip to
their video store, and each month almost three-fourths of all U.S. households
with children rent videocassettes. We believe that the following factors, among
others, make video rental a preferred medium of entertainment for millions of
customers:

- the opportunity to browse among a very broad selection of movies;

- the control over viewing, such as the ability to control start, stop,
pause, fast-forward and rewind;

- the opportunity to view recently released movies prior to their
availability for viewing in the home through other mediums such as
pay-per-view, pay television, basic cable television and network and
syndicated television; and

- the opportunity to entertain one or more people for a reasonable price.

The home video industry is highly fragmented. However, the home video
industry has experienced consolidation in recent years, as video store chains
have gained significant market share from single store operators. According to
Paul Kagan Associates, the five largest video store chains have a 40% market
share of all U.S. consumer video rentals in 1998. Dun & Bradstreet, as cited by
the Video Software Dealers Association, estimates that by the first quarter of
1999 there were about 24,590 independent video stores in the United States, down
from about 26,960 in the first quarter of 1998. About 49% of all locations that
rent video titles are currently operated by single store owners. In addition,
according to the Video Software Dealers Association, more than 14,000 of these
single store operators generate annual revenues of less than $220,000. We
believe that small stores and chains in the home video industry will continue to
consolidate with national and regional chains and that such consolidation will
offer us numerous acquisition opportunities. We believe that there are several
competitive advantages of being a large home video chain, including marketing
efficiencies, brand recognition, access to more copies of each videocassette
through direct revenue-sharing agreements, sophisticated information systems,
greater access to prime real estate locations, greater access to capital and
competitive pricing made possible by size and operating efficiencies. Even if
there is significant consolidation, however, we expect that the home video
industry will remain fragmented.

Historically, the major studios or their licensees released movies to video
stores at wholesale prices between $60 and $70 per videocassette for major
theatrical releases that were priced for rental in the United States. The
studios still release movies at relatively high wholesale prices unless the
movie is subject to a revenue-sharing agreement or a quantity discount program
or is designated by the studios as a sell-through movie. The studios attempt to
maximize total revenue from newly released video titles by maintaining the high
wholesale price during the first four months to one year after a movie is
released. Thereafter, in order to promote sales to consumers, the major studios
release the movies at a substantially lower price, which movies generally sell
at retail for about $10 to $20 per videocassette.

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<PAGE>
Since the late 1980s, revenue-sharing agreements have been available to home
video chains and independent video dealers through deals brokered by
distributors such as Rentrak Corporation and SuperComm, Inc. More recently, the
major studios have entered into revenue-sharing agreements directly with several
large video chains. Under these new agreements, video stores share with the
studios an agreed-upon percentage of the video stores' rental revenue for a
limited period of time in exchange for minimal up-front payments for the
videocassettes by the video stores. This percentage generally declines over a
period of weeks following the initial release of the movie. The video stores may
also agree to take a minimum number of copies of each movie that is released by
a studio in any U.S. movie theater. The video stores may also agree to take a
minimum number of movies that are not released by a studio in any U.S. movie
theater. The revenue-sharing agreements, subject to limitations and exceptions,
allow the video stores to sell previously viewed tapes to their customers.

We believe that the revenue-sharing agreements have the following
significant benefits to participating video stores:

- they provide these stores with the opportunity to substantially increase
the quantity and selection of newly released video titles that they stock;

- they increase revenues as a result of the increase in total number of
transactions per store and number of videocassettes rented per
transaction; and

- they align the studios' economic interests more closely with the interests
of the video stores.

In addition, we believe that revenue-sharing has increased the revenues
received on an annual basis by the studios through increased rental activity on
new releases as well as greater distribution and revenues on non-hit movies
through minimum output provisions.

In addition to wholesale pricing and revenue-sharing agreements, studios
release some movies at relatively low initial prices which movies generally are
sold by retailers for $10 to $20 per videocassette. Because the wholesale price
is relatively low and these movies are not subject to the revenue-sharing
agreements, retailers generally purchase these movies primarily for sale and
such movies are referred to as sell-through movies. These typically consist of
movies for children and other movies that have unique characteristics or other
mass ownership appeal, such as THE RUGRATS MOVIE and TITANIC.

INTERNATIONAL HOME VIDEO INDUSTRY

According to Paul Kagan Associates, the potential market for home video
rentals is growing at a faster pace outside the United States than within the
domestic market. According to Paul Kagan Associates, the number of households
outside of the United States and Canada which own a VCR is expected to grow from
about 264 million in 1996 to about 353 million by 2001. Currently, we operate in
26 countries outside of the United States.

Some of the attributes of the home video industry outside of the United
States are similar to those of the home video industry within the United States.
For example, the major studios generally release movies outside of the United
States according to the same sequential windows as the release of movies within
the United States, though the international windows tend to last for a longer
period of time. In general, however, the home video industry outside of the
United States does not mirror the home video industry within the United States.
For example, most countries have different systems of supply and distribution of
movie titles. Revenue-sharing agreements, which have proliferated within the
U.S. home video industry among large home video chains, generally have not yet
spread into markets outside of the United States. In addition, competition in
most international markets generally tends to be more fragmented, with few large
home video chains.

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<PAGE>
MOVIE STUDIO DEPENDENCE ON VIDEO RENTAL INDUSTRY

According to Paul Kagan Associates, total U.S. movie studio and independent
supplier revenue increased about 11% per year from $9.0 billion in 1994 to $13.8
billion in 1998. Paul Kagan Associates also indicates that the video rental
industry is the largest single source of U.S. revenue to movie distributors,
representing about $6.7 billion, or 48.5%, of the $13.8 billion of movie revenue
in 1998. The following table represents Paul Kagan Associates' estimates of
revenues of total movie distributor revenue.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN MILLIONS)
U.S. home video........................ $ 4,612 $ 5,264 $ 6,181 $ 6,311 $ 6,690
Other U.S. revenue..................... 4,398 5,359 5,942 6,431 7,108
--------- --------- --------- --------- ---------
Total U.S. revenue................. 9,010 10,623 12,123 12,742 13,798
--------- --------- --------- --------- ---------

International home video............... $ 3,443 $ 4,230 $ 4,464 $ 4,406 $ 4,185
Other international revenue............ 4,515 4,964 6,010 6,400 6,904
--------- --------- --------- --------- ---------
Total international revenue........ 7,958 9,194 10,474 10,806 11,089
--------- --------- --------- --------- ---------

Total revenue.................... $ 16,968 $ 19,817 $ 22,597 $ 23,548 $ 24,887
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

Of the many movies produced by major studios and released in the United
States each year, relatively few are profitable for the studios based on box
office revenues alone. In addition to purchasing box office hits, video rental
stores, including those operated by us, purchase movies on videocassette and DVD
that were not successful at the box office, thus providing the movie studios
with a reliable source of revenue for almost all of their movies. We believe
that the consumer is more likely to view movies which were not box office hits
on a rented videocassette or DVD than on most other formats because video rental
stores provide an inviting opportunity to browse and make an impulse choice
among a very broad selection of movie titles. In addition, we believe the
relatively low cost of video rentals encourages consumers to rent films they
might not pay to view at a theater.

Historically, new technologies have led to the creation of additional
distribution channels for movie studios. Movie studios seek to maximize their
revenues by releasing movies in sequential release date "windows" to various
movie distribution channels. After the initial theatrical release, studios make
their movies available to video stores for a specified period of time. This
window is exclusive against most other forms of non-theatrical movie
distribution, such as pay-per-view, premium television, basic cable and network
and syndicated television. The current length of the window for video stores
varies, typicallly ranging from 30 to 90 days for domestic video stores and from
120 to 180 days for international video stores. Thereafter, movies are made
sequentially available to other television distribution channels. This method of
sequential release allows the movie studios to increase their total revenue
while minimizing the adverse effect on the revenue derived from previously
established channels. With the advent of revenue-sharing and the incremental
revenues associated with such agreements, most movie studios have lengthened the
video store window for many box office hits.

HOME VIDEO GAME INDUSTRY

The home video game industry has historically been affected by changing
technology, limited hardware platform life cycles and hit-or-miss software
titles. In addition, video games typically generate most of their rental revenue
during the first twelve months after their release. We believe that during this
time period, the differential between the retail price and a rental price of a
new video game is typically high enough to make rentals an attractive
alternative to the customer. According to Adams Media Research and VidTrac, the
total domestic home video game market generated about $2.0 billion in software
sales and $495 million in rental revenue in 1997. These markets grew to about
$2.7 billion and about

45
<PAGE>
$800 million in 1998, respectively, which represents a 36.8% and 61.7% increase,
respectively. Adams Media Research estimates that video game software sales will
reach about $3.4 billion in 2002, a 25% increase over the $2.7 billion in
software sales in 1998.

According to the Interactive Digital Software Association, most of the
recent growth in the home video game industry has been fueled by the success of
the Sony PlayStation-TM- and Nintendo 64-TM- and their respective video games.
As of March 31, 1999, the installed base of Sony PlayStation and Nintendo 64
within the United States was about 15.7 million and 10.6 million units,
respectively. We expect that the home video game industry will continue to grow
with the anticipated U.S. introduction of Sega's Dreamcast-TM- and the Sony
PlayStation II-TM-.

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BUSINESS

We are the world's leading retailer of rentable home videocassettes, DVDs
and video games, with about 6,500 stores in the United States and 26 other
countries as of March 31, 1999. We operate primarily under the highly recognized
BLOCKBUSTER brand name, which, according to The Gallup Organization, achieves
nearly 100% recognition with active movie renters in the United States. Our U.S.
Internet site, WWW.BLOCKBUSTER.COM, provides information about our stores and
products, delivers content regarding certain movies and entertainment programs
and serves as our electronic commerce venue. Based on 1998 industry estimates
from Paul Kagan Associates, Inc., a leading video industry expert, we estimate
that our company-operated and franchised stores attained a U.S. market share in
excess of 27%, over three times greater than that of our nearest competitor. In
the United States, our customer transaction database contains information on
about 87 million accounts, and we estimate that about 65% of the population
lives within three miles of one of our stores. Our revenues in 1998 increased
17.5% from 1997, with about 79% of these revenues generated in the United States
and about 21% generated outside of the United States. Nearly 60 million people
worldwide have rented in excess of 970 million movies and video games from us or
our franchisees within the last 12 months. For the year ended December 31, 1998,
we and our franchisees recorded worldwide revenues of about $4.7 billion, $3.9
billion from our company operations and $0.8 billion from our franchised stores.

Our brand recognition and leading market position have allowed us to create
one of the strongest entertainment franchises in the United States. In 1998, we
and our franchisees had a market share of the U.S. video rental market in excess
of 27% based on industry estimates of Paul Kagan Associates, over three times
greater than that of our nearest competitor. We have developed this leading
position based on a business model which provides our customers with superior
convenience, selection and service at attractive prices. We estimate that about
65% of the U.S. population lives within three miles of one of our stores and our
customer transaction database contains information on about 87 million customer
accounts. About 59 million people worldwide have rented movies or video games
from us or our franchisees within the last 12 months.

As of March 31, 1999, we operated in 26 other countries with leading market
positions in Great Britain, Canada and Ireland. Historically, the international
video retailing markets have been highly fragmented with varying distribution
patterns in each market. We believe that the economies of scale that we are able
to bring to each market, combined with our worldwide name recognition and
established distribution agreements, provide us with significant international
growth opportunities.

In 1997, John F. Antioco was recruited to serve as our chairman, president
and chief executive officer, selected in part for his significant multi-store
retail experience. Under the management team led by Mr. Antioco, we began to
develop a new business model which refocused on our core rental business. When
substantially implemented in the second quarter of 1998, this business model led
to a significant improvement in customer satisfaction. Most significantly, we
entered into domestic revenue-sharing agreements with all of the major Hollywood
studios. Under these agreements we share our U.S. rental revenues with the
studios for a limited period of time, which enables us to provide the most
popular newly released video titles to our customers more quickly, in greater
quantity and on a more efficient basis. We believe these agreements also have
the following significant benefits:

- substantially increasing the number of newly released videos in our stores
to better satisfy customer demand;

- contributing to an increase in revenues resulting from an increase in the
total number of transactions and the number of videocassettes rented per
transaction; and

- aligning the studios' economic interests more closely with ours because
they share a portion of the rental revenue with us for a period of time.

In addition to revenue-sharing, we have made other changes that have
increased our same store revenues while providing enhanced revenue opportunities
for the studios. Reflecting this turnaround,

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quarterly domestic same store rental revenues increased 8.6%, 17.5%, 20.0%,
20.5% and 23.1% in the first through fourth quarters of 1998 compared to 1997
and the first quarter of 1999 compared to the first quarter of 1998,
respectively.

BUSINESS MODEL

Our current business model is designed to increase customer traffic and
transaction size by improving customer satisfaction and ultimately generate
higher sales volume per store. We believe our business model gives us an
advantage over other large home video chains and a significant advantage over
our single store competitors. We are applying key elements of our business model
to our international operations. The key elements of our business model are
discussed below.

BROAD SELECTION AND LARGE NUMBER OF MOVIES

We strive to be the leader in satisfying customer demand by stocking each of
our stores with more copies and a wider variety of newly released movies than
our competitors. In large part, our revenue-sharing agreements and our ability
to self-distribute have allowed us to implement this strategy in the United
States. For the year ended December 31, 1998, which reflects nine months under
our new business model, we obtained on average 130% more copies of each
videocassette per store and 49% more video titles than the prior year. In
addition to newly released video titles, we offer a broad selection of
time-tested popular movies and a wide variety of independent and lower-cost
movies that we acquire and are generally only available at our stores for a
specified period of time.

Our goal is to stock each of our stores with a selection and quantity of
merchandise which is optimal for that store. Using our customer transaction
database, we determine on a store-by-store basis the number of copies of each
new release which are to be offered by each store. Our objective is to stock the
top 1,000 most commonly rented popular movies as part of our BLOCKBUSTER
FAVORITES. In addition, we use our customer transaction database to periodically
review each store's inventory of BLOCKBUSTER FAVORITES and identify movie titles
within this category which have not been rented for a period of time. We offer
these previously viewed tapes for sale and replace them with movies which we
believe our customers are interested in renting.

CONVENIENT AND VISIBLE STORES OF OPTIMAL SIZE AND LOCATION

We maintain a strong presence throughout the United States with an estimated
65% of the U.S. population living within three miles of one of our stores. Our
experienced store development team can quickly identify the optimal sites for
our new stores within our targeted markets through the use of our extensive real
estate and customer transaction databases. We have developed three distinct
store formats which are tailored to maximize our penetration in each market.
These three formats include our "new" traditional store format (about 4,800
square feet), our seam store format (about 2,500-3,500 square feet) and our
store-in-store format (about 1,000-1,200 square feet). In addition to stores, we
have begun to deploy video vending machines on an experimental basis.

In 1998, we began a comprehensive program to remodel our company-operated
stores worldwide. We expect to fit most of our company-operated stores with new
interior signage. We also expect to remodel the interior and exterior of some of
our company-operated stores in order to enhance our customer's shopping
experience. During 1998, we remodeled about 700 company-operated stores
worldwide.

SUPERIOR AND CONSISTENT CUSTOMER SERVICE

We focus on providing superior service to all of our customers. An essential
aspect of continuing to improve customer service has been our focus on improving
the in-store experience of each customer. We have worked to improve the quality
of our staff through recruitment, compensation, training and employee
appreciation and incentive programs. These programs encourage and empower our
store employees to gain experience and product knowledge in order to effectively
meet the needs of our customers. In addition, our domestic customers are
eligible to participate in our BLOCKBUSTER REWARDS premium

48
<PAGE>
membership program, which allows our customers to earn free rentals. Our most
active customers are automatically enrolled in the BLOCKBUSTER REWARDS Gold
program which offers additional free rental benefits and the ability to reserve
movies. These programs are designed to develop customer loyalty by encouraging
our customers to rent movies only from our stores.

COMPETITIVE PRICING

Our goal is to optimize on a store-by-store basis the price at which we rent
our video titles. In 1998, we initiated a dual pricing strategy that
differentiated pricing between newly released video titles and BLOCKBUSTER
FAVORITES, whereby the BLOCKBUSTER FAVORITES were priced lower than the newly
released video titles. We believe that our customers perceive this two-tiered
pricing as more appropriate in light of the differences between the demand for
the newly released video titles and the BLOCKBUSTER FAVORITES. Our customer
transaction database provides us with the ability to adjust our overall pricing
strategy for each U.S. store based on local market conditions, including local
prices established by our competitors. In addition, we have implemented a new
policy in our company-operated stores, setting the rental term of our
BLOCKBUSTER FAVORITES, our video games and certain of our newly released video
titles to a period ranging from two to five evenings. Previously, all rentals
were due after two evenings.

NATIONAL ADVERTISING AND MARKETING PROGRAMS

Our large U.S. store base and our extensive customer database enable us to
be the only home video chain that currently maintains a national advertising and
marketing program, including network television, national promotions and local
television and radio. For the year ended December 31, 1998, we incurred about
$181 million in advertising expenses. In addition, some of our business
partners, including the studios, allow us to direct a significant amount of
their advertising expenditures. Furthermore, the studios incur additional
expenditures to promote their newly released movies.

Our advertising and marketing provide information regarding one or more key
points of difference between ourselves and the competition. We have pursued an
aggressive advertising and marketing campaign in order to promote awareness of
the BLOCKBUSTER name. Our primary goal is to make our name so recognizable that
any time a person wishes to rent a movie, he or she will first consider coming
to one of our stores. Our advertising and marketing tries to convey the message
that a visit to one of our stores will allow the customer to experience the
magic of the movies.

USE THE CUSTOMER TRANSACTION DATABASE

We have developed and utilized an extensive customer transaction database
with about 87 million customer accounts in the United States. This database
enables us to effectively operate and market our business. For example, we are
able to directly communicate with our customers on a targeted and customized
basis relating to our products and programs. We are also able to stock each of
our company-operated stores with the quantity and selection of merchandise which
is optimal to that store.

SELF DISTRIBUTION CAPABILITIES

We have constructed and launched a highly-automated distribution center in
McKinney, Texas which allows us to distribute substantially all of our products
to our domestic company-operated stores. We believe that our distribution center
gives us a significant competitive advantage over our competitors which use
third party distributors because we are able to process and distribute a greater
quantity of products while reducing costs and improving service to our stores.
In particular, we mechanically repackage our newly released videos to make them
suitable for rental at our stores. Previously, this activity had been performed
manually at each store. In addition, our distribution center gives us the
capacity to accommodate our planned store expansion without incurring
significant expenditures. For example, between 1997 and the end of 1999, we
anticipate that we will have tripled the number of videocassettes processed and
distributed to our stores. We also believe these distribution capabilities were
a major factor in our ability to

49
<PAGE>
successfully implement our revenue-sharing agreements to provide superior movie
selection to our customers.

GROWTH STRATEGY

We believe that our growth strategy will further establish our company as
the leading home video chain in the world. Our goal is to increase our
systemwide U.S. market share from 27%, as of December 31, 1998, to over 40%
within the next three years and to significantly increase our market share in
those countries outside the United States where we believe it is profitable to
do so. We believe that our growth objectives can be met because (1) the home
video industry is highly fragmented both in the United States and
internationally, (2) consolidation has already begun and will continue and (3)
the advantages created by our new business model positioned us to increase our
market share. As explained more fully below, our growth will principally be
driven by an increase in our same store revenues, an expansion of both our
company-operated and franchisee-operated store base in the United States and
internationally and by spreading our expenses over a larger revenue base.

INCREASE SAME STORE REVENUES

By implementing each element of our business model, we believe that we will
increase same store revenues by:

- increasing the number of movies or video games that a customer rents on
each visit to our stores;

- continuing to grow our active customer base as we increase our market
share;

- increasing the number of times that active customers visit our stores;

- expanding our offering of rentable home entertainment, such as DVDs and
video games; and

- further increasing the quantity of videocassettes in our stores.

EXPAND DOMESTIC STORE BASE

Based on our current store prototypes, we believe that the potential exists
for 4,000 additional new traditional video stores in the United States. Over the
next three years, we expect to add about 500 company-operated stores per year to
our U.S. store base. We plan to open most of these new stores in the 70 largest
markets in the United States. With the use of our extensive customer transaction
database and real estate database, our experienced store development team
identifies markets with growth opportunities and responds to these opportunities
with the appropriate store location and store format, which store format ranges
from about 1,000 to 4,800 square feet. We believe that through our site
selection process and flexible store formats, our new stores will generate
sufficient revenue to recover our capital investment in a short period of time
without significantly reducing the revenues of our existing stores.

EXPAND INTERNATIONAL STORE BASE

Our international strategy is focused on both expanding into markets where
we already have an established market position and entering and expanding our
presence in new or less mature markets. Although, as of March 31, 1999, we
operated stores in 26 markets outside of the United States, 90% of our
international rental revenue was generated by our top seven international
markets. These markets are Great Britain, Canada, Ireland (including Northern
Ireland), Mexico, Australia, Spain and Taiwan. We believe that the growth
opportunities in these markets are significant because they are highly
fragmented and our respective market share in each of these countries is
generally estimated by us to be less than 40%. We expect to open over 400 new
company-operated stores in these seven markets over the next three years. We
also plan to open over 100 new company-operated stores over the next three years
in international markets other than our top seven markets. As in the United
States, we use different store prototypes in response to local real estate and
market conditions. In addition, we have developed and use a new country entry
model which targets development of a specified range of a number of
company-operated stores and

50
<PAGE>
franchised stores at which point economies of scale can be used to reduce
corporate overhead costs and national advertising expenses.

EXPAND WORLDWIDE FRANCHISE PROGRAM

Over the next three years, we expect to add about 200 franchised stores per
year to our franchised U.S. store base and about 125 franchised stores per year
to our international store base. This includes joint ventures in which we own a
minority interest. As of March 31, 1999, we had about 125 franchisees operating
640 U.S. franchised stores and 421 international franchised stores. For the year
ended December 31, 1998, we had royalty revenues of $60.7 million relating to
our franchise operations, or about 1.6% of our 1998 revenues. In order to
accomplish this objective, we have refined our franchise approval process, hired
personnel exclusively dedicated to the development of new franchises and
launched a campaign to attract prospective franchisees. In order to increase the
attractiveness of our U.S. franchise program, by the end of 1999 we expect to
make our revenue-sharing agreements with the studios available to our U.S.
franchisees, which will provide them with an option to increase their quantity
and selection of movies.

APPLY THE BENEFITS OF GREATER SIZE

Our leading market position enables us to derive significant economies of
scale and operating efficiencies that are not necessarily available to our
smaller competitors. We are able to achieve efficiencies on both a store level
basis and a systemwide basis. On a store level basis, the increase in the volume
of transactions and the consequent increase in revenues per store as a result of
our business model provides us with the opportunity to reduce our labor costs as
a percentage of revenues. On a systemwide basis, we believe that we can reduce
our distribution costs and selling, general and administrative expenses as a
percentage of our revenues.

PURSUE STRATEGIC ACQUISITIONS

For the year ended December 31, 1998, we acquired 51 video stores. Thus far
in 1999, we have acquired or are under contract to acquire about 130 video
stores. We will continue to review potential acquisitions, including
acquisitions of video rental chains and certain stores operated by our
franchisees as well as acquisitions in complementary businesses which will
enable us to take advantage of the highly recognized BLOCKBUSTER brand name, our
extensive customer transaction database and our existing distribution system.

PURSUE NEW TECHNOLOGIES AND PRODUCTS

Our leading market position and recognizable brand name allow us to take
advantage of developing technologies and products related to rentable home
entertainment. For example, we are aggressively seeking to develop our online
retailing. We currently are redesigning our U.S. Internet site,
WWW.BLOCKBUSTER.COM, to capitalize on:

- our existing customer relationships;

- our extensive customer transaction database;

- recognition of the BLOCKBUSTER brand name;

- our studio relationships;

- our distribution center capabilities; and

- our existing store base.

We expect to increase our online retail sales of videocassettes, DVDs,
compact discs and BLOCKBUSTER

GIFTCARDS. We also expect to begin online sale of previously viewed tapes, video
games, previously played video games and other entertainment products.

51
<PAGE>
In addition, we have already tracked the success of DVDs in the marketplace
and have introduced DVDs for rental and sale in about 750 domestic stores and in
certain markets outside of the United States. As DVDs become more widely
accepted by the public we intend to rent and sell DVDs in all of our stores.

CUSTOMER TRANSACTION DATABASE

We have developed and utilize an extensive U.S. customer transaction
database with about 87 million accounts. This database has tracked customer
names, addresses, phone numbers, transaction histories, demographic information
and, recently, e-mail addresses. We also maintain a customer transaction
database in each of the countries in which we operate outside of the United
States. As of March 1999, the following chart summarizes the number of our
systemwide U.S. customer accounts that have been active for the periods shown:

[Bar graph which shows that:

1. about 17.8 million customers rented or purchased a product from one of our
stores within the last 30 days;

2. about 28.4 million customers rented or purchased a product from one of our
stores within the last three months;

3. about 34.5 million customers rented or purchased a product from one of our
stores within the last six months;

4. about 39.1 million customers rented or purchased a product from one of our
stores within the last nine months;

5. about 42.2 million customers rented or purchased a product from one of our
stores within the last year; and

6. about 86.8 million customers have rented or purchased a product from one of
our stores.]

We consider our customer transaction database to be one of our core assets,
which we currently use to:

- communicate with and market directly to our customers on a national basis;

- develop programs to reward our most loyal customers;

- strategically locate potential new store sites based on demographics and
unique trade areas; and

- customize and improve the allocation of merchandise on a store-by-store
basis, based on local demographics and prior rental history of our
customers.

Over time, we believe we will use the information we collect and the
relationships we have developed with our customers through our database to:

- evaluate new industry trends such as DVDs and the digital broadcast
system;

- further develop and enhance our promotional and marketing strategy through
e-mail and other channels of distribution;

- help customers choose and rent movies by analyzing their previous viewing
history;

- promote our internet site and services; and

- capitalize on new home delivery systems for filmed entertainment as these
systems become economically viable.

MERCHANDISING

We offer a wide selection of movies and video games for rent and purchase.
We stock each of our company-operated stores with the quantity and selection of
merchandise which we believe is optimal for that particular store.

The breakdown of the domestic revenues generated from the rental and sale of
such products for the year end December 31, 1998 is as follows:

52
<PAGE>
[Pie graph which shows a breakdown of our domestic revenue as follows:

1 about 71.1% of our domestic revenues was generated by movie rentals;

2 about 9.4% of our domestic revenues was generated by video game rentals;

3 about 5.2% of our domestic revenues was generated by previously viewed tapes
and previously played video game sales;

4 about 7.0% of our domestic revenues was generated by sell-through movie
sales; and

5 about 7.3% of our domestic revenues was generated from the rental and sale
of other items.]

VIDEOCASSETTE AND VIDEOCASSETTE PLAYER RENTALS. Our typical traditional
domestic store generally carries about 6,100 different movie titles available
for rent, which include about 600 newly released video titles and about 5,500
BLOCKBUSTER FAVORITES. About 81% of 1998 domestic rental revenues were from the
rentals of newly released movies. In some of our stores, we rent videocassette
players. Under our revenue-sharing agreements, we are able to make available a
substantial number of additional copies of each newly released video in order to
satisfy our customers' demand shortly after the movie is released. In addition,
we are able to offer substantially more newly released video titles which
increases the variety of movies available in our stores. Our average customer
rents two videocassettes every time he or she visits one of our stores. Our
stores outside of the United States generally carry fewer movies due to their
smaller store sizes.

VIDEOCASSETTE SALES. We offer sell-through movies for sale for about $10 to
$20 per videocassette. These typically consist of (1) classic movies that we
believe have ownership appeal, (2) childrens' movies and (3) new releases that
are priced for sell-through. We also offer for sale previously viewed tapes to
the public after the period of time after their useful lives as rental products.
These previously viewed tapes are generally rewrapped and are sold at low
prices.

DVDS AND DVD PLAYERS. We currently rent and sell about 300 different DVD
titles, about 66% of which are available for rent and 34% of which are available
for sale in about 750 domestic stores and in certain markets outside of the
United States. We also rent DVD players in these stores. As DVDs become more
widely accepted in the marketplace we expect to increase the number of our
stores that rent and sell DVDs.

VIDEO GAMES AND VIDEO GAME CONSOLES. We rent video games for use with Sony
PlayStation-TM-, Nintendo-TM- and other video game platforms in all of our
domestic stores and many of our international stores. In these stores, we also
sell previously played video games and rent the video game consoles. In
addition, we sell new games in most of our stores in markets outside of the
United States.

OTHER PRODUCTS. For the convenience of our customers, we sell VCR
accessories, such as blank videocassettes and videocassette cleaning equipment,
and a limited selection of snacks and beverages in all of our stores.
Occasionally, we sell licensed products to complement our selection of movies.
Also, we sell music compact discs and cassette tapes in certain select stores
and on our U.S. Internet site.

STORES AND STORE OPERATIONS

SITE SELECTION. We have developed a comprehensive model which we use to
find suitable locations for company-operated stores and markets for franchise
stores. We seek to locate our company-operated stores in geographic areas with
population and customer concentrations that enable us to better allocate
available resources and manage operating efficiencies in inventory management,
advertising, marketing, distribution, training and store supervision. We are
targeting the remaining markets for the opportunity to develop franchises.
Accordingly, we are targeting the 70 largest markets in the United States to
develop company-operated stores and we are targeting the remaining markets for
new franchise development.

Within each targeted market, we identify potential sites for new and
replacement stores by evaluating market dynamics, some of which include
population demographics, psychographics, customer penetration levels and
competition. We use our extensive real estate database and customer transaction
database to continuously monitor market conditions and select strategic store
locations. Our experienced store development team is capable of securing store
leases and preparing sites for operation, a process which typically takes about
six months. We use our knowledge of market areas and rely upon the familiarity
of our brand name to enhance our ability to obtain prime store locations,
negotiate favorable lease terms with landlords and enter into multiple store
leases.

53
<PAGE>
STORE DEVELOPMENT

For the periods presented, the following table summarizes opened stores,
acquired stores, closed stores, and sold stores.

OUR WORLDWIDE STORE COUNT INFORMATION
<TABLE>
<CAPTION>
NUMBER OF FRANCHISED
NUMBER OF AND/OR JOINT VENTURE TOTAL
COMPANY-OPERATED STORES STORES STORES
----------------------------------- ------------------------------------- -----------
DOMESTIC INTERNAT'L TOTAL DOMESTIC INTERNAT'L TOTAL DOMESTIC
----------- ----------- --------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STORES AT 12/31/94.............. 2,065 1,002 3,067 725 277 1,002 2,790
Open.......................... 313 142 455 86 56 142 399
Acquired...................... 195 165 360 -- 3 3 195
Closed........................ (33) (154) (187) (18) (29) (47) (51)
Sold.......................... (3) -- (3) (150) (129) (279) (153)
----- ----- --------- ----- ----- --------- -----
STORES AT 12/31/95.............. 2,537 1,155 3,692 643 178 821 3,180
Open.......................... 367 211 578 78 92 170 445
Acquired...................... 200 98 298 2 -- 2 202
Closed........................ (36) (58) (94) (17) (10) (27) (53)
Sold.......................... (2) -- (2) (71) (50) (121) (73)
----- ----- --------- ----- ----- --------- -----
STORES AT 12/31/96.............. 3,066 1,406 4,472 635 210 845 3,701
Open.......................... 345 163 508 82 94 176 427
Acquired...................... 57 258 315 7 -- 7 64
Closed........................ (114) (69) (183) (14) (10) (24) (128)
Sold.......................... (7) -- (7) (19) (41) (60) (26)
----- ----- --------- ----- ----- --------- -----
STORES AT 12/31/97.............. 3,347 1,758 5,105 691 253 944 4,038
Open.......................... 174 165 339 53 141 194 227
Acquired...................... 46 5 51 -- 21 21 46
Closed........................ (70) (121) (191) (24) (10) (34) (94)
Sold.......................... -- (21) (21) (22) (5) (27) (22)
----- ----- --------- ----- ----- --------- -----
STORES AT 12/31/98.............. 3,497 1,786 5,283 698 400 1,098 4,195
Open.......................... 60 51 111 13 22 35 73
Acquired...................... 86 -- 86 -- -- -- 86
Closed........................ (25) (17) (42) (2) (1) (3) (27)
Sold.......................... -- -- -- (69) -- (69) (69)
----- ----- --------- ----- ----- --------- -----
STORES AT 3/31/99............... 3,618 1,820 5,438 640 421 1,061 4,258
----- ----- --------- ----- ----- --------- -----
----- ----- --------- ----- ----- --------- -----

INTERNAT'L TOTAL
----------- ---------
<S> <C> <C>
STORES AT 12/31/94.............. 1,279 4,069
Open.......................... 198 597
Acquired...................... 168 363
Closed........................ (183) (234)
Sold.......................... (129) (282)
----- ---------
STORES AT 12/31/95.............. 1,333 4,513
Open.......................... 303 748
Acquired...................... 98 300
Closed........................ (68) (121)
Sold.......................... (50) (123)
----- ---------
STORES AT 12/31/96.............. 1,616 5,317
Open.......................... 257 684
Acquired...................... 258 322
Closed........................ (79) (207)
Sold.......................... (41) (67)
----- ---------
STORES AT 12/31/97.............. 2,011 6,049
Open.......................... 306 533
Acquired...................... 26 72
Closed........................ (131) (225)
Sold.......................... (26) (48)
----- ---------
STORES AT 12/31/98.............. 2,186 6,381
Open.......................... 73 146
Acquired...................... -- 86
Closed........................ (18) (45)
Sold.......................... -- (69)
----- ---------
STORES AT 3/31/99............... 2,241 6,499
----- ---------
----- ---------
</TABLE>

We plan to open most of our new company-operated stores in the largest 70
markets in the United States. Based upon our current store model, we believe
that there is the potential for 4,000 additional new traditional video stores in
the United States.

Outside the United States, we plan to open most of our new company-operated
stores in the seven markets where we already have a significant presence. In
addition, we plan to add franchised and joint venture stores in other
international markets.

STORE FORMAT. In the past, we have sought to locate stores in locations
that were convenient and visible to the public. We intend to continue to
conveniently locate store locations by incorporating an "appropriate" store
format using our extensive customer transaction database and real estate
database to maximize revenues without significantly decreasing the revenues of
our nearby stores. To do so, we have designed three store formats:

- NEW TRADITIONAL STORES (about 4,800 square feet). These stores have been
or will be constructed in markets where store-to-population ratios are low
and where we believe market conditions are optimal. On average, each new
traditional store carries about 600 different newly released video titles
and about 4,000 total copies of these movies and about 5,500 different
BLOCKBUSTER FAVORITES and about 6,900 total copies of these movies.

- SEAM STORES (about 2,500-3,500 square feet). These stores have been or
will be constructed in order to compete:

a. in markets that are located in between our traditional stores without
significantly decreasing the market shares of those traditional
stores; and

b. in rural areas.

54
<PAGE>
On average, each seam store carries about 500 different newly released
video titles and about 3,000 copies of these movies and about 3,500
different BLOCKBUSTER FAVORITES and about 5,000 total copies of these
movies.

- STORE-IN-STORES (about 1,000-1,400 square feet). These stores have been or
will be constructed within a department store, supermarket or other store.
This strategy is being pursued to further expand our presence and meet
demand in mature markets where we already have a strong presence. On
average, each store-in-store carries about 500 different newly released
video titles and about 2,400 copies of these movies and about 2,200
different BLOCKBUSTER FAVORITES and about 2,700 total copies of these
movies.

We also periodically examine whether the formats of our existing stores are
optimal for their location and may downsize or relocate existing stores as
opportunities arise.

STORE LAYOUT. We design our stores to provide a recognizable distinctive
format offering an extensive selection of products in an attractive design aimed
at capturing the magic of the movies. We believe that our trademark blue and
yellow colors which dominate most of our stores make them easily recognizable to
video rental customers. The internal layout of our stores allows our customers
to easily distinguish new video releases, BLOCKBUSTER FAVORITES, DVDs, video
games and other products. Each domestic store typically contains a perimeter
wall, an internal area and a check-out area.

55
<PAGE>
Below is a graphic of our new store layout.

[Diagram of our internal store layout.]

STORE OPERATIONS. Our U.S. company-operated stores generally operate under
substantially similar hours of operation. Domestic stores are open 365 days a
year, with daily hours generally from 10:00 a.m. to 12:00 midnight. The hours of
operation for franchised stores vary widely depending on the franchise.
Typically, each U.S. store employs 16 people, including two assistant store
managers and one store manager. A large part of the in-store experience depends
upon the knowledge of our staff. We carry out periodic customer service audits
at all of our stores to understand, satisfy and exceed our customers'
expectations. In addition, as store traffic and same store revenues have
increased, we have been able to achieve significant labor savings through higher
productivity. We have achieved additional labor savings because our distribution
center more efficiently performs tasks of packaging videocassettes which were
previously done manually. International store operations vary by country.

STORE LOCATIONS. At March 31, 1999, in the United States and its
territories, we operated 3,618 stores and our franchisees operated 640 stores.
The following map sets forth the number of domestic stores we operated,
including stores operated by our franchisees, as of March 31, 1999:

[Map of U.S.A. and its territories showing our total number of stores
(Company-operated and franchised stores) in each state and territory as
follows:]

<TABLE>
<CAPTION>
TOTAL
STATE OR TERRITORY(1) STORES(2)
- ----------------------------------------------------------------------------------------------------- -------------
<S> <C>
ALABAMA.............................................................................................. 49
ALASKA............................................................................................... 12
ARIZONA.............................................................................................. 78
ARKANSAS............................................................................................. 17
CALIFORNIA........................................................................................... 514
COLORADO............................................................................................. 100
CONNECTICUT.......................................................................................... 49
DELAWARE............................................................................................. 8
DISTRICT OF COLUMBIA................................................................................. 7
FLORIDA.............................................................................................. 325
GEORGIA.............................................................................................. 171
HAWAII............................................................................................... 19
IDAHO................................................................................................ 8
ILLINOIS............................................................................................. 203
INDIANA.............................................................................................. 70
IOWA................................................................................................. 24
KANSAS............................................................................................... 49
KENTUCKY............................................................................................. 40
LOUISIANA............................................................................................ 66
MAINE................................................................................................ 5
MARYLAND............................................................................................. 108
MASSACHUSETTS........................................................................................ 104
MICHIGAN............................................................................................. 141
MINNESOTA............................................................................................ 46
MISSISSIPPI.......................................................................................... 28
MISSOURI............................................................................................. 86
MONTANA.............................................................................................. 7
NEBRASKA............................................................................................. 27
NEW HAMPSHIRE........................................................................................ 19
NEW JERSEY........................................................................................... 97
NEW MEXICO........................................................................................... 22
NEW YORK............................................................................................. 249
NEVADA............................................................................................... 37
NORTH CAROLINA....................................................................................... 106
NORTH DAKOTA......................................................................................... 6
OHIO................................................................................................. 155
OKLAHOMA............................................................................................. 51
OREGON............................................................................................... 39
PENNSYLVANIA......................................................................................... 137
PUERTO RICO.......................................................................................... 43
RHODE ISLAND......................................................................................... 24
SOUTH CAROLINA....................................................................................... 63
SOUTH DAKOTA......................................................................................... 5
TENNESSEE............................................................................................ 68
TEXAS................................................................................................ 455
UTAH................................................................................................. 41
VERMONT.............................................................................................. 5
VIRGINIA............................................................................................. 119
VIRGIN ISLANDS....................................................................................... 2
WASHINGTON........................................................................................... 63
WEST VIRGINIA........................................................................................ 11
WISCONSIN............................................................................................ 73
WYOMING.............................................................................................. 5
GUAM................................................................................................. 2
DOMESTIC STORE TOTAL................................................................................. 4,258
</TABLE>

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<PAGE>
At March 31, 1999, outside of the United States, we operated 1,820 stores,
and our franchisees and joint ventures in which we own a minority interest
operated 421 stores. The following table sets forth, by country, the approximate
number of stores we operated and stores our franchisees operated as of March 31,
1999.

<TABLE>
<CAPTION>
NUMBER OF FRANCHISED
NUMBER OF COMPANY- OPERATED AND/OR JOINT VENTURE
COUNTRY(1) STORES STORES TOTAL(2)(3)
- ---------------------------------------------------- --------------------------- ----------------------- ---------------
<S> <C> <C> <C>
Great Britain....................................... 661 -- 661
Canada.............................................. 351 -- 351
Ireland (Republic) and Northern Ireland............. 220 -- 220
Australia........................................... 130 82 212
Mexico.............................................. 128 18 146
Italy............................................... -- 128 128
Spain............................................... 94 2 96
Brazil.............................................. -- 64 64
Chile............................................... 57 -- 57
Taiwan.............................................. 59 -- 59
Argentina........................................... 49 -- 49
Denmark............................................. 44 -- 44
Japan(4)............................................ -- 38 38
China (Hong Kong)................................... 14 -- 14
Portugal............................................ -- 15 15
Colombia............................................ -- 14 14
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF
COMPANY-
OPERATED NUMBER OF FRANCHISED
COUNTRY(1) STORES AND/OR JOINT VENTURE STORES TOTAL(2)(3)
- --------------------------------------------------------- --------------- ------------------------------- -----------
<S> <C> <C> <C>
Venezuela................................................ -- 12 12
Israel................................................... -- 12 12
New Zealand.............................................. 11 -- 11
Thailand................................................. -- 10 10
Peru..................................................... -- 9 9
Ecuador.................................................. -- 6 6
Panama................................................... -- 6 6
El Salvador.............................................. -- 4 4
Uruguay.................................................. 2 -- 2
Poland................................................... -- 1 1
----- --- -----
International Store Total................................ 1,820 421 2,241
----- --- -----
----- --- -----
</TABLE>

- ------------------------
(1) We reached an agreement with a franchisee to begin to operate in the
Philippines by the end of 1999.

(2) This does not include stores leased or owned but not operating.

(3) In addition to the stores listed in the chart, as of March 31,1999, there
were 37 video vending machines being tested in Spain, Canada and Great
Britain.

(4) We have reached an agreement to sell our interest in our Japanese joint
venture.

ADVERTISING AND MARKETING

Worldwide, in the year ended December 31, 1998, we incurred about $181
million in advertising expenses, which include about $142 million in the United
States and about $39 million internationally. In addition, some of our business
partners, including the studios, allow us to direct a significant amount of
their advertising expenditures. Furthermore, the studios also incur additional
expenditures to promote their newly released movies.

NATIONAL AND LOCAL ADVERTISING CAMPAIGN. In 1998, we launched a national
advertising campaign in order to support our business model. We are the only
home video chain with a national advertising campaign. This campaign consists of
network and local television, local advertising and local radio. We use our
customer transaction database to target our direct mailings at certain customer
groups. We expect to incur about $235 million in advertising expenses in 1999,
an increase of about 30%. We expect this increase to include more television,
outdoor and transit advertising.

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<PAGE>
Our national and local advertising campaign is designed based upon our
proprietary research. This is done on a national basis and we also focus our
efforts on a local basis in order to adjust to each local environment. We obtain
information from our customer transaction database, our real estate database and
outside research agencies. We have concentrated on the following factors to
formulate and adjust our advertising: (1) our market share; (2) our level of
store development and brand awareness relative to our competitors within the
relevant market; (3) local demographics; and (4) other local competitive issues.

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<PAGE>
Our advertising campaign focuses on the two areas discussed below.

- OUT-OF-STORE ADVERTISING. We advertise on television, transit and other
like media. We also use our research to customize our direct mailings to
address overall demographic trends and individual customer transaction
history.

- IN-STORE ADVERTISING. We use leading edge graphics and visual
merchandising in our stores in order to give our customers the feeling
that a trip to our stores captures the magic of the movies.

INNOVATIVE MARKETING PROGRAMS. Because of our large store base and our
leading brand awareness throughout the United States and many other markets, we
have been able to implement the following programs in the United States and the
same or similar programs in many of our international markets.

- NATIONAL PROMOTIONS. In 1999, we have planned several one-of-a-kind
national promotional events, each several weeks in duration, designed to
attract customers and increase the number of times that active customers
visit our stores due to the event's novelty and "prize" appeal. To date,
these are the only nationally advertised events in our industry. For
example, in our "Trip-a-day Giveaway" program, each day between January
19, 1999 and March 1, 1999, we gave a different customer a free trip to
places such as Las Vegas or the Cannes Film Festival. In addition, for the
last four years, we have sponsored the internationally televised
BLOCKBUSTER ENTERTAINMENT AWARDS, in which a total of 15 million votes
were cast in 32 categories in our stores and on our U.S. website in 1998.
In June , 1999, the BLOCKBUSTER ENTERTAINMENT AWARDS was televised
within the United States to a television audience of more than million
people and was also televised in 12 other countries.

- NEW RELEASE GUARANTEES. Because of the substantial number of copies of
videocassettes that we are able to provide in our stores, we are able to
offer a guarantee that certain selected newly released video titles will
be in stock or the customer will receive a coupon that can be redeemed for
a free rental of that movie within the following 30 days.

- BLOCKBUSTER REWARDS PROGRAM. This premium membership program is designed
to offer benefits to our customers and enhance customer loyalty by
encouraging our customers to rent movies only from our stores. The program
was implemented in February of 1999 and as of March 31, 1999, there were
about 2.7 million people enrolled in the BLOCKBUSTER REWARDS program in
the United States. In general, for a $9.95 fee, our customers can join the
BLOCKBUSTER REWARDS program and earn free movie or video game rentals,
exclusive promotional offers and other benefits. Some high volume renters
are automatically enrolled as BLOCKBUSTER REWARDS Gold members which earns
them additional benefits, such as additional free movie or video game
rentals and the ability to reserve movies by telephone. We expect to
implement versions of this program in Canada and Mexico by the end of
September 1999.

- BLOCKBUSTER GIFTCARDS. Our national point-of-sale system in the United
States presents us with a unique opportunity for our customers to purchase
stored value BLOCKBUSTER GIFTCARDS which can be redeemed at any of our
stores nationwide. The BLOCKBUSTER GIFTCARD is a plastic prepaid card
available in amounts ranging from $5 to $50. Some of the cards have
attractive designs, such as movie images, and are marketed as "Limited
Edition Cards." The BLOCKBUSTER GIFTCARDS are also currently available in
Great Britain and Canada. For the year ended December 31, 1998, we sold
$121 million of BLOCKBUSTER GIFTCARDS, which was a 16.9% increase in sales
as compared to the year ended December 31, 1997.

- CROSS-PROMOTIONAL MARKETING PROGRAMS. On an ongoing basis, since 1997, we
have implemented cross-promotional marketing programs with other
well-known companies such as Coca-Cola, Taco Bell, General Motors and
Burger King. As a result of our participation in these programs, we
benefit from marketing by our business partners which features our brand.

- COMMUNITY SERVICE. We also sponsor and promote leadership events in many
of the communities in which we operate. For example, as part of our
"Community Service Videos" program, we provide free videocassettes in
certain stores on subjects, such as breast cancer. We also offer annually
our KIDPRINT program in most of our U.S. stores. Under this complimentary
program, parents can have one of our staff members videotape their child's
mannerisms, appearance and voice for emergency identification purposes.

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<PAGE>
INTERNET: WWW.BLOCKBUSTER.COM

We have several Internet sites worldwide. The primary objective of our sites
is to drive traffic to our video stores with content regarding promotions such
as BLOCKBUSTER REWARDS. In addition, our U.S. Internet site also conducts
electronic commerce and provides information about us and certain of the
products that we offer in our stores. This site also offers previews of movies
soon to be released in our stores. In addition, we sell on our U.S. Internet
site videocassettes, DVDs, compact discs and BLOCKBUSTER GIFTCARDS. For a
complete discussion of our online strategy, we refer you to "-- Growth Strategy
- -- Pursue New Technologies and Products."

During the fourth quarter of 1999, we expect to introduce features to our
U.S. Internet site that we expect will attract online users. Some of these
features will include:

- increased electronic commerce offerings and capabilities;

- entertainment news and information;

- increased site and search speed;

- information about movies;

- integrated promotions between our in-store and online businesses; and

- suggestions of movies based upon a customer's evaluation of selected
films.

SUPPLIERS

The following is a description of the suppliers of our domestic
company-operated stores and our franchised stores. Our international stores are
supplied by a variety of suppliers.

SUPPLIERS OF VIDEOCASSETTES AND DVDS

COMPANY-OPERATED STORES. Our U.S. stores receive a substantial portion of
their videocassettes under the revenue-sharing agreements. Most revenue-sharing
agreements require that we accept for rental certain video titles and a certain
number of copies of those video titles as determined by a negotiated formula.
These revenue-sharing agreements generally have a two- to five-year term. We
have already renewed one of the agreements with a studio and are currently
engaged in negotiations with another studio to extend our agreement. For most of
our revenue-sharing videocassettes, the major studios send the master
videocassettes to a duplicator for copying and then they are shipped to our
distribution center. In addition, we purchase sell-through movies,
direct-to-video movies and movies sold at traditional wholesale prices, as well
as DVDs, from major studios, independent studios and independent suppliers,
generally pursuant to negotiated agreements.

FRANCHISED STORES. We require each franchisee to comply with guidelines
that set forth the minimum amount and selection of movies to be kept in its
store's inventory. Franchisees typically obtain videocassettes and DVDs from
their own suppliers. However, if we have purchased the exclusive distribution
rights to a movie, the franchisee may obtain that movie from us. By the end of
1999, we expect to make our revenue-sharing agreements with the studios
available to our U.S. franchisees, which will provide them with an option to
increase their quantity and selection of movies.

OTHER SUPPLIERS

SUPPLIERS OF VIDEO GAMES. For our company-operated stores, we purchase
video game software primarily from five suppliers: Sony; Nintendo; Midway;
Acclaim; and Electronic Arts. These suppliers deliver the video game software
and video game accessories to our distribution center. We then distribute the
video game software and video game accessories to our stores. Franchisees are
responsible for obtaining video games from their own suppliers.

SUPPLIERS OF VCRS, DVD PLAYERS AND VIDEO GAME CONSOLES. In our
company-operated stores, we purchase our VCRs primarily from Ingram
Entertainment Incorporated, DVD players primarily from Phillips Electronics and
video game consoles primarily from Phillips Sales and Nintendo. Franchisees are
responsible for obtaining VCRs, DVD players and video game consoles from their
own suppliers.

SUPPLIERS OF FOOD AND BEVERAGES AND ACCESSORIES. Other than our specially
branded microwave popcorn and accessories, which are distributed by our U.S.
distribution center, suppliers distribute all of our snacks

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<PAGE>
and beverages directly to our company-operated stores. Franchisees are
responsible for obtaining snacks and beverages and accessories from their own
suppliers.

DISTRIBUTION AND INVENTORY MANAGEMENT

In the first quarter of 1998, we began operation of our new,
state-of-the-art distribution center in McKinney, Texas, which is near our
corporate headquarters. Our 850,000 square foot distribution center is a
highly-automated, centralized facility which we use to restock products,
repackage videocassettes and process returns, as well as provide for some office
space. It supports all of our company-operated stores in the United States. As
of March 31, 1999, we employed about 800 employees, excluding the office
employees at the distribution center. Our distribution center operates six days
a week, 24 hours a day.

DISTRIBUTION. At our distribution center, we receive substantially all of
our videocassettes and video games. We repackage the newly released
videocassettes to make them suitable for rent for our stores, a process which
had previously been done manually by our store employees before we built our
distribution center. In addition, we repackage previously viewed tapes to make
them available for sale. Our distribution center is also designed to be able to
handle individual customer orders, which would be necessary if we decided to
distribute our products sold on our U.S. Internet site directly to our
customers. Currently, our Internet sales are distributed by independent
distributors.

We distributed about 86 million units of our products last year from our
distribution center. About 34.5 million of those units were videocassettes
repackaged for rental at our stores. The distribution center has allowed us to
significantly decrease our distribution costs as compared to the costs we
previously incurred using third-party distributors. While we currently process a
high volume of products due to our successful implementation of our
revenue-sharing agreements, we can support a significant increase in sales
volume without significant additional investment. As we add more volume to our
distribution center, we will be able to further take advantage of our cost
efficiencies. The February 1999 issue of MODERN MATERIALS HANDLING, a leading
trade publication, has recognized our distribution center for its "distribution
excellence."

We use a network of third-party warehouses for delivery to our stores. We
ship our products to these warehouses located strategically throughout the
United States, which in turn, deliver them to our stores. Franchisees generally
obtain their products directly from suppliers, except for accessories, supplies
and movies to which we have our exclusive distribution rights, which domestic
franchisees receive from our distribution center. Distribution of our products
to our stores in markets outside the United States is coordinated through our
international offices.

INVENTORY MANAGEMENT. Because we have a centralized distribution center, we
are able to keep strict control over the amount and flow of our products at any
given time. We scan all products as they enter, flow through and exit our
distribution center.

Once our products reach our stores, we focus on strict inventory control.
Our sophisticated inventory management system is integrated with our
point-of-sale system, which allows us to manage our inventory on a
store-by-store basis. We allocate our products to our stores based on the
transaction history of each store and we monitor our stores' in-stock positions.
We also typically take physical inventory at each store on a monthly basis.

MANAGEMENT INFORMATION SYSTEMS

We believe that the accurate and efficient management of purchasing,
inventory and sales records is important to our future success. We maintain
information, updated daily, regarding revenues, current and historical sales and
rental activity, demographics of store customers and videocassette rental
patterns. This information can be organized by store, region, state, country or
for all operations.

We maintain a satellite-based national point-of-sale system in the United
States which is linked with a datacenter located in our distribution center. The
point-of-sale system tracks all of our products distributed from the
distribution center to each store using scanned bar code information. All rental
and sales transactions are recorded by the point-of-sale system when scanned at
the time of customer checkout. At the end of each day, the point-of-sale system
transmits store data from operations to the datacenter and the customer
transaction database by satellite.

All of our company-operated stores (except in Ireland) and most of our
franchisees use our point-of-sale system upon opening or conversion into a
company-operated store. Within the next three years, we currently plan to update
the computers and the software that run the point-of-sale system in

61
<PAGE>
order to decrease the overhead costs of each store and speed up the checkout
process. We currently have a direct link via satellite with most of our domestic
company-operated stores and by the end of 1999, our company-operated stores in
Canada will also be linked via satellite. Also by the end of 1999, many of our
domestic franchised stores will be linked via satellite.

In addition, we have established processes for evaluating and managing the
risks and costs that may arise as a result of year 2000 software failures. We
are making necessary modifications to the identified software and we intend to
complete them by August 1999. We do not anticipate that we will incur
significant operating expenses or be required to invest heavily to improve our
computer systems in order to be year 2000 compliant, and we do not anticipate
that business operations will be disrupted. We refer you to "Risk Factors --
Risk Factors Relating to Our Business and Industry -- We May Be Adversely
Affected if Our year 2000 Remediation Efforts Are Not Successful" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

FRANCHISE OPERATIONS

At March 31, 1999, our franchisees operated 640 stores in the United States
and our franchisees and minority-operated joint ventures operated 421 stores
internationally. Our franchisees generally are responsible for obtaining their
own supplies and coordinating their own distribution system. In the future,
however, we expect our U.S. franchisees to participate in our revenue-sharing
agreements and, as a result, they would rely upon our distribution center to
receive some portion of their videocassettes. Using our distribution center
would allow our franchisees to share in the cost savings that our distribution
center provides to us.

Under our current U.S. franchising program, we enter into a development
agreement and a franchise agreement with the franchisee. Pursuant to the terms
of a typical development agreement, we grant the franchisee the right to develop
one or a specified number of stores at an approved location or locations within
a defined geographic area and within a specified time. We generally charge the
franchisee a development fee in advance for each store to be developed during
the term of the development agreement. The typical franchise agreement is a
long-term agreement that governs the operations of the store. We generally
require the franchisee to pay us a one-time franchise fee and continuing royalty
fees, service fees and monthly payments for maintenance of the proprietary
software. In addition, we provide optional product and support services to our
franchisees for which we sometimes receive fees. We require our franchisees to
contribute funds for national advertising and marketing programs and we also
require that franchisees spend an additional amount for local advertising. Each
franchisee has sole responsibility for all financial commitments relating to the
development, opening and operation of its stores, including rent, utilities,
payroll and other capital and incidental expenses. We employ people to inspect
our franchised stores.

We cannot assure you that our franchisees will be able to achieve
profitability levels in their businesses sufficient to pay our franchise fees.
Furthermore, we cannot assure you that we will be successful in marketing and
selling new franchises or that any new franchisees will be able to obtain
desirable locations and acceptable leases.

INTERNATIONAL OPERATIONS

We are the leading international retailer of rentable home movies and video
games. As a result, we believe we are well positioned to take advantage of the
overall growth in the home video industry outside of the United States. As of
March 31, 1999, we had 2,241 stores operating under "BLOCKBUSTER" and other
names located throughout 26 markets outside of the United States. Of these
stores, 42 of such stores were operated through our franchisees and/or joint
ventures in which we own a minority interest.

We have focused on seven priority markets outside of the United States.
Based on the number of stores, our largest market is Great Britain. We began
operations in Great Britain in 1989 and, through acquisitions, have grown to
over 661 locations, including video vending machines, as of March 31, 1999. We
began operations in Canada, our second largest market, in 1990 and have grown to
351 stores, as of March 31, 1999. In Ireland and Northern Ireland, our third
largest market, we acquired Xtra-vision PLC in 1997 and continue to operate
under the XTRA-VISION brand name due to its strong local brand awareness. As of
March 31, 1999, we have 220 stores in Ireland and Northern Ireland. In addition,
we began operations in Mexico in 1991, Australia in 1993, Spain in 1995 and
Taiwan in 1997. Based on , as of December 31, 1998, we had the following
share of the home video rental market in these markets:

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<PAGE>

<TABLE>
<CAPTION>
OUR MARKET SHARE OUR SYSTEMWIDE REVENUE AS
FOR MOVIES IN OUR SYSTEMWIDE A
EACH REVENUE PERCENT OF OUR SYSTEMWIDE
MARKET AS OF FOR THE YEAR ENDED NON-U.S. REVENUE FOR THE
DECEMBER 31, DECEMBER 31, 1998 YEAR
COUNTRY 1998 (IN MILLIONS) ENDED DECEMBER 31, 1998
- ---------------------------------------------- ----------------- --------------------- -------------------------
<S> <C> <C> <C>
Great Britain................................. % $ 314.9 32.1%
Canada........................................ % 201.5 20.5%
Australia..................................... % 61.4 6.3%
Ireland and Northern Ireland.................. % 59.0 6.0%
Mexico........................................ % 40.7 4.1%
Spain......................................... % 34.9 3.6%
Taiwan........................................ % 14.0 1.4%
</TABLE>

For a complete listing of all of our operations outside of the United
States, we refer you to the chart set forth in "-- Stores and Store Operations
- -- Store Locations."

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<PAGE>
We maintain offices for each major region and most of the countries in which
we operate in order to manage, among other things:

- store development and operations;

- marketing; and

- the purchasing, supplying and distribution of each store's products.

COMPETITION

We operate in a highly competitive environment. We primarily compete with
other video stores and other retailers that rent or sell movies, such as (1)
other local, regional and national video stores, (2) mass merchant retailers,
(3) supermarkets, pharmacies and convenience stores and (4) Internet sites. We
believe that the principal competitive factors in competing with these retailers
are convenience and visibility of store locations, quality, quantity and variety
of titles, pricing and customer service. In addition to competing with these
retailers, we compete with non-videocassette providers of home viewing
entertainment, such as direct broadcast satellite, cable, digital terrestrial
and network and syndicated television. We compete against the programming
offered through these providers and in some cases pay-per-view movies. We also
compete against new digital technologies, such as near-video-on-demand,
video-on-demand and Divx and other technology. In certain markets, we compete
against the illegal duplication and sales of movies and video games. In addition
to all of the modes of competition discussed above, we compete for the general
public's entertainment dollar and leisure time activities including with, among
others, movie theaters, Internet-related activities, live theater and sporting
events. We refer you to "Risk Factors -- Risk Factors Relating to Our Business
and Industry -- Our Business May Be Materially Adversely Affected by New
Technologies" and "-- We Operate in a Highly Competitive Environment" for a
discussion of our most significant competitive risks.

PROPERTIES

Our corporate headquarters are located at 1201 Elm Street, Dallas, Texas
75270 and consist of about 219,239 square feet of space leased pursuant to an
agreement which expires on June 30, 2007. The distribution center is located at
3000 Redbud Blvd., McKinney, Texas 75069 and consists of about 850,000 square
feet of space leased pursuant to an agreement which expires on December 31,
2012. We have set up our payroll and benefits center in Spartanburg, South
Carolina.

We have several main offices that manage our international operations. We
have offices in: Uxbridge, England; Plantation, Florida; Toronto, Ontario;
Melbourne, Australia; and Taipei, Taiwan. In addition, for most countries in
which we operate a store, we maintain an office to coordinate our operations
within that country.

We lease substantially all of our existing store sites (including buildings
and improvements). These leases generally have a term of five to ten years and
provide options to renew for between ten and 15 additional years. We expect that
most future stores will also occupy leased properties.

INTELLECTUAL PROPERTY

We own a number of trademarks, trade names and service marks including,
among others, BLOCKBUSTER, BLOCKBUSTER VIDEO, BLOCKBUSTER FAVORITES, BLOCKBUSTER
GIFTCARD, BLOCKBUSTER GIFTCARDS, BLOCKBUSTER REWARDS, BLOCKBUSTER ENTERTAINMENT
AWARDS, KIDPRINT, BLOCKBUSTER MUSIC, XTRA-VISION and the blue and yellow ticket
stub and the blue and yellow awning outside our stores. In addition, we own the
rights to the "blockbuster.com" Internet domain name. We consider our
intellectual property rights to be among our most valuable assets.

LEGAL PROCEEDINGS

We are subject to certain legal proceedings in the course of conducting our
business, including our business as a franchisor. However, we believe that such
proceedings are not likely to result in judgments that will have a material
adverse effect on our business.

SEASONALITY

There is a distinct seasonal pattern to the home video business with peak
rental periods tending to coincide with school vacation patterns such as summer,
spring break and holidays. Conversely, our business generally experiences
revenue declines in April and May, due in part to improved weather and Daylight

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Savings Time, and in September and October due in part to the start of school
and the introduction of new television programs. As we expand into new markets
and geographic locations we may experience additional seasonal trends that would
create fluctuations in operating results.

REGULATION

DOMESTIC REGULATION

We are subject to various federal, state and local laws that govern the
access and use of our video stores by disabled people and the disclosure and
retention of video rental records. We also must comply with various regulations
affecting our business, including state and local advertising, consumer
protection, credit protection, licensing, zoning, land use, construction,
environmental and labor and employment regulations.

We are also subject to the Federal Trade Commission's Trade Regulation Rule
entitled "Disclosure Requirements and Prohibitions Concerning Franchising and
Business Opportunity Ventures" and state laws and regulations that govern (1)
the offer and sale of franchises and (2) franchise relationships. If we want to
offer and sell a franchise, we are required by the rule mentioned above to
furnish each prospective franchisee a current franchise offering circular prior
to the offer or sale of a franchise. In addition, a number of states require
that we, as franchisors, comply with that state's registration or filing
requirements prior to offering or selling a franchise in the state and to
provide a prospective franchisee with a current franchise offering circular
complying with the state's laws, prior to the offer or sale of the franchise.
Although we cannot make any assurances, we intend to maintain a franchise
offering circular that complies with all applicable federal and state franchise
sales and other applicable laws. However, if we are unable to comply with
federal franchise sales and disclosure laws and regulations, we will be unable
to offer and sell franchises anywhere in the United States. In addition, if we
are unable to comply with the franchise sales and disclosure laws and
regulations of any state that regulates the offer and sale of franchises, we
will be unable to offer and sell franchises in such state.

We are required to update our franchise offering circular annually, as well
as to amend it during the course of the year, to reflect material changes
regarding our franchise offering and to comply with changes in disclosure
requirements. The occurrence of any such material changes may, from time to
time, require us to stop offering and selling franchises until our franchise
offering circular is updated and amended. We cannot assure you that our
franchising program will not be adversely affected because compliance with
applicable law necessitates that we cease offering and selling franchises in
certain states until our franchise offering circular is revised, updated and
approved by the applicable authorities, or because of our failure or inability
to comply with existing or future franchise sales and disclosure laws.

We are also subject to a number of state laws and regulations that regulate
certain substantive aspects of the franchisor-franchisee relationship,
including:

- those governing the termination or non-renewal of a franchise agreement
(such as requirements that "good cause" exist as a basis for such
termination and that a franchisee be given advance notice of, and a right
to cure, a default prior to termination);

- requirements that the franchisor deal with its franchisees in good faith;

- prohibitions against interference with the right of free association among
franchisees; and

- those regulating discrimination among franchisees in charges, royalties or
fees.

Compliance with federal and state franchise laws is costly and
time-consuming, and we cannot assure you that we will not encounter difficulties
or delays in this area or that it will not require significant capital for
franchising activities.

INTERNATIONAL REGULATION

We are subject to various international laws that govern the disclosure and
retention of video rental records. For example, the laws pertaining to the use
of the customer database in certain markets outside of the United States are
more restrictive than the relevant laws in the United States.

We must comply with various regulations affecting our business, including
advertising, consumer protection, credit protection, franchising, licensing,
zoning, land use, construction, environmental, labor and employment regulations.

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<PAGE>
Similar to the United States, some foreign countries have franchise
registration and disclosure laws affecting the offer and sale of franchises
within their borders and to their citizens. They are not often as extensive and
onerous as laws and regulations applicable in the United States. However, like
the United States, failure to comply with such laws could limit or preclude our
ability to expand through franchising in those countries.

EMPLOYEES

As of March 31, 1999, we employed about 82,400 persons, including about
61,200 persons employed within the United States and about 21,200 persons
employed outside of the United States. Within the United States, about 59,000
were employed in domestic company-operated stores and 2,200 were employed in
various other operations, including our corporate, administrative and
distribution functions. Of the total number of U.S. employees, about 16,800 were
full-time and 44,400 were part-time. We believe that our employee relations are
good.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is information concerning our current directors and
executive officers. There are no family relationships among any directors or
officers. The ages listed below are as of April 30, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- ----------- ----------------------------------------------------
<S> <C> <C>
John F. Antioco..................................... 49 Chairman of the Board of Directors, President and
Chief Executive Officer
Mark T. Gilman...................................... 35 Executive Vice President, Real Estate, Franchising
and New Business Development
James Notarnicola................................... 47 Executive Vice President, Chief Marketing Officer
Gary J. Peterson.................................... 48 Executive Vice President, Chief Operations Officer
Alva J. Phillips.................................... 54 Executive Vice President, Chief Information Officer
Michael K. Roemer................................... 50 Executive Vice President, Domestic Video Operations
Edward B. Stead..................................... 52 Executive Vice President, General Counsel and
Secretary
Nigel Travis........................................ 49 Executive Vice President and President, Worldwide
Retail Operations
Dean M. Wilson...................................... 41 Executive Vice President, Merchandising
Larry J. Zine....................................... 44 Executive Vice President, Chief Financial Officer
Philippe P. Dauman.................................. 45 Director
Thomas E. Dooley.................................... 42 Director
Sumner M. Redstone.................................. 75 Director
</TABLE>

JOHN F. ANTIOCO has served as our chairman of the board of directors,
president and chief executive officer since 1997. From 1996 until 1997, Mr.
Antioco served as president and chief executive officer for Taco Bell
Corporation. Mr. Antioco served as chairman of the board of directors of The
Circle K Corporation, an operator of convenience stores, from 1995 until 1996,
and as its president and chief executive officer from 1993 until 1996. Mr.
Antioco joined Circle K as chief operating officer in 1991. Mr. Antioco serves
as chairman of the board of directors of Main Street & Main Inc. and as a
director for CSK Auto Corporation.

MARK T. GILMAN has served as our executive vice president, real estate,
franchising and new business development since 1997 and served as our senior
vice president, strategic systems from 1996 until 1997. Prior to joining us,
during 1996, Mr. Gilman served as senior vice president, development, for
Hollywood Entertainment Corporation, a national retail video chain, where he was
responsible for domestic development and construction. From 1994 until 1996, Mr.
Gilman served as director of operations development for Wal-Mart Corporation,
where he was responsible for developing real estate and merchandising systems.

JAMES NOTARNICOLA has served as our executive vice president, chief
marketing officer since June 1998 and served as our executive vice president,
marketing and administration from 1997 until 1998. From 1978 until 1997, Mr.
Notarnicola served in many capacities at 7-Eleven Inc. (formerly known as The
Southland

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<PAGE>
Corporation), including vice president of marketing from 1995 until 1997 and
general manager of advertising and promotion from 1990 until 1995.

GARY J. PETERSON has served as our executive vice president, chief
operations officer since 1998 and served as our executive vice president,
distribution and information systems from 1996 until 1998. From 1993 until 1996,
Mr. Peterson served as chief operating officer for Southeast Frozen Foods, where
he oversaw all operations of the frozen food wholesaler/distributor. Mr.
Peterson has also served as senior vice president of operations services for
Thrifty Drug Stores.

ALVA J. PHILLIPS has served as our executive vice president, chief
information officer since 1997 and served as our senior vice president of
information services from 1995 until 1997. From 1993 until 1995, Mr. Phillips
was employed by Integrated Systems Solutions Corporation, a wholly-owned
subsidiary of International Business Machines Corporation, where he served as
project manager for the Eckerd Corporation account and oversaw, among other
matters, the development and implementation of a satellite based store
communications system. From 1988 until 1993, Mr. Phillips served as senior vice
president of management information services for Rite Aid, where he was
responsible for developing in-store pharmacy, merchandising and distribution
systems to support the company's 2,600 store locations.

MICHAEL K. ROEMER has served as our executive vice president, domestic video
operations since 1998 and served as our senior vice president, domestic video
operations from 1997 until 1998. From 1995 until 1997, Mr. Roemer served as an
independent consultant for major companies such as Frito Lay, where he assisted
with new product development, distribution and business process planning. Prior
to consulting, Mr. Roemer worked at 7-Eleven Inc. from 1966 to 1995. From 1993
until 1995, in his capacity as senior vice president of merchandising for
7-Eleven, Mr. Roemer oversaw merchandising operations of 7-Eleven stores in the
United States and Canada.

EDWARD B. STEAD has served as our executive vice president and general
counsel since 1997, as well as our secretary since 1999. From 1988 until 1996,
Mr. Stead served in the following capacities with Apple Computer, Inc.,
including, vice president and general counsel from 1989 until 1995, vice
president, general counsel and secretary from 1993 until 1995, and senior vice
president, general counsel and secretary from 1995 to 1996. Prior to joining
Apple, Mr. Stead served as senior vice president, general counsel and secretary
of Cullinet Software, Inc. Mr. Stead also served as a member of the legal
advisory board of the National Association of Securities Dealers from 1993 until
1997 and has been a member of the American Law Institute since 1996.

NIGEL TRAVIS has served as our executive vice president and president,
worldwide retail operations, since 1998 and served as our president,
international operations, from 1997 until 1998. From 1994 until 1997, Mr. Travis
served in various other capacities for us, including senior vice president,
Europe. Prior to joining us, Mr. Travis served as senior vice president and
managing director, Europe, the Middle East and Africa for Burger King
Corporation. Mr. Travis, a British national, serves as a senior, non-executive
director of Limelight PLC in the United Kingdom.

DEAN M. WILSON has served as our executive vice president, merchandising,
since 1998. From 1995 until 1998, Mr. Wilson held a number of positions with us,
including senior vice president-general merchandising manager, vice
president-product retail and director of product management international. Prior
to joining us, from 1990 until 1995, Mr. Wilson served as divisional merchandise
manager of video for Trans World Entertainment, a music and video retailer. Mr.
Wilson began his retail career in the executive training program with May
Company.

LARRY J. ZINE has served as our executive vice president, chief financial
officer since 1999. From 1996 until 1999, Mr. Zine served as chief financial
officer for Petro Stopping Centers, L.P., where he was responsible for all
operations. During 1999, Mr. Zine also served as president of Petro. From 1981
until 1996, Mr. Zine worked for The Circle K Corporation, an operator of
convenience stores, and was named executive vice president and chief financial
officer in 1988.

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<PAGE>
PHILIPPE P. DAUMAN was elected as one of our directors in January 1995. Mr.
Dauman has been deputy chairman of Viacom since January 1996 and its executive
vice president since 1994. From 1993 until 1998, Mr. Dauman also served as
general counsel and secretary of Viacom. Mr. Dauman is a director of National
Amusements, Inc., Spelling Entertainment Group Inc. and Lafarge Corporation.

THOMAS E. DOOLEY was elected as one of our directors in May 1999. Mr. Dooley
has been deputy chairman of Viacom since 1996 and its executive vice president
since 1994. From 1992 until 1994, Mr. Dooley served as senior vice president,
corporate development of Viacom. Mr. Dooley is a director of Spelling
Entertainment Group Inc.

SUMNER M. REDSTONE was elected as one of our directors in May 1999. Mr.
Redstone has been the chairman of the board of Viacom since 1987 and its chief
executive officer since 1996. Mr. Redstone has served as chairman of the board
of National Amusements, Inc. since 1986 and its president and chief executive
officer since 1967. Mr. Redstone is chairman of the board of Spelling
Entertainment Group Inc.

COMPOSITION OF OUR BOARD OF DIRECTORS

Our board of directors currently has four members, three of whom are
currently executive officers and directors of Viacom (Messrs. Sumner M.
Redstone, Philippe P. Dauman and Thomas E. Dooley). We expect to add two outside
directors prior to the completion of this offering. Our board of directors will
be divided into three classes serving staggered terms. Directors in each class
will be elected to serve for three year terms and until their successors are
elected or qualified. Each year, the directors of one class will stand for
election as their terms of office expire. will be designated as Class I
directors, with their terms of office expiring in 2000; will be designated
as Class II directors, with their terms of office expiring in 2001; will be
designated as Class III directors, with their terms expiring in 2002. The three
directors who are currently executive officers and directors of Viacom have
advised us that they will resign from our board of directors following the
completion of the split-off.

COMMITTEES OF OUR BOARD OF DIRECTORS

Our board of directors has appointed an audit committee and a compensation
committee and will appoint a senior executive compensation committee prior to
this offering.

AUDIT COMMITTEE. The functions of the audit committee, which will consist
of the two outside directors, will include:

- reviewing with the independent accountants the plans and results of the
annual audit;

- approving the audit and non-audit services by such independent
accountants;

- reviewing the scope and results of our internal auditing procedures;

- reviewing the adequacy of our system of internal accounting controls; and

- reviewing the annual financial statements prepared for release to our
stockholders and the public.

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<PAGE>
COMPENSATION COMMITTEE. The compensation committee currently consists of
Messrs. Sumner M. Redstone, Philippe P. Dauman and Thomas E. Dooley and will
include the two outside directors. Except with respect to matters entrusted to
the senior executive compensation committee, the functions of the compensation
committee include:

- reviewing our general compensation strategy;

- reviewing the terms of employment agreements for executives earning over a
specified amount; and

- administering our compensation and benefit plans, other than our stock
option plan and senior executive short-term incentive plan.

SENIOR EXECUTIVE COMPENSATION COMMITTEE. The functions of the senior
executive compensation committee, which will consist of the two outside
directors, will include:

- reviewing and approving compensation for executives if their compensation
is, or may become, subject to Section 162(m) of the Internal Revenue Code,
including the terms of employment agreements for such executives;

- administering our senior executive short-term incentive plan, determining
the executives who will participate in the plan, establishing performance
targets and determining specific bonuses for the participants; and

- administering our stock option plan and approving individual stock option
grants.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

COMPENSATION OF OUR DIRECTORS

Our directors who do not serve as officers or employees for us or Viacom and
have no member of their immediate family who serve as officers or employees for
us or Viacom are called outside directors and are entitled to receive directors'
fees and are eligible to participate in our deferred compensation plan described
below.

DIRECTORS' FEES. Outside directors will receive the following fees:

- a quarterly retainer of $ for membership on our board of directors;

- a per meeting attendance fee of $ for each meeting of the board of
directors and for each meeting of the audit committee or compensation
committee; and

- a $ annual retainer fee for the chairman of the audit committee and
for the chairman of the compensation committee.

No additional fees or retainers are paid for attendance at meetings of the
senior executive compensation committee held on the same day on which a meeting
of the compensation committee is held or for the chairman of the senior
executive compensation committee.

DEFERRED COMPENSATION PLAN. Outside directors may defer payment of their
retainer and attendance fees pursuant to our unfunded deferred compensation
plan; amounts deferred will be deemed invested in the number of stock units
equal to the number of shares of class A common stock such amounts would
purchase when deferred. Payment will be made in a lump sum or in three or five
annual installments starting after the director terminates service with the
board, with the value of the stock units determined by reference to the fair
market value of the class A common stock at that time and, in the case of
installment payments, credited with interest.

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<PAGE>
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

No present officer, director or director nominee currently owns any shares
of our common stock, all of which are currently owned by Viacom (other than Mr.
Redstone to whom beneficial ownership of these shares is attributed). The
following table sets forth the number of shares of each class of Viacom's common
stock beneficially owned on December 31, 1998, by each of our directors,
director nominees, the executive officers named in the summary compensation
table below and all of our directors, director nominees and executive officers
as a group. Except as otherwise noted, the individual director, director nominee
or executive officer or their family members had sole voting and investment
power with respect to such securities.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OWNED OF CLASS
- ------------------------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
</TABLE>

TREATMENT OF OUTSTANDING STOCK OPTIONS

COMPENSATION OF OUR EXECUTIVE OFFICERS

SUMMARY COMPENSATION TABLE. The following summary compensation table sets
forth certain information regarding compensation for fiscal 1998 paid to our
chief executive officer and each of our four other most highly compensated
executive officers who were serving as such on December 31, 1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------- -----------------
OTHER RESTRICTED
ANNUAL STOCK
SALARY BONUS COMPENSATION AWARD(S)
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)
- ---------------------------------- --------- ------ ----------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
John F. Antioco................... 1998 (4)
Chairman of the Board, President
and Chief Executive Officer
1998
1998
1998
1998

SECURITIES ALL
UNDERLYING OTHER
OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION (#)(3) ($)
- ---------------------------------- ----------------- ---------------------
<S> <C> <C>
John F. Antioco................... (5)
Chairman of the Board, President
and Chief Executive Officer
(6)
(6)
(6)
(6)
</TABLE>

- ------------------------

(1) This reflects bonus earned during fiscal 1998. In some instances, we paid
all or a portion of the bonus during the next fiscal year.

(2) In accordance with the rules of the SEC, we have omitted amounts totaling
less than $50,000.

(3) This reflects options to acquire shares of Viacom's class B common stock.
All figures in this column reflect an adjustment for Viacom's two-for-one
common stock split in March 1999.

(4) $ of Mr. Antioco's 1998 bonus amount represents the 1998
installment of his sign-on bonus.

(5) This consists of our contributions to Viacom's 401(k) Plan.

(6) This consists of our contributions to Viacom's 401(k) and Excess 401(k)
Plans.

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<PAGE>
OPTIONS GRANTS DURING 1998 FISCAL YEAR. The following table provides
information related to options to purchase Viacom's class B common stock granted
during fiscal 1998 to the executive officers named in the summary compensation
table above.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH)(3) EXPIRATION DATE
- ------------------------------------ --------------------- --------------------- --------------- -----------------------
<S> <C> <C> <C> <C>

John F. Antioco..................... (5)

(5)

<CAPTION>
GRANT DATE
NAME PRESENT VALUE(4)
- ------------------------------------ -----------------------
<S> <C>
John F. Antioco.....................
</TABLE>

- ------------------------

(1) All share numbers have been adjusted to reflect Viacom's two-for-one common
stock split that was effected in the form of a stock dividend in March
1999.

(2) Reflects percentage of total grants to all employees of Viacom. Percentage
of total grants to all of our employees were as follows:

(3) Exercise prices which were originally equal to the fair market value of the
Viacom's class B common stock on the date of grant have been adjusted to
reflect Viacom's two-for-one common stock split that was effected in the
form of a stock dividend in March 1999.

(4) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an executive may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised. There is no assurance that the value realized
by an executive will be at or near the value estimated by the Black-Scholes
option pricing model. The grant date values presented in the table were
determined using the following assumptions without adjustment for
non-transferability or risk of forfeiture:

<TABLE>
<S> <C>
Expected volatility..............................................................
Risk-free rate of return.........................................................
Dividend yield...................................................................
Expected term....................................................................
</TABLE>

(5) The options become exercisable with respect to one-third of the shares
covered thereby on each of August 20, 2000, 2001 and 2002.

OPTION EXERCISES DURING 1998 FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES. The following table provides information related to:

- options to purchase Viacom's common stock exercised during fiscal 1998 by
the executive officers named in the summary compensation table above; and

72
<PAGE>
- the number and value of options to purchase Viacom's class B common stock
held at fiscal year end by such executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS/SARS
SHARES AT FY-END (#)(1)(2)
ACQUIRED ON VALUE ----------------------------------------
NAME EXERCISE(#)(2) REALIZED($) EXERCISABLE UNEXERCISABLE
- ------------------------------ --------------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C> <C>

John F. Antioco...............

<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
OPTIONS/SARS
AT FY-END($)
----------------------------------------
NAME EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------------- ---------------------
<S> <C> <C>
John F. Antioco...............
</TABLE>

- ------------------------

(1) This reflects options to acquire Viacom's class B common stock.

(2) Figures in these columns reflect an adjustment for Viacom's two-for-one
common stock split effected in March 1999.

PENSION PLANS

DEFINED BENEFIT PENSION PLAN. We and certain of our subsidiaries
participate in a non-contributory defined benefit pension plan and an excess
pension plan for certain highly compensated employees, both sponsored by Viacom.
Our employees became eligible to participate in these plans effective January 1,
1996, with credit for past service on and after September 29, 1994 for
eligibility and vesting purposes. An eligible employee will receive a benefit at
retirement that is based upon the employee's number of years of benefit service
and average annual compensation (salary and bonus) for the highest 60
consecutive months out of the final 120 months immediately preceding retirement.
Under the terms of the excess pension plan, such compensation is limited to the
greater of base salary as of December 31, 1995 and $750,000. The benefits under
Viacom's excess pension plan are not subject to the Internal Revenue Code
provisions that limit the compensation used to determine benefits and the amount
of annual benefits payable under Viacom's pension plans. At this time, we do not
intend to sponsor a defined benefit plan following the split-off, but expect
that our employees will continue to participate in Viacom's plans until that
time.

It is anticipated that Viacom will retain the accrued liability for benefits
under these plans for our employees. The following table illustrates, for
representative average annual pensionable compensation and years of benefit
service classifications, the annual retirement benefit that would be payable to
employees under both the non-contributory defined benefit pension plan and the
excess pension plan if they retired in 1998 at age 65, based on the
straight-life annuity form of benefit payment and not subject to deduction or
offset.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>

$150,000................................ 12,347 24,694 $ 37,041 $ 49,387 $ 61,734 $ 74,081

300,000................................ 25,472 50,944 76,416 101,887 127,359 152,831

450,000................................ 38,597 77,193 115,791 154,387 192,984 231,581

600,000................................ 51,722 103,444 155,166 206,887 258,609 310,331

750,000................................ 64,847 129,694 194,541 259,387 324,234 389,081

900,000................................ 77,972 155,944 233,916 311,887 389,859 467,831
</TABLE>

73
<PAGE>
The number of years of benefit service that have been credited, as of
December 31, 1998, for Messrs. Antioco, , , and are 6
months, , , and .

EMPLOYMENT AGREEMENTS

1999 LONG-TERM MANAGEMENT INCENTIVE PLAN

In connection with the offering, we have adopted our 1999 Long-Term
Management Incentive Plan.

GENERAL DESCRIPTION OF THE PLAN

The following description of the material features of the plan is qualified
in its entirety by the full text of the plan which is filed as an exhibit to the
registration statement. The plan provides for grants of stock options to
purchase shares of class A common stock, stock appreciation rights, restricted
shares of class A common stock, restricted share units and phantom shares, the
terms and conditions of which are described in more detail below. About of our
key employees are eligible for grants under the plan. Compensation relating to
awards under the plan is generally intended to qualify as "qualified
performance-based compensation" which is excluded from the $1,000,000 limit on
deductible compensation set forth in Section 162(m) of the Internal Revenue
Code.

The maximum aggregate number of shares of class A common stock that may be
granted under the plan (whether reserved for issuance upon grants of stock
options or stock appreciation rights or granted as restricted shares) is .
Shares of class A common stock covered by expired or terminated stock options,
stock appreciation rights and restricted shares that are forfeited under the
terms of the plan or stock appreciation rights or restricted share units that
are exercised for cash will not be counted in applying such limit on grants
under the plan. The maximum aggregate number of (i) shares of class A common
stock that may be granted subject to the stock options or stock appreciation
rights or granted as restricted shares or restricted share units and (ii)
phantom shares that may be granted to any executive during the ten-year period
that the plan will remain in effect is . Grants under the plan are
authorized by the senior executive compensation committee (discussed below) in
its sole discretion. For this reason it is not possible to determine the
benefits or amounts that will be received by any particular employees or group
of employees in the future.

ADMINISTRATION

The plan will be administered by the senior executive compensation committee
or such other committee as our board of directors shall determine, which selects
from among the group of eligible employees, those who will become participants
and receive grants under the plan. The committee will be comprised of at least
two directors, each of whom must be a "non-employee director" within the meaning
of Rule 16b-3 of the Securities Exchange Act of 1934 and an "outside director"
within the meaning of Section 162(m) of the Internal Revenue Code.

STOCK OPTIONS

Stock options can be either incentive stock options or options that do not
qualify as incentive stock options for federal income tax purposes, called
non-qualified stock options, as determined by the committee.

Subject to certain limits described below, the committee determines the
number of stock options granted, the exercise price of the stock options, the
vesting schedule applicable to such stock options, the period during which they
can be exercised and any applicable performance goal requirements. The per share
exercise price of incentive stock options cannot be less than 100% (110% in the
case of a 10% stockholder) of the fair market value on the date of grant of a
share of class A common stock. No stock

74
<PAGE>
option can be exercised more than ten years after the date of grant. The
exercise price of a stock option must be paid in full at the time of exercise in
cash or, in the discretion of the committee, in shares of class A common stock
(or other company securities designated by the committee) or in a combination of
cash and shares (or such other securities).

If the participant's employment terminates for any reason other than death,
permanent disability or for "cause," his stock options may be exercised to the
extent exercisable on the date of termination, for six months after the date of
such termination (or such longer period, not in excess of two years from the
date of grant, as may be determined by the committee) but not beyond the
expiration date of such stock option. In the event of a participant's death, his
stock options may be exercised to the extent exercisable at the date of death by
the person who acquired the right to exercise such stock options by will or the
laws of the descent and distribution or permitted transfer for one year after
such death (or such longer period as may, in a special case, be fixed by the
committee) but not beyond the expiration date of such stock options. In the
event of a participant's permanent disability, he may exercise his stock options
to the extent exercisable at the onset of such disability for one year after
such date (or such longer period, not in excess of two years after such date, as
may be determined by the committee) but not beyond the expiration date of such
stock options. If a participant's employment is terminated for "cause", then,
unless the committee determines otherwise, all stock options, whether or not
then vested, will be forfeited by the participant effective as of the date of
such termination.

STOCK APPRECIATION RIGHTS

The committee may grant stock appreciation rights under the plan only in
tandem with stock options, either at the time of grant or by amendment at any
time prior to the exercise, expiration or termination of such stock options.
Each stock appreciation right entitles the holder to surrender the related stock
option in lieu of exercise for an amount equal to the excess of the fair market
value of a share of class A common stock subject to the stock option over the
exercise price of such stock option. This amount will be paid in cash or, in the
discretion of the committee, in shares of class A common stock (or other company
securities designated by the committee) or in a combination of cash and shares
(or such other securities). No stock appreciation right can be exercised unless
the related stock option is then exercisable.

RESTRICTED SHARES AND RESTRICTED SHARE UNITS

Any restricted shares granted under the plan will be subject to a vesting
schedule established by the committee. The committee may, in its discretion,
accelerate the dates on which restricted shares vest. Stock certificates
representing the number of restricted shares granted to a participant will be
registered in the participant's name as of the date of grant but remain held by
the company. The participant will have all rights as a holder of such shares of
class A common stock except that:

(1) the participant will not be entitled to delivery of such certificates
until the shares represented thereby have vested;

(2) the restricted shares cannot be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of until such shares have vested; and

(3) if the participant's employment terminates for any reason or, in the
event of the participant's death or permanent disability, the restricted
shares will be forfeited as of the date of such event (unless, in a
special case, the committee determines otherwise with respect to some or
all of the unvested restricted shares).

In addition to restricted shares, the committee may grant restricted
share units, subject to terms and conditions as established by the
committee.

75
<PAGE>
PHANTOM SHARES

The value of any phantom shares granted under the plan will be determined by
reference to the fair market value of a share of class A common stock and cash
payments are made with respect to such phantom shares based, subject to any
applicable limit on the maximum amount payable, on any increase in value
("appreciation value") determined as of certain valuation dates over their
"initial value." The plan empowers the committee to determine the initial value
of the phantom shares as of the date of grant. The plan further empowers the
committee to determine the valuation dates (not later than the eighth
anniversary of the date of grant) applicable to a grant of phantom shares, the
period during which the phantom shares vest and any limit on the maximum amount
of appreciation value payable for the phantom shares.

If a participant's employment terminates for any reason other than for
"cause" or, in the event of the participant's death or permanent disability,
then, unless the committee determines otherwise, the cash payments for such
participant's phantom shares will be the lesser of the appreciation value
determined as of the date of such termination or event or as of the originally
scheduled valuation dates and such payments will be made after the originally
scheduled valuation dates. All rights with respect to phantom shares that are
not vested as of the date of such termination or event, as the case may be, will
be relinquished by the participant. If a participant's employment is terminated
for "cause," all phantom shares, whether or not vested, will be forfeited by the
participant.

ADJUSTMENTS

In the event of a merger, consolidation, stock split, dividend,
distribution, combination, reclassification or recapitalization that changes the
character or amount of the class A common stock, the committee will make such
adjustments as it deems appropriate to the number of shares of class A common
stock subject to any stock options or stock appreciation rights or the number of
restricted shares, restricted share units or phantom shares granted to each
participant, the exercise price of any outstanding stock options or stock
appreciation rights or the "initial value" of any outstanding phantom shares,
and the maximum number of shares of class A common stock that may be granted
under the plan or the aggregate number of shares that may be granted to any
participant.

TRANSFER RESTRICTIONS, ETC.

The rights of a participant with respect to the stock options, stock
appreciation rights, restricted shares or phantom shares granted under the plan
are not transferable by the participant other than by will or the laws of
descent and distribution. Except as described above, no grant under the plan
entitles a participant to any rights of a holder of shares of class A common
stock, nor will any grant be construed as giving any employee a right to
continued employment with us.

AMENDMENT AND TERM OF THE PLAN

The plan may be terminated and may be altered, amended, suspended or
terminated at any time, in whole or in part, by our board of directors;
PROVIDED, HOWEVER, that (1) no alteration or amendment will be effective without
stockholder approval if such approval is required by law or under the rules of
the New York Stock Exchange, the Nasdaq National Market or any stock exchange on
which our common stock is listed and (2) no such termination, suspension,
alteration or amendment may adversely alter or affect the terms of any then
outstanding options previously granted without the consent of the affected
optionee.

76
<PAGE>
GRANTS AS OF THIS OFFERING

SENIOR EXECUTIVE SHORT-TERM INCENTIVE PLAN

In connection with the offering, we have adopted our Senior Executive
Short-Term Incentive Plan.

GENERAL DESCRIPTION OF THE PLAN

The following description of the material features of the plan is qualified
in its entirety by the full text of the plan which is filed as an exhibit to the
registration statement. The plan provides objective performance-based annual
bonuses for selected senior executives of Blockbuster, subject to a maximum
limit, as described in more detail below. Amounts paid under the plan are
intended to qualify as "qualified performance-based compensation" which is
excluded from the $1,000,000 limit on deductible compensation set forth in
Section 162(m) of the Internal Revenue Code. Awards under the plan are
determined by the senior executive compensation committee.

ADMINISTRATION

The plan is administered by the senior executive compensation committee,
which is authorized to approve awards to selected executive officers at the
level of Executive Vice President or above. The committee that administers the
plan must be comprised of at least two directors, each of whom must be an
"outside director" within the meaning of Section 162(m) of the Internal Revenue
Code.

AWARDS

The committee establishes performance criteria and target awards for each
participant for each fiscal calendar year not later than 90 days after the
beginning of the year or, for the fiscal period beginning upon the completion of
the offering, before 25% of such period has elapsed. The performance criteria
relate to our operating income, net earnings and/or cash flow. "Operating
income" is defined as revenues less operating expenses (other than depreciation,
amortization and non-recurring charges); "net earnings" is defined as earnings
from continuing operations; and "cash flow" is defined as operating income less
cash capital expenditures and increases or decreases in working capital and in
other balance sheet investments.

Shortly after the end of each performance period, the committee certifies
whether the performance criteria have been achieved; subject to the committee's
right, in its sole discretion, to reduce the amount of the award to any
participant to reflect the committee's assessment of the participant's
individual performance or for any other reason. These awards are payable in cash
as soon as practicable thereafter.

To receive payment of an award, the participant must have remained in the
continuous employ of Blockbuster through the end of the applicable performance
period. If Blockbuster terminates a participant's employment for any reason
other than for "cause" or if a participant becomes "permanently disabled" or
dies during a performance period, the participant or his estate shall be
awarded, unless his employment agreement provides otherwise, a pro rata portion
of the award for such performance period, subject to the committee's right, in
its sole discretion, to reduce the amount of such award to reflect the
committee's assessment of the participant's individual performance prior to the
termination of the participant's employment, the participant's becoming
permanently disabled or the participant's death, as the case may be, or for any
other reason.

MAXIMUM ANNUAL AWARD

The plan provides that the maximum annual award to any participant for any
calendar year is determined by multiplying such participant's "salary" in effect
on by eight. "Salary" is defined as the sum of (1) the participant's
base salary on , and (2) the minimum stated amount of any annual
compensation for such year deferred pursuant to the participant's employment
agreement in effect

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on until no earlier than the year after the participant ceases to be a
executive officer of our company. The plan provides that, in the case of any
participant hired after , the participant's "salary" for this purpose
would be the sum of (x) the participant's base salary on the date of hire, and
(y) an amount equal to the annual rate of any compensation for the year of hire
deferred pursuant to this employment agreement in effect on the date of hire
until no earlier than the year after the participant ceases to be an executive
officer of our company; PROVIDED, that the "salary" for any participant hired
after shall not exceed 1.5 times the highest "salary" on of any
current participant in the plan. The current salaries of the named executive
officers are disclosed under "-- Employment Agreements" above.

ADJUSTMENTS

In the event that, during a performance period, any recapitalization,
reorganization, merger, acquisition, divestiture, consolidation, spin-off,
combination, liquidation, dissolution, sale of assets or other similar corporate
transaction or event, or any extraordinary event, or any other event which
distorts the applicable performance criteria occurs involving us or one of our
subsidiaries, the committee will adjust or modify, in its sole discretion, the
calculation of operating income, net earnings and/or cash flow, or the
applicable performance goals, to the extent necessary to prevent reduction or
enlargement of participants' awards for such performance period attributable to
such transaction or event.

TRANSFER RESTRICTIONS, ETC.

The rights of a participant with respect to awards under the plan are not
transferable by the participant other than by will or the laws of descent and
distribution. No award under the plan will be construed as giving any employee a
right to continued employment with our company.

AMENDMENT

The board of directors may at any time alter, amend, suspend or terminate
the plan in whole or in part; PROVIDED, HOWEVER, that no alteration or amendment
will be effective without stockholder approval if such approval is required by
law.

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AGREEMENTS BETWEEN VIACOM AND US

We have set forth below a summary description of the material agreements
between Viacom and us (1) relating to this offering and the split-off and (2)
relating to other matters not concerning this offering or the split-off. These
descriptions, which summarize the material terms of such agreements, do not
purport to be complete and are qualified in its entirety by reference to the
full text of such agreements. Certain of these agreements have been filed with
the SEC as exhibits to the registration statement of which this prospectus is a
part.

AGREEMENTS BETWEEN VIACOM AND US RELATING TO THIS OFFERING OR THE SPLIT-OFF

INITIAL PUBLIC OFFERING AND SPLIT-OFF AGREEMENT

GENERAL. We have entered into an initial public offering and split-off
agreement with Viacom which governs our respective rights and duties with
respect to certain offerings of our common stock and other securities, including
this offering, and the split-off, and sets forth certain covenants we have
agreed to for various periods following this offering and the split-off.
Although Viacom has announced that it currently plans to complete the split-off,
and we have agreed to cooperate with Viacom in all respects to complete the
split-off, it is not obligated to do so. We cannot assure you as to whether or
not or when the split-off will occur or as to the terms of the split-off. See
"Risk Factors -- Risk Factors Relating to Our Separation from Viacom."

OFFERINGS OF SECURITIES OF BLOCKBUSTER AND THE SPLIT-OFF. We have agreed
that we will cooperate with Viacom in all respects to accomplish

- any offerings of our common stock and other securities prior to the
split-off or other similar transaction; and

- the split-off.

We have also agreed that, at Viacom's direction, we will promptly take all
actions necessary or desirable to effect these transactions, including the
registration under the Securities Act of Viacom's shares of our capital stock.
Viacom has the sole discretion to determine whether to proceed with all or part
of the split-off and all terms of the split-off, including the form, structure
and terms of any transaction(s) and/or offering(s) to effect the split-off and
the timing of and conditions to the completion of the split-off. In the event
that Viacom determines that it no longer intends to proceed with or complete the
split-off, Viacom must provide us notice to such effect.

EXPENSES. In general, unless otherwise provided for in the initial public
offering and split-off agreement or any other agreement, we and Viacom will pay
our respective costs and expenses incurred in connection with any offering of
our securities prior to the split-off or other similar transaction, including
this offering, and the split-off.

- EXPENSES RELATING TO OFFERINGS OF SECURITIES OF BLOCKBUSTER.We have
generally agreed to pay all costs and expenses relating to any offerings
of our common stock and our other securities prior to the split-off or
other similar transaction, including this offering. In particular, we will
pay the underwriting discounts and commissions.

- EXPENSES RELATING TO THE SPLIT-OFF. Viacom has generally agreed to pay all
costs and expenses relating to the split-off or other similar transaction.

ACCESS TO INFORMATION. Generally, we and Viacom have agreed to provide each
other with, upon written request and subject to certain conditions, and for a
certain period of time, access to information relating to the assets, business
and operations of the requesting party. We and Viacom have agreed to keep our
books and records for a certain period of time. Also, we and Viacom have agreed
to cooperate with the other

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party with respect to any claims brought against the other relating to the
conduct of our business prior to completion of the split-off or similar
transaction.

COVENANTS. We have agreed that, for so long as Viacom is required to
consolidate our results of operations and financial position, we will:

- provide Viacom certain financial information regarding our company and our
subsidiaries;

- provide Viacom copies of all quarterly and annual financial information
and other reports and documents we intend to file with the SEC prior to
such filings, as well as final copies upon filing;

- provide Viacom with copies of our budgets and financial projections, as
well as the opportunity to meet with our management to discuss such
budgets and projections;

- consult with Viacom regarding the timing and content of earnings releases
and cooperate fully and cause our accountants to cooperate fully with
Viacom in connection with any of its public filings.

- not change our auditors without Viacom's prior written consent, which will
not be unreasonably withheld, and use our reasonable best efforts to
enable our auditors to complete their audit of our financial statements
such that they will date their opinion the same date that they date their
opinion on Viacom's financial statements;

- provide to Viacom and its auditors all information required for Viacom to
meet its schedule for the filing and distribution of its financial
statements;

- make our books and records available to Viacom and its auditors, so that
they may conduct reasonable audits relating to our financial statements;

- adhere to certain specified accounting standards;

- agree with Viacom on any changes to our accounting policies; and

- agree with Viacom regarding our accounting estimates and principles.

CERTAIN OTHER COVENANTS. The initial public offering and split-off
agreement will also provide that for so long as Viacom maintains beneficial
ownership of a majority of the total number of our outstanding shares of common
stock, we may not take any action or enter into any commitment or agreement
which may reasonably be anticipated to result, with or without notice and with
or without lapse of time, or otherwise, in a contravention (or an event of
default) by Viacom of:

- any provision of applicable law or regulation, including but not limited
to provisions pertaining to the Internal Revenue Code, or the Employee
Retirement Income Security Act of 1974, as amended;

- any provision of Viacom's certificate of incorporation or by-laws;

- any credit agreement or other material instrument binding upon Viacom; or

- any judgment, order or decree of any governmental body, agency or court
having jurisdiction over Viacom or any of its assets.

ASSIGNMENT AND ASSUMPTION. Under the initial public offering and split-off
agreement, Viacom International Inc. will assign to us its rights and
obligations under the agreement related to the sale of the BLOCKBUSTER MUSIC
video stores to Wherehouse. We have agreed to accept this assignment.

OPTIONS. We will grant to Viacom a continuing option, assignable to any of
its subsidiaries, to purchase, under certain circumstances, additional shares of
our class B common stock or any shares of our nonvoting capital stock. These
options may be exercised immediately prior to the issuance of any of our equity
securities (other than in this offering or upon the exercise of the
underwriters' over-allotment options):

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a. with respect to our class B common stock, only to the extent necessary
to maintain its then-existing percentage of equity value and combined
voting power of our two outstanding classes of common stock; and

b. with respect to shares of nonvoting capital stock, to the extent
necessary to own 80% of each outstanding class of such stock.

The purchase price of the shares of class B common stock purchased upon any
exercise of the options, subject to certain exceptions, will be based on the
market price of the class A common stock. The purchase price of nonvoting
capital stock will be the price at which such stock may be purchased by third
parties. This option will terminate when Viacom owns less than 45% of the equity
of our Company.

INDEMNIFICATION PROCEDURES. The initial public offering and split-off
agreement will set forth the procedures that Viacom and we are to undertake if
either of us demanded to be indemnified by the other under any indemnification
right given in any of the agreements between Viacom and us relating to this
offering or the split-off.

RELEASE AND INDEMNIFICATION AGREEMENT

We and Viacom will enter into a release and indemnification agreement under
which we and Viacom have agreed to indemnify each other and we and Viacom have
agreed to release each other with respect to certain matters.

INDEMNIFICATION RELATING TO OUR ASSETS, BUSINESSES AND OPERATIONS. We have
agreed to indemnify and hold harmless Viacom and certain of its affiliates and
their respective officers, directors, employees, agents, heirs, executors,
successors and assigns against any payments, losses, liabilities, damages,
claims and expenses and costs arising out of or relating to:

(1) our past, present and future assets, businesses and operations and other
assets, businesses and operation or managed by us or persons previously
associated with us, except for assets, businesses and operations of
Spelling Entertainment Group Inc. and its subsidiaries (including
Republic Entertainment Inc. and Worldvision Inc.), Showtime Networks
Inc., Virgin Interactive Entertainment Limited and Virgin Interactive
Entertainment Inc.; and

(2) payments, expenses and costs paid by Viacom to a third party associated
with the transfer of our assets, businesses and operations from certain
Viacom entities to Blockbuster Inc. and its subsidiaries.

Viacom has similarly agreed to indemnify us and certain of our affiliates
and our and their respective officers, directors, employees, agents, heirs,
executors, successors and assigns for Viacom's past, present and future assets,
businesses and operations, except for assets, businesses and operations for
which we have agreed to indemnify Viacom. In addition, the transition services
agreement, the registration rights agreement, the tax matters agreement and the
tax letter agreement referred to below provide for indemnification between us
and Viacom relating to the substance of such agreements.

INDEMNIFICATION RELATING TO THIS OFFERING AND OTHER OFFERINGS. We have
generally agreed to indemnify Viacom and certain of its affiliates against all
liabilities arising out of any material untrue statements and omissions in any
prospectus and any related registration statement filed with the SEC relating to
this offering or any other offering of our common stock or our other securities
prior to the date of the split-off or other similar transaction. However, our
indemnification of Viacom does not apply to information relating to Viacom,
excluding information relating to us. Viacom has agreed to indemnify us for this
information.

INDEMNIFICATION RELATING TO THE SPLIT-OFF. We have generally agreed to
indemnify Viacom and certain of its affiliates against all liabilities arising
out of any material untrue statements and omissions in any and all

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registration statements, information statements and/or other documents filed
with the SEC in connection with the split-off or other similar transaction.
However, our indemnification of Viacom does not apply to information relating to
Viacom, excluding information relating to us. Viacom has agreed to indemnify us
for this information.

RELEASE RELATING TO ACTIONS BY VIACOM RELATED TO VIACOM'S AND OUR ASSETS,
BUSINESSES AND OPERATIONS. Except for the rights and obligations of Viacom and
us which relate to the agreements between Viacom and us relating to this
offering or the split-off, we have released Viacom and certain of its
subsidiaries and affiliates and their respective officers, directors, employees,
agents, heirs, executors, successors and assigns for all losses for any and all
past actions and failures to take actions relating to Viacom's and our assets,
businesses and operations. Viacom has similarly released us.

TRANSITION SERVICES AGREEMENT

We and Viacom will enter into a transition services agreement under which
Viacom will provide to us certain agreed-upon cash management, accounting,
financial and tax services and employee benefit plan and insurance
administration. These services may be changed upon agreement between Viacom and
us. We will pay Viacom a fee for these services equal to Viacom's cost in
providing these services. The fee will be payable monthly in arrears, 15 days
after the close of each month. We believe that the fee for these services is no
less favorable than could have been obtained by us internally or from someone
who had not controlled us. We have also agreed to pay or reimburse Viacom for
any out-of-pocket payments, costs and expenses associated with these services.
The transition services agreement expires upon the closing of the split-off or
similar transaction. We cannot assure you that we will be able to provide these
services internally or find a third party provider on acceptable terms, if at
all, after the expiration of the transition services agreement.

REGISTRATION RIGHTS AGREEMENT

We and Viacom will enter into a registration rights agreement which requires
us upon request of Viacom to use our reasonable best efforts to register under
the applicable federal and state securities laws any of the shares of our equity
securities of or owned by Viacom for sale in accordance with Viacom's intended
method of disposition, and will take such other actions as may be necessary to
permit the sale in other jurisdictions, subject to certain specified
limitations. Viacom will also have the right to include the shares of our equity
securities it beneficially owns in certain other registrations of these equity
securities we initiate. Except for our legal and accounting fees and expenses,
the registration rights agreement provides that Viacom will generally pay all or
its pro rata portion of out-of-pocket costs and expenses relating to each such
registration that Viacom requests or in which Viacom participates. Subject to
certain limitations, the registration rights will be assignable by Viacom and
its assigns. The registration rights agreement will contain the following
indemnification and contribution provisions:

- by Viacom and its permitted assigns for our benefit and the benefit of
related persons; and

- by us for the benefit of Viacom and the other persons entitled to effect
registrations of common stock (and other securities) pursuant to its terms
and related persons.

TAX MATTERS AGREEMENT

Following this offering, we and certain of our subsidiaries will continue to
be included in the consolidated group of Viacom for U.S. federal income tax
purposes and the combined, consolidated or unitary group of Viacom for certain
state and local income tax purposes (the "Consolidated Group"). Prior to the
completion of this offering, we and Viacom will enter into a tax matters
agreement. For taxable years and portions thereof prior to the date of this
offering, Viacom will pay all taxes for the Consolidated Group including any
liability resulting from adjustments to tax returns relating to such taxable
years or portions thereof. We and our subsidiaries will continue to be liable
for all taxes that are imposed on a

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separate return basis or on a combined, consolidated or unitary basis on a group
of companies that includes only us and our subsidiaries. The tax matters
agreement requires us and Viacom to make payments to each other equal to the
amount of income taxes which would be paid by us, subject to certain
adjustments, as if we and each of our subsidiaries included in the Consolidated
Group were to file our own combined, consolidated or unitary (or, where only one
of our entities is included in the Consolidated Group, separate) federal, state
and local income tax returns for any taxable year or portion thereof beginning
after the date of this offering in which we are included in the Consolidated
Group. This includes any amounts determined to be due as a result of a
redetermination of the tax liability of the Consolidated Group arising from an
audit or otherwise. With respect to certain tax items attributable to periods
following the date of this offering during which we are included in the
Consolidated Group, such as foreign tax credits, alternative minimum tax
credits, net operating losses and net capital losses, we will have a right of
reimbursement or offset, which will be determined based on the extent to which,
and the time at which, such credits or losses could have been used by us or our
subsidiaries if we had not been included in the Consolidated Group. This right
to reimbursement or offset continues regardless of whether the Company is a
member of the Consolidated Group at the time the attributes could have been
used. We are only entitled to reimbursement for carryback items that we could
use on a stand alone basis to the extent that such items result in an actual tax
savings for the Consolidated Group. The tax matters agreement also requires us,
if so requested by Viacom, to surrender certain tax losses of our subsidiaries
that are resident in the United Kingdom for 1998 and earlier years to Viacom's
United Kingdom subsidiaries without any right to compensation. We will also pay
Viacom the amount of any income taxes with respect to income tax returns that
include only us, which returns, as described below, will be filed by Viacom.

Viacom will continue to have all the rights of a parent of a consolidated
group filing consolidated federal income tax returns. Viacom will have similar
rights provided for by applicable state and local law with respect to a parent
of a combined, consolidated or unitary group. Viacom will be the sole and
exclusive agent for us in any and all matters relating to income taxes of the
Consolidated Group. Viacom will have sole and exclusive responsibility for the
preparation and filing of all income tax returns or amended returns with respect
to the Consolidated Group. Viacom will have the sole right to contest or
compromise any asserted tax adjustment or deficiency and to file, litigate or
compromise any claim for refund on behalf of the Consolidated Group, except that
Viacom shall not be entitled to compromise any such matter in a manner that
would affect our liability under the tax matters agreement without our consent,
which may not be withheld unreasonably. Under the tax matters agreement, Viacom
will have similar authority with regard to income tax returns that we file on a
separate basis and related tax proceedings. Viacom's authority with respect to
periods during which we are included in the Consolidated Group will continue to
apply even with respect to tax returns which are filed and for proceedings which
are conducted after the split-off which relate to such periods. This agreement
may result in conflicts of interest between us and Viacom.

Provided that Viacom continues to beneficially own, directly or indirectly,
at least 80% of the combined voting power and the value of our outstanding
capital stock, we will be included for federal income tax purposes in the
Consolidated Group of which Viacom is the common parent. It is the present
intention of Viacom and its subsidiaries to continue to file a single
consolidated federal income tax return. In certain circumstances, certain of our
subsidiaries also will be included with certain subsidiaries of Viacom, other
than our subsidiaries, in combined, consolidated or unitary income tax groups
for state and local tax purposes. Each member of the Consolidated Group for
federal income tax purposes is liable for the federal income tax liability of
each other member of the Consolidated Group. Similar principles apply with
respect to members of a combined group for state and local tax purposes.
Accordingly, although the tax matters agreement will allocate tax liabilities
between us and Viacom during the period in which we are included in the
Consolidated Group, we could be liable for the federal income tax liability of
any other member of the Consolidated Group in the event any such liability is
incurred, and not discharged, by such other member. The tax matters agreement
will provide, however, that Viacom will indemnify us to the

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extent that, as a result of being a member of the Consolidated Group, we become
liable for the federal income tax liability of any other member of the
Consolidated Group, other than our subsidiaries.

Viacom will obtain a private letter ruling from the Internal Revenue Service
prior to any split-off transaction as described above in "Separation from
Viacom." In connection with seeking such ruling request, certain representations
have been and will be made to the Internal Revenue Service regarding our
business. In the tax matters agreement, we have agreed that during the two year
period following a split-off we and our subsidiaries will not enter into certain
transactions, including sales of assets, mergers, liquidations, stock issuances,
and stock redemptions, without the consent of Viacom unless Viacom receives a
ruling from the Internal Revenue Service or an opinion of counsel to the effect
that such transaction will not adversely affect the tax-free status of the
split-off. We will generally be responsible for, among other things, any taxes
imposed on Viacom or its subsidiaries as a result of the split-off failing to
qualify as a tax-free transaction on account of any breach of our
representations or agreements or any action or failure to act by us or our
subsidiaries or any transaction involving our (or our subsidiaries') assets,
stock or business (regardless of whether such transaction is within our control)
following the split-off.

OTHER AGREEMENTS

REVENUE-SHARING

We have a revenue-sharing agreement with Paramount Pictures, which is an
affiliate of Viacom. Under this agreement we have agreed to share an agreed-upon
percentage of our rental revenue with Paramount for a limited period of time in
exchange for minimal up front payments for videocassettes priced for rental.
This percentage generally declines over a period of weeks following the initial
release of the movie. We also agree to take a minimum number of copies of each
movie released by Paramount. This agreement, subject to limitations, allows us
to sell the previously viewed tapes to our customers.

OTHER AGREEMENTS

There are various other agreements between us and Viacom and its affiliates
which we believe are not material to us. We believe the terms of these
agreements approximate those which would be available from third parties.

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PRINCIPAL STOCKHOLDER

All of the shares of class B common stock outstanding prior to the
completion of this offering are beneficially owned by Viacom. Upon completion of
this offering, Viacom will beneficially own 100% of the class B common stock
and, accordingly, will own common stock representing:

(1) about % of our equity value, or about % if the underwriters exercise
their over-allotment options in full;

and

(2) about % of the combined voting power of our outstanding common stock,
or about % if the underwriters exercise their over-allotment options in
full.

Except for Viacom, we are not aware of any person or group that will
beneficially own more than 5% of the outstanding shares of our common stock
following this offering.

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DESCRIPTION OF CAPITAL STOCK

THE FOLLOWING DESCRIPTION IS ONLY A SUMMARY OF THE MATERIAL PROVISIONS OF
OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS. WE REFER YOU
TO THE MORE DETAILED PROVISIONS OF, AND THIS DESCRIPTION IS QUALIFIED IN ITS
ENTIRETY BY (1) OUR CERTIFICATE OF INCORPORATION AND BYLAWS, COPIES OF WHICH ARE
FILED WITH THE SEC AS EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART, AND (2) APPLICABLE LAW.

Our authorized capital stock consists of shares of capital stock, of which

- shares are designated as class A common stock, par value $ 0.01
per share;

- shares are designated as class B common stock, par value $ 0.01
per share; and

- shares of preferred stock, par value $0.01 per share, of which no
shares of preferred stock are outstanding as of the date hereof.

Of the shares of common stock designated as class A common stock, shares, or
about % of the equity value of our company, are being offered in connection
with this offering, assuming that the underwriters do not exercise their
over-allotment options. Of the shares of common stock designated as class B
common stock, shares, or about % of the equity value of our company, will be
outstanding and held by Viacom upon consummation of the offering, assuming the
underwriters do not exercise their over-allotment options. Each of the class A
common stock and the class B common stock constitutes a series of common stock
under the General Corporation Law of the State of Delaware.

COMMON STOCK

VOTING RIGHTS. Holders of class A common stock and holders of class B
common stock generally have identical rights, except:

- holders of class A common stock are entitled to one vote per share; and

- holders of class B common stock are entitled to five votes per share;

with respect to each matter presented to our stockholders on which the holders
of common stock are entitled to vote. The holders of class A common stock and
class B common stock are not entitled to cumulate their votes in the election of
directors. Generally, all matters to be voted on by our stockholders must be
approved by a majority (or, in the case of election of directors, by a
plurality) of the votes entitled to be cast by all shares of class A common
stock and class B common stock present in person or represented by proxy, voting
together as a single class. In particular, amendments to our certificate of
incorporation must generally be approved by a majority of the combined voting
power of both classes of common stock, voting together as a single class.
However, the approval of 75% of the combined voting power is required to amend
certain provisions of our certificate of incorporation and bylaws as described
below. In addition, amendments to our certificate of incorporation that would
alter or change the powers, preferences or special rights of either class of
common stock so as to affect them adversely also must be approved by a majority
of the votes entitled to be cast by the holders of the shares affected by the
amendment, voting as a separate class. Holders of class A common stock are not
entitled to vote on any change in the powers or other rights of the class B
common stock that would not adversely affect the rights of class A common stock.
For example, any provision for the conversion of the class B common stock into
class A common stock on a one-for-one basis is not considered to adversely
affect the rights of the class A common stock.

DIVIDENDS. Holders of class A common stock and class B common stock will
share equally in any dividend declared by our board of directors, subject to any
preferential rights of any outstanding preferred

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stock. Dividends consisting of shares of class A common stock and class B common
stock may be paid only as follows:

- shares of class A common stock may be paid only to holders of shares of
class A common stock, and shares of class B common stock may be paid only
to holders of class B common stock; and

- shares shall be paid proportionally with respect to each outstanding share
of class A common stock and class B common stock.

CONVERSION. Each share of class B common stock held by Viacom or any of its
affiliates may be converted into a share of class A common stock at the class B
holder's option prior to the split-off or other similar transaction. However, if
20% or less of the value of our outstanding stock is issued by us in this
offering or otherwise prior to the split-off or similar transaction, each share
of class B common stock will automatically convert into one share of class A
common stock immediately prior to the split-off or other similar transaction,
unless and to the extent that Viacom has received an opinion of counsel that
such conversion provision is likely to prevent or materially delay the issuance
of Internal Revenue Service rulings requested by Viacom or will otherwise create
a significant risk of a material adverse tax consequence to Viacom or its
stockholders. After the split-off or other similar transaction, any outstanding
shares of class B common stock will no longer be convertible into shares of
class A common stock.

OTHER RIGHTS. Unless approved by a majority of each class of common stock,
in the event of our reorganization or consolidation with one or more
corporations or a merger with another corporation in which shares of our common
stock are converted into or exchangeable for shares of stock, other securities
or property, including cash, all holders of our common stock, regardless of
class, will be entitled to receive the same kind and number of shares of stock
and other securities and property, including cash except that the relative
voting rights of the classes may be retained. In the event of a liquidation,
dissolution or winding-up of our company, all holders of common stock,
regardless of class, are entitled to share ratably in any assets available for
distributions to holders of shares of common stock.

The outstanding shares of our common stock are, and the shares of class A
common stock being offered to you will be, upon your payment, validly issued,
fully paid and nonassessable.

No shares of any class of common stock (1) are subject to redemption or (2)
have any preemptive rights to purchase additional shares of common stock.

PREFERRED STOCK

Our board of directors is empowered, without approval of our stockholders,
to cause shares of preferred stock to be issued from time to time in one or more
series, with the numbers of shares of each series and the designation, powers,
privileges, preferences and rights of the shares of each such series and the
qualifications, limitations and restrictions thereof as fixed by our board of
directors. Among the specific matters that may be determined by our board of
directors are:

- the designation of each series;

- the number of shares of each series;

- the rate of dividends, if any;

- whether dividends, if any, shall be cumulative or noncumulative;

- the terms of redemption, if any;

- the amount payable in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of our company;

- rights and terms of conversion or exchange, if any;

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- restrictions on the issuance of shares of the same series or any other
series, if any; and

- voting rights, if any.

Our board of directors may, without stockholder approval, issue preferred
stock with voting and other rights that could adversely affect the voting power
of the holders of class A common stock and class B common stock. We have no
present plans to issue any shares of preferred stock. The ability of our board
of directors to issue preferred stock without stockholder approval could have
the effect of delaying, deferring or preventing a change in control of us or the
removal of our existing management.

LIMITATION ON LIABILITY OF DIRECTORS

Our certificate of incorporation provides that our directors will not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability imposed by law, as in effect
from time to time:

- for any breach of the director's duty of loyalty to us or our
stockholders;

- for any act or omission not in good faith or which involved intentional
misconduct or a knowing violation of law;

- for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of Delaware corporate law; or

- for any transaction from which the director derived an improper personal
benefit.

The inclusion of this provision in our certificate of incorporation may have
the effect of reducing the likelihood of derivative litigation against our
directors, and may discourage or deter stockholders or us from bringing a
lawsuit against our directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefitted us and our
stockholders.

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
AND BYLAWS AND SECTION 203 OF DELAWARE CORPORATE LAW

Certain provisions of our certificate of incorporation and bylaws and
Section 203 of Delaware corporate law could have the following effects, among
others:

- delaying, deferring or preventing a change in control;

- delaying, deferring or preventing the removal of our existing management;

- deterring potential acquirors from making an offer to our stockholders;
and

- limiting our stockholders' opportunity to realize premiums over prevailing
market prices of our common stock in connection with offers by potential
acquirors.

This could be the case notwithstanding that a majority of our stockholders might
benefit from such a change in control or offer. The following is a summary of
these provisions.

CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS

CLASSIFIED BOARD OF DIRECTORS. Our certificate of incorporation and bylaws
provide for our board of directors to be divided into three classes of directors
serving staggered three-year terms. Each class, to the extent possible, will be
equal in number. The size of our board of directors will not be less than three
nor more than twelve. Each class holds office until the third annual
stockholders' meeting for election of directors following the most recent
election of such class, except that the initial terms of the three classes
expire in 2000, 2001 and 2002, respectively.

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DIRECTORS (AND NOT STOCKHOLDERS) FIX THE SIZE OF OUR BOARD OF
DIRECTORS. Our certificate of incorporation and bylaws provide that the number
of directors shall be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of our board of directors, but in no event
shall it consist of less than three nor more than twelve.

DIRECTORS ARE REMOVED FOR CAUSE ONLY. Our certificate of incorporation and
bylaws provide that, on or after the time when Viacom and its affiliates own
less than a majority of the combined voting power of our outstanding common
stock (we refer to this as the "trigger date"), our directors may be removed
only for "cause" by the affirmative vote of the holders of at least a majority
of the combined voting power of our outstanding voting common stock. Cause is
narrowly defined in our certificate of incorporation. However, prior to the
trigger date, our directors may be removed with or without cause.

BOARD VACANCIES TO BE FILLED BY REMAINING DIRECTORS (AND NOT
STOCKHOLDERS). Our certificate of incorporation and bylaws provide that any
vacancies on our board of directors will be filled by the affirmative vote of
the majority of the remaining directors, even if less than a quorum, or by a
sole remaining director. In any event, no vacancy shall be filled by our
stockholders.

NO STOCKHOLDER ACTIONS BY WRITTEN CONSENT. Our bylaws provide that, on or
after the trigger date, stockholders may not act by written consent in lieu of a
meeting. However, prior to the trigger date, stockholders may act by written
consent.

NO SPECIAL MEETINGS CALLED BY STOCKHOLDERS. Our bylaws provide that, on or
after the trigger date, special meetings of the stockholders may not be called
by the stockholders and instead may be called only by (1) any officer at the
request of a majority of our board of directors, (2) our chairman or (3) our
president and chief executive officer. However, prior to the trigger date,
special meetings may be called by holders of at least the majority of the
combined voting power of our outstanding common stock.

ADVANCE NOTICE FOR STOCKHOLDER MEETINGS. Our bylaws contain provisions
requiring that advance notice be delivered to us of any business to be brought
by a stockholder before an annual meeting and providing for certain procedures
to be followed by stockholders in nominating persons for election to our board
of directors. Generally, such advance notice provisions require that the
stockholder must give written notice to us not less than 90 days nor more than
120 days before the first anniversary of the preceding year's annual meeting of
stockholders. Our certificate of incorporation provides that as long as Viacom
and its affiliates owns 10 % or more of the combined voting power of the
outstanding common stock, Viacom is exempt from the foregoing provision.

For our first annual meeting, which will be held in 2000, notice must be
given no earlier than , 2000 and no later than , 2000. In each case, the
notice must set forth specific information regarding such stockholder and each
director nominee or other business proposed by the stockholder, as applicable,
as provided in our bylaws.

SUPERMAJORITY VOTE REQUIRED TO AMEND CERTAIN PROVISIONS. Our certificate of
incorporation and bylaws provide that the provisions described above may only be
amended by holders of at least 75% of the combined voting power of our
outstanding common stock.

SECTION 203 OF DELAWARE CORPORATE LAW

Our company is a Delaware corporation and subject to Section 203 of Delaware
corporate law. Generally, Section 203 prohibits a publicly held Delaware company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time such stockholder became an interested
stockholder unless, as described below, certain conditions are satisfied. Thus,
it may

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make acquisition of control of our company more difficult. The prohibitions in
Section 203 of Delaware corporate law do not apply if:

- prior to the time the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder;

- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or

- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors and authorized by the affirmative vote of at least 66 2/3% of
the outstanding voting stock that is not owned by the interested
stockholder.

Under Section 203 of Delaware corporate law, a "business combination"
includes:

- any merger or consolidation of the corporation with the interested
stockholder;

- any sale, lease, exchange or other disposition, except proportionately as
a stockholder of such corporation, to or with the interested stockholder
of assets of the corporation having an aggregate market value equal to 10%
or more of either the aggregate market value of all the assets of the
corporation or the aggregate market value of all the outstanding stock of
the corporation;

- certain transactions resulting in the issuance or transfer by the
corporation of stock of the corporation to the interested stockholder;

- certain transactions involving the corporation which have the effect of
increasing the proportionate share of the corporation's stock of any class
or series which is owned by the interested stockholder; or

- certain transactions in which the interested stockholder receives
financial benefits provided by the corporation.

Under Section 203 of Delaware corporate law, an "interested stockholder"
generally is

- any person that owns 15% or more of the outstanding voting stock of the
corporation;

- any person that is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether or not such person
is an interested stockholder; and

- the affiliates or associates of either of the above-stated categories
person.

Because Viacom owned more than 15% of our voting stock before we became a
public company in this offering, Section 203 of Delaware corporate law by its
terms is currently not applicable to business combinations with Viacom even
though Viacom owns 15% or more of our outstanding stock. If any other person
acquires 15% or more of our outstanding stock, such person will be subject to
the provisions of Section 203 of the Delaware corporate law.

Under certain circumstances, Section 203 of Delaware corporate law makes it
more difficult for an "interest shareholder" to effect various business
combinations with us for a three-year period, although our stockholders may
elect to exclude us from the restrictions imposed thereunder. By virtue of its
beneficial ownership of our class B common stock, Viacom is in a position to
elect to exclude us from the restrictions under Section 203. Currently, Viacom
has no intention to do so.

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TRANSACTIONS WITH INTERESTED PARTIES

Our certificate of incorporation includes certain provisions addressing
potential conflicts of interest between us and Viacom and its
non-Blockbuster-related subsidiaries. In addition, our certificate of
incorporation includes provisions regulating and defining our conduct as they
may involve us and Viacom and our and its subsidiaries, directors and officers.
Our certificate of incorporation provides that no contract

- between us and Viacom or any of its non-Blockbuster-related subsidiaries;
or

- between us and any entity in which one or more of our directors has a
financial interest (we refer to this type of entity as a "related
entity"); or

- between us and any officer or director of our company, Viacom, any
subsidiary of Viacom or any related entity;

shall be void or voidable because:

- Viacom, any non-Blockbuster-related subsidiary of Viacom or any related
entity, or any of their or our officers or directors are parties to the
contract; or

- any of those officers or directors is present at, participates in or votes
to authorize the contract.

Our certificate of incorporation also provides that Viacom, its
non-Blockbuster-related subsidiaries or any related entity will not be liable to
us or our stockholders for breach of any fiduciary duty or duty of loyalty or
failure to act in our best interests. Nor will any of these entities be held
liable for the derivation of any improper personal benefits derived by reason of
the fact that Viacom, its non-Blockbuster-related subsidiaries or any related
entity in good faith takes any action or gives or withholds any consent in
connection with any contract between them and us. No vote cast or action taken
by any officer, director or representative of Viacom, its
non-Blockbuster-related subsidiaries or related entity, who is actually acting
in his or her capacity as our director, shall constitute an action taken by or a
consent of Viacom, such subsidiary, or such entity for the purpose of any such
contract.

CERTAIN TRANSACTIONS AND CORPORATE OPPORTUNITIES

Our certificate of incorporation provides that, except as Viacom may
otherwise agree in writing:

- neither Viacom nor any non-Blockbuster-related subsidiary of Viacom shall
have a duty to refrain from engaging directly or indirectly in the same or
similar business activities or lines of business as ours; and

- neither Viacom nor any non-Blockbuster-related subsidiary of Viacom,
officer or director of Viacom (except as provided below) will be liable to
us or to our stockholders for breach of any fiduciary duty by reason of
any of the above activities or of such person's participation in any of
the above activities.

Our certificate or incorporation also provides that if Viacom or any
non-Blockbuster-related subsidiary of Viacom acquires knowledge of a potential
transaction or matter which may be a corporate opportunity both for Viacom or
such subsidiary and for us, neither Viacom nor such subsidiary shall have a duty
to communicate or offer such corporate opportunity to us and shall not be liable
to us or our stockholders for breach of fiduciary duty as a stockholder of ours
or controlling person of a stockholder by reason of the fact that Viacom or such
subsidiary pursues or acquires such opportunity for itself, directs such
corporate opportunity to another person, or does not communicate information
regarding such corporate opportunity to us.

Further, our certificate of incorporation provides that in the event that
one of our directors, officers or associates who is also a director, officer or
associate of Viacom or its non-Blockbuster-related subsidiaries

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acquires knowledge of a potential transaction or matter that may be a corporate
opportunity for us, Viacom or its non-Blockbuster-related subsidiaries (whether
such potential transaction or matter is proposed by a third party or is
conceived of by such director, officer or associate of our company, such
director, officer or associate shall be entitled to offer such corporate
opportunity to us, Viacom or such subsidiary as such director, officer or
associate deems appropriate under the circumstances in his or her sole
discretion, and no such director, officer or associate shall be liable to us or
our stockholders for breach of any fiduciary duty or duty of loyalty or failure
to act in our best interests or the derivation of any improper personal benefit
by reason of the fact that:

- such director, officer or associate offered such corporate opportunity to
Viacom or such subsidiary (rather than us) or did not communicate
information regarding such corporate opportunity to us; or

- Viacom or such subsidiary pursues or acquires such corporate opportunity
for itself or directs such corporate opportunity to another person or does
not communicate information regarding such corporate opportunity to us.

The enforceability of the provisions discussed above under Delaware
corporate law has not been established and, due to the absence of relevant
judicial authority, our counsel is not able to deliver an opinion as to the
enforceability of these provisions. These provisions of our certificate of
incorporation eliminate certain rights that might have been available to our
stockholders under Delaware corporate law had these provisions not been included
in our certificate of incorporation, although the enforceability of these
provisions has not been established.

Our board of directors currently consists of four members, three of whom
serve concurrently as members of the board of directors and executive officers
of Viacom.

The foregoing provisions of our certificate of incorporation shall expire on
the date that Viacom and its affiliates no longer owns at least 20% of the
combined voting power of our outstanding common stock and no person who is a
director or officer of our company is also a director or officer of Viacom or
its subsidiaries.

The affirmative vote of the holders of more than 75% of the combined voting
power of our common stock is required to alter, amend or repeal in a manner
adverse to the interests of Viacom, or adopt any provision adverse to the
interests of Viacom including provisions with respect to the interested party
and corporate opportunity provisions described above. Accordingly, so long as
Viacom and its affiliates own at least 25% of the combined voting power of our
outstanding common stock, it can prevent any such alteration, amendment, repeal
or adoption.

ACTING UNDER INTERCOMPANY AGREEMENTS

Our certificate of incorporation also limits the liability of Viacom and its
non-Blockbuster-related subsidiaries for certain breaches of their fiduciary
duties in connection with action that may be taken or not taken in good faith
under the intercompany agreements.

Any person purchasing or acquiring an interest in shares of our common stock
is deemed to have consented to the foregoing provisions relating to intercompany
agreements and the provisions set forth above relating to transactions with
interested parties and corporate opportunities. The certificate of incorporation
of Viacom does not include comparable provisions relating to intercompany
agreements, transactions with interested parties or corporate opportunities.

LISTING

Application has been made for listing the common stock on the New York Stock
Exchange under the symbol "BBI."

TRANSFER AGENT AND REGISTRAR

will serve as the Transfer Agent and Registrar for our common
stock.

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DESCRIPTION OF CREDIT AGREEMENT

THE FOLLOWING SUMMARY OF THE MATERIAL PROVISIONS OF THE CREDIT AGREEMENT
DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY
BY, REFERENCE TO THE CREDIT AGREEMENT, A COPY OF WHICH IS FILED AS AN EXHIBIT
HERETO.

On , 1999, we entered into a $2.0 billion credit agreement with a
syndicate of lenders. The credit agreement is comprised of three tranches.
Tranche A is a $ million revolving loan maturing on , 2004 and
amortizing beginning . Tranche B is a $ million term loan also maturing on
, 2004 and amortizing beginning . Tranche C is a $ million
revolving loan which matures on , 2000.

We have used the borrowings under the credit agreement:

- to purchase certain non-U.S. operations of our business from affiliates of
Viacom in an aggregate amount of $ ;

- to repay promissory notes issued by us to Viacom International Inc. in the
aggregate principal amount of about $77 million plus accrued and unpaid
interest for acquisitions; and

- for working capital and general corporate purposes.

Borrowings under the credit agreement will accrue interest at a rate equal
to the interest rates prevailing on the date of determination in the London
interbank market for the interest period selected by us, plus a margin over this
rate. The margin and the commitment fees on the undrawn portion of the facility
will vary based on specified leverage ratios.

The credit agreement contains certain customary covenants restricting our
ability to, among other things: grant liens, sell substantially all of our
assets and incur debt at the subsidiary level. We will also be required to
comply with financial covenants with respect to: (1) maximum leverage ratio and
(2) a minimum fixed charge coverage ratio. The credit agreement also contains
certain customary affirmative covenants.

Events of default under the credit agreement include, among others: failure
to pay principal and interest when due, breach of certain representations and
warranties, failure to perform or observe certain covenants and bankruptcy.

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SHARES ELIGIBLE FOR FUTURE SALE

The shares of our class A common stock sold in this offering, or
shares if the underwriters exercise their over-allotment options in full,
will be freely tradable without restriction under the Securities Act of 1933, as
amended, except for any such shares which may be acquired by an "affiliate" of
ours, as that term is defined in Rule 144 promulgated under the Securities Act,
which shares will remain subject to the resale limitations of Rule 144.

The shares of our class B common stock that will be held by Viacom
after this offering constitute "restricted securities" within the meaning of
Rule 144, and will be eligible for sale by Viacom in the open market after this
offering, subject to certain contractual lockup provisions and the applicable
requirements of Rule 144, both of which are described below. We have granted
certain registration rights to Viacom. We refer you to "Agreements Between
Viacom and Us -- Registration Rights Agreement."

Generally, Rule 144 provides that a person who has beneficially owned
"restricted securities" for at least one year is entitled to sell on the open
market in brokers' transactions within any three month period a number of shares
that does not exceed the greater of:

- 1% of the then outstanding shares of the common stock; and

- the average weekly trading volume in the common stock on the open market
during the four calendar weeks preceding such sale.

Sales under Rule 144 are also subject to certain post-sale notice requirements
and the availability of current public information concerning us.

In the event that any person is deemed to be our affiliate, and such
affiliate purchases shares of our class A common stock pursuant to this offering
or acquires shares of our class A common stock pursuant to our employee benefit
plan, the shares held by such person are required under Rule 144 to be sold in
brokers' transactions, subject to the volume limitations described above. Shares
properly sold in reliance upon Rule 144 to persons who are not affiliates are
thereafter freely tradable without restriction.

Sales of substantial amounts of our common stock in the open market, or the
availability of such shares for sale, could adversely affect the price of our
common stock. Viacom has advised us that it intends to offer its common stock in
a tax-free split-off expected to be completed within 12 months from the date a
favorable tax ruling is received from the Internal Revenue Service. We refer you
to "Summary -- Separation from Viacom," "Separation from Viacom" and "Risk
Factors -- Risk Factors Relating to the Securities Market and Ownership of Our
Stock -- We Cannot Predict the Effect that the Split-off Will Have on the Price
of Our Common Stock; The Price of Our Common Stock Could Be Adversely Affected
by Sales of Substantial Amounts of Our Common Stock in the Public Market." Any
shares distributed by Viacom will be eligible for immediate resale to the public
market without restrictions by persons other our affiliates. Our affiliates
would be subject to the restrictions of Rule 144 described above other than the
one-year holding period requirement.

We and our officers and directors and Viacom have agreed that, for a period
of 180 days from the date of this prospectus, we and Viacom will not, without
the prior written consent of Salomon Smith Barney Inc. and Salomon Brothers
International Limited, dispose of or hedge any shares of our class A common
stock or any securities convertible into or exchangeable for class A common
stock. Salomon Smith Barney Inc. and Salomon Brothers International Limited, in
their sole discretion may release any of the securities subject to these lock-up
agreements at any time without notice. This offering is specifically exempted
from this agreement. We refer you to "Underwriting."

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MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS

The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of the class
A common stock applicable to Non-United States Holders of such class A common
stock. For the purpose of this discussion, a "Non-United States Holder" is any
holder that for United States federal income tax purposes is not a "United
States person" (as defined below). This discussion does not address all aspects
of United States federal income and estate taxation that may be relevant in
light of such Non-United States Holder's particular facts and circumstances
(such as being a U.S. expatriate) and does not address any tax consequences
arising under the laws of any state, local or non-United States taxing
jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, and administrative
and judicial interpretations thereof, all as in effect on the date hereof, and
all of which are subject to change, possibly with retroactive effect. We have
not and will not seek a ruling from the Internal Revenue Service with respect to
the United States federal income and estate tax consequences described below,
and as a result, there can be no assurance that the Internal Revenue Service
will not disagree with or challenge any of the conclusions set forth in this
discussion. For purposes of this discussion, the term "United States person"
means:

(1) a citizen or resident of the United States;

(2) a corporation, partnership, or other entity created or organized in the
United States or under the laws of the United States or of any political
subdivision thereof;

(3) an estate whose income is included in gross income for United States
federal income tax purposes regardless of its source; or

(4) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.

DIVIDENDS

If we pay a dividend, any dividend paid to a Non-United States Holder of
class A common stock generally will be subject to United States withholding tax
either at a rate of 30% of the gross amount of the dividend or such lower rate
as may be specified by an applicable tax treaty. Dividends received by a
Non-United States Holder are effectively connected with a United States trade or
business conducted by such Non-United States Holder are exempt from such
withholding tax. However, such effectively connected dividends, net of certain
deductions and credits, are taxed at the same graduated rates applicable to
United States persons.

In addition to the graduated tax described above, dividends received by a
corporate Non-United States Holder that are effectively connected with a United
States trade or business of the corporate Non-United States Holder may also be
subject to a branch profits tax at a rate of 30% or such lower rate as may be
specified by an applicable tax treaty.

A Non-United States Holder of class A common stock that is eligible for a
reduced rate of withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for refund
with the Internal Revenue Service.

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GAIN ON DISPOSITION OF COMMON STOCK

A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
his class A common stock unless:

(1) such gain is effectively connected with a United States trade or
business of the Non-United States Holder (which gain, in the case of a
corporate Non-United States Holder, must also be taken into account for
branch profits tax purposes);

(2) the Non-United States Holder is an individual who holds such class A
common stock as a capital asset (within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended) and who is present in the
United States for a period or periods aggregating 183 days or more during
the calendar year in which such sale or disposition occurs and certain
other conditions are met; or

(3) we are or have been a "United States real property holding corporation"
for federal income tax purposes at any time within the shorter of the
five-year period preceding such disposition or such holder's holding
period.

We have determined that we are not and do not believe that we will become a
"United States real property holding corporation" for United States federal
income tax purposes.

BACKUP WITHHOLDING AND INFORMATION REPORTING

Generally, we must report annually to the Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or other agreements, the Internal Revenue Service may make it reports
available to tax authorities in the recipient's country of residence.

Dividends paid to a Non-United States Holder at an address within the United
States may be subject to backup withholding at a rate of 31% if the Non-United
States Holder fails to establish that it is entitled to an exemption or to
provide a correct taxpayer identification number and certain other information
to the payer. Backup withholding will generally not apply to dividends paid to
Non-United States Holders at an address outside the United States on or prior to
December 31, 1999 (unless the payer has knowledge that the payee is a United
States person). Under recently finalized Treasury Regulations regarding
withholding and information reporting (the "Final Regulations"), payment of
dividends to Non-United States Holders at an address outside the United States
after December 31, 1999 may be subject to backup withholding at a rate of 31%
unless such non-United States Holder satisfies certain certification
requirements.

Under current Treasury Regulations, the payment of the proceeds of the
disposition of class A common stock to or through the United States office of a
broker is subject to information reporting and backup withholding at a rate of
31% unless the holder certifies its non-United States status under penalties of
perjury or otherwise establishes an exemption. Generally, the payment of the
proceeds of the disposition by a Non-United States Holder of class A common
stock outside the United States to or through a foreign office of a broker will
not be subject to backup withholding but will be subject to information
reporting requirements if the broker is:

(1) a United States person;

(2) a "controlled foreign corporation" for United States tax purposes; or

(3) a foreign person 50% or more of whose gross income for certain periods
is from the conduct of a United States trade or business unless such
broker has documentary evidence in its files of the holder's non-United
States status and certain conditions are met or the holder otherwise
establishes an exemption.

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In general, the recently promulgated Final Regulations, described above, do
not significantly alter the substantive withholding and information reporting
requirements but would alter the procedures for claiming benefits of an income
tax treaty and change the certification procedures relating to the receipt by
intermediaries of payments on behalf of the beneficial owner of shares of class
A common stock. Non-United States Holders should consult their tax advisors
regarding the effect, if any, of the Final Regulations on an investment in the
class A common stock. The Final Regulations are generally effective for payments
made after December 31, 1999.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.

ESTATE TAX

An individual Non-United States Holder who owns class A common stock at the
time of his death or had made certain lifetime transfers of an interest in class
A common stock will be required to include the value of such class A common
stock in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.

THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF CLASS A
COMMON STOCK BY NON-UNITED STATES HOLDERS. ACCORDINGLY, INVESTORS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE INCOME TAX CONSEQUENCES OF
THE OWNERSHIP AND DISPOSITION OF CLASS A COMMON STOCK, INCLUDING THE APPLICATION
AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING
JURISDICTION.

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UNDERWRITING

We intend to offer our class A common stock in the United States and Canada
through a number of U.S. underwriters as well as outside the United States and
Canada through a number of international managers. Salomon Smith Barney Inc. and
Bear, Stearns & Co. Inc. are acting as U.S. representatives of each of the U.S.
underwriters named below. Salomon Brothers International Limited and Bear,
Stearns International Limited are acting as International Representatives of
each of the international managers named below. Subject to the terms and
conditions stated in a U.S. underwriting agreement dated the date hereof between
us and each of the U.S. underwriters, and an international underwriting
agreement dated the date hereof between us and each of the international
managers, each U.S. underwriter and each international manager named below has
severally agreed to purchase, and we have agreed to sell to such U.S.
underwriter and such international manager, the number of shares set forth
opposite the name of such U.S. underwriter and such international manager.

<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Salomon Smith Barney Inc..........................................................
Bear, Stearns & Co. Inc...........................................................
Credit Suisse First Boston Corporation............................................
Goldman, Sachs & Co...............................................................
J.P. Morgan Securities Inc........................................................
ING Baring Furman Selz LLC........................................................
NationsBanc Montgomery Securities LLC.............................................
PaineWebber Incorporated..........................................................
Schroder & Co. Inc................................................................
SG Cowen Securities Corporation...................................................
Wit Capital Corporation...........................................................
-----------
Subtotal......................................................................
-----------
-----------
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGER SHARES
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Salomon Brothers International Limited............................................
Bear, Stearns International Limited...............................................
Credit Suisse First Boston (Europe) Limited.......................................
Goldman Sachs International.......................................................
J.P. Morgan Securities Ltd........................................................
ING Barings Limited, as agent for ING Bank N.V.,
London Branch...................................................................
NationsBanc Montgomery Securities LLC.............................................
PaineWebber International (U.K.) Ltd..............................................
J. Henry Schroder & Co. Limited...................................................
SG Cowen International L.P........................................................
-----------
Subtotal......................................................................
Total.........................................................................
-----------
-----------
</TABLE>

The U.S. underwriters and the international managers are collectively
referred to as the underwriters. Representatives refers to the U.S.
representatives and the international representatives collectively. The initial
public offering price per share and the total underwriting discount per share of
class A common stock are identical under the U.S. underwriting agreement and the
international underwriting agreement.

The U.S. underwriting agreement and the international underwriting agreement
each provide that the obligations of the several underwriters to purchase the
shares included in this offering are subject to approval of certain legal
matters by counsel and to certain other conditions set forth in those
agreements. The several underwriters are obligated to purchase all the shares
(other than those covered by the

98
<PAGE>
over-allotment options described below) if they purchase any of the shares.
Under certain circumstances, under the U.S. underwriting agreement and the
international underwriting agreement, the commitments of non-defaulting
underwriters may be increased. The closings with respect to the sale of shares
of class A common stock to be purchased by the U.S. underwriters and the
international managers are conditioned upon one another. The underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part.

The underwriters propose to offer some of the shares directly to the public
at the initial public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the initial public
offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share on sales to certain other dealers. If all of the shares
are not sold at the initial offering price, the representatives may change the
public offering price and the other selling terms. The representatives have
advised us that the underwriters do not intend to confirm any sales to any
accounts over which they exercise discretionary authority.

We have granted to the U.S. underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to additional shares of our
class A common stock at the public offering price less the underwriting
discounts and commissions. The U.S. underwriters may exercise such option solely
for the purpose of covering over-allotments, if any, in connection with this
offering. To the extent such option is exercised, each U.S. underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares about proportionate to such U.S. underwriter's initial purchase
commitment.

We also have granted to the international managers an option, exercisable
for 30 days from the date of this prospectus, to purchase up to additional
shares of our class A common stock to cover over-allotments, if any, on terms
similar to those granted to the U.S. underwriters.

We and our officers and directors, and Viacom have agreed that, for a period
of 180 days from the date of this prospectus, we and Viacom will not, without
the prior written consent of Salomon Smith Barney Inc. and Salomon Brothers
International Limited, dispose of or hedge any shares of our class A common
stock or any securities convertible into or exchangeable for class A common
stock. Salomon Smith Barney Inc. and Salomon Brothers International Limited in
their sole discretion may release any of the securities subject to these lock-up
agreements at any time without notice.

Prior to this offering, there has been no public market for the class A
common stock. Consequently, the initial public offering price for the shares was
determined by negotiations between us and Viacom, on the one hand, and the U.S.
representatives and the international representatives, on the other. Among the
factors considered in determining the initial public offering price were our
results of operations, our current financial condition, our future prospects,
our markets, the economic conditions in and future prospects for the industry in
which we compete, our management, and currently prevailing general conditions in
the equity securities markets, including current market valuations of publicly
traded companies considered comparable to Blockbuster. We cannot assure you,
however, that the prices at which the shares will sell in the public market
after this offering will not be lower than the price at which they are sold

99
<PAGE>
by the underwriters or that an active trading market in the class A common stock
will develop and continue after this offering.

We have applied to have the class A common stock listed on the New York
Stock Exchange under the symbol "BBI."

The following table shows the underwriting discounts and commissions to be
paid to the U.S. underwriters and the international managers by us in connection
with this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' options to purchase additional shares of class A
common stock.

<TABLE>
<CAPTION>
PAID BY BLOCKBUSTER
--------------------------
<S> <C> <C>
NO EXERCISE FULL EXERCISE
----------- -------------
Per share......................................................... $ $
Total............................................................. $ $
----------- -------------
----------- -------------
</TABLE>

The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the U.S. underwriters and the
international managers are permitted to sell shares of our class A common stock
to each other for purposes of resale at the initial public offering price, less
an amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they sell
shares of our class A common stock will not offer to sell or sell shares of our
class A common stock to persons who are non-U.S. or non-Canadian persons, and
the international managers and any dealer to whom they sell shares of our class
A common stock will not offer to sell or sell shares of our class A common stock
to U.S. persons or to Canadian persons or to persons they believe intend to
resell to U.S. or Canadian persons, except in the case of transactions under the
terms of the intersyndicate agreement.

Each underwriter has agreed that (1) it has not offered or sold and will not
offer or sell any shares of class A common stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 or the
Financial Services Act 1986, (2) it has complied, and will comply, with all
applicable provisions of the Financial Services Act 1986 of Great Britain with
respect to anything done by it in relation to the shares of class A common stock
in, from or otherwise involving the United Kingdom, and (3) it has only issued
or passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of the shares of class A common
stock, other than any document required or permitted to be published by listing
rules under Part IV of the Financial Services Act 1986, to a person who is of a
kind described in Article 11(3) of the Financial Services Act of 1986
(Investment Advertisements) (Exemptions) Order 1996 of Great Britain or is a
person to whom the document may otherwise lawfully be issued or passed on.

The shares of class A common stock have not been and will not be qualified
for sale in Canada or any of its provinces or territories and may not be offered
or sold directly or indirectly in any province or territory of Canada except
pursuant to an exemption from the applicable prospectus filing requirements, and
otherwise in compliance with the applicable securities laws and regulations of
the relevant province or territory.

In connection with the offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of class A common stock in excess of the number of shares to be purchased
by the underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the class A common stock in
the open market after the distribution has

100
<PAGE>
been completed in order to cover syndicate short positions. Stabilizing
transactions consist of certain bids or purchases of class A common stock made
for the purpose of preventing or retarding a decline in the market price of the
class A common stock while the offering is in progress. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member. These activities may cause the price of the class A common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the New York
Stock Exchange or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.

We estimate that the expenses of this offering, exclusive of the
underwriting discounts and commissions, payable by it will be $ .

The U.S. representatives and some of the underwriters or their affiliates
have performed certain investment banking and advisory services for us, Viacom
and each of our affiliates from time to time for which they have received
customary fees and expenses. The U.S. representatives and underwriters may, from
time to time, engage in transactions with and perform services for us, Viacom
and each of our affiliates in the ordinary course of their business. In
particular, Citibank N.A., an affiliate of each of Salomon Smith Barney Inc. and
Salomon Brothers International Limited, is the lead arranger on our new credit
agreement. We refer you to "Description of Credit Agreement" and "Use of
Proceeds."

We have agreed to indemnify the U.S. underwriters and the international
managers against certain liabilities, including liabilities under the Securities
Act of 1933, or to contribute to payments the U.S. underwriters or the
international managers may be required to make in respect of any of those
liabilities.

101
<PAGE>
LEGAL MATTERS

Certain legal matters with respect to the validity of the shares of common
stock offered hereby will be passed upon for us by Shearman & Sterling, and for
the underwriters by Hughes Hubbard & Reed LLP. Hughes Hubbard & Reed LLP has
provided legal services to us, Viacom and our respective affiliates, from time
to time, for which they have received customary fees and expenses.

EXPERTS

Our financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon their authority
as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the class A common stock offered hereby. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. Certain items are omitted in
accordance with the rules and regulations of the SEC. For further information
about us and our class A common stock, reference is made to the registration
statement and the exhibits and any schedules filed therewith. Statements
contained in this prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance, if such
contract or document is filed as an exhibit, reference is made to the copy of
such contract or other documents filed as an exhibit to the registration
statement, each statement being qualified in all respects by such reference. A
copy of the registration statement, including the exhibits and schedules
thereto, may be read and copied at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices at Seven
World Trade Center, New York, New York 10048 and 500 West Madison Street,
Chicago, Illinois 60661. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site at http://www.sec.gov, from which interested persons
can electronically access the registration statement, including the exhibits and
any schedules thereto.

As a result of this offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934, as amended.
We will fulfill our obligations with respect to such requirements by filing
periodic reports and other information with the SEC. We intend to furnish our
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm. We also maintain our U.S.
Internet site at http://WWW.BLOCKBUSTER.COM. Our U.S. Internet site and the
information contained therein or connected thereto shall not be deemed to be
incorporated into this prospectus or the registration statement of which it
forms a part.

102
<PAGE>
BLOCKBUSTER INC.

INDEX TO AUDITED COMBINED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants................................................ F-2

Combined Statements of Operations--Years Ended December 31, 1996, 1997 and
1998.......................................................................... F-3

Combined Balance Sheets--at December 31, 1997 and 1998.......................... F-4

Combined Statements of Changes in Stockholder's Equity--Years Ended December 31,
1996, 1997 and 1998........................................................... F-5

Combined Statements of Cash Flows--Years Ended December 31, 1996, 1997 and
1998.......................................................................... F-6

Notes to Combined Financial Statements.......................................... F-7-26
</TABLE>

CERTAIN SUPPLEMENTARY FINANCIAL STATEMENT SCHEDULES
HAVE BEEN OMITTED BECAUSE THE INFORMATION REQUIRED
TO BE SET FORTH THEREIN IS EITHER NOT APPLICABLE OR
IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES
THERETO.

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of Viacom Inc.

In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of changes in stockholder's equity, and of
cash flows present fairly, in all material respects, the financial position of
Blockbuster Inc. at December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP

Dallas, Texas
May 4, 1999

F-2
<PAGE>
BLOCKBUSTER INC.

COMBINED STATEMENTS OF OPERATIONS

(IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
REVENUES:
Rental revenues.............................................................. $ 2,386.9 $ 2,664.0 $ 3,219.6
Product sales................................................................ 491.3 594.0 618.0
Other revenues............................................................... 63.9 55.6 55.8
--------- --------- ---------
2,942.1 3,313.6 3,893.4
--------- --------- ---------
COST OF SALES:
Cost of rental revenues...................................................... 617.2 810.6 1,460.9
Cost of product sold......................................................... 396.5 549.9 495.5
--------- --------- ---------
1,013.7 1,360.5 1,956.4
--------- --------- ---------
Gross profit................................................................. 1,928.4 1,953.1 1,937.0

OPERATING EXPENSES:
General and administrative................................................... 1,163.6 1,605.7 1,732.3
Advertising.................................................................. 115.3 139.5 181.0
Depreciation................................................................. 165.5 253.8 212.7
Amortization of intangibles.................................................. 166.2 168.7 170.2
Restructuring charge......................................................... 50.2 -- --
--------- --------- ---------
1,660.8 2,167.7 2,296.2
--------- --------- ---------
Operating income (loss)........................................................ 267.6 (214.6) (359.2)
Interest expense and other items, net........................................ (18.4) (54.7) (35.5)
--------- --------- ---------
Income (loss) before income taxes.............................................. 249.2 (269.3) (394.7)
Benefit (provision) for income taxes......................................... (167.4) (30.0) 59.4
Equity in loss of affiliated companies, net of tax........................... (4.0) (18.9) (1.3)
--------- --------- ---------
Net income (loss).............................................................. $ 77.8 $ (318.2) $ (336.6)
--------- --------- ---------
--------- --------- ---------

UNAUDITED PRO FORMA EARNINGS PER SHARE:
Basic and diluted............................................................ $ --
---------
---------
UNAUDITED PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted............................................................ --
---------
---------
</TABLE>

See notes to combined financial statements.

F-3
<PAGE>
BLOCKBUSTER INC.

COMBINED BALANCE SHEETS

(IN MILLIONS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 129.6 $ 99.0
Receivables, less allowances of $22.3 (1997) and $22.7 (1998)............................ 114.8 124.8
Merchandise inventories.................................................................. 281.3 277.4
Deferred income taxes.................................................................... 6.7 --
Prepaid assets........................................................................... 95.5 130.5
--------- ---------
Total current assets................................................................... 627.9 631.7

Rental library, net........................................................................ 734.5 441.2
Deferred income taxes...................................................................... 31.3 92.5
Property and equipment, net................................................................ 1,085.2 995.3
Intangibles, net........................................................................... 6,192.7 6,055.6
Other assets............................................................................... 59.4 58.5
--------- ---------
$ 8,731.0 $ 8,274.8
--------- ---------
--------- ---------

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable......................................................................... $ 362.4 $ 448.6
Accrued expenses......................................................................... 267.0 361.8
Current portion of capital lease obligations............................................. 36.7 22.2
Deferred income taxes.................................................................... -- 13.6
Short-term borrowings.................................................................... 47.0 --
--------- ---------
Total current liabilities.............................................................. 713.1 846.2

Notes payable to Viacom.................................................................... 175.8 1,576.4
Capital lease obligations.................................................................. 155.5 138.8
Other liabilities.......................................................................... 69.0 75.5
--------- ---------
1,113.4 2,636.9
--------- ---------

Commitments and contingencies (Note 12)

Stockholder's equity:
Viacom's net equity investment........................................................... 7,666.5 5,695.8
Accumulated other comprehensive loss--foreign currency
translation adjustment................................................................. (48.9) (57.9)
--------- ---------
Total Stockholder's equity............................................................. 7,617.6 5,637.9
--------- ---------
$ 8,731.0 $ 8,274.8
--------- ---------
--------- ---------
</TABLE>

See notes to combined financial statements.

F-4
<PAGE>
BLOCKBUSTER INC.

COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY

(IN MILLIONS)

<TABLE>
<CAPTION>
ACCUMULATED
VIACOM'S OTHER
NET EQUITY COMPREHENSIVE
INVESTMENT INCOME (LOSS) TOTAL
---------- --------------- ----------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1996............................................... $ 7,754.1 $ (16.9) $ 7,737.2
Net income............................................................... 77.8 -- 77.8
Cumulative translation adjustment........................................ -- 9.8 9.8
Net cash contribution to Viacom.......................................... (40.4) -- (40.4)
---------- ------ ----------

BALANCE AT DECEMBER 31, 1996............................................. 7,791.5 (7.1) 7,784.4
Net loss................................................................. (318.2) -- (318.2)
Cumulative translation adjustment........................................ -- (38.6) (38.6)
Reclassification of foreign currency translation gain realized........... -- (3.2) (3.2)

Net cash received from Viacom............................................ 193.2 -- 193.2
---------- ------ ----------

BALANCE AT DECEMBER 31, 1997............................................. 7,666.5 (48.9) 7,617.6
Net loss................................................................. (336.6) -- (336.6)
Cumulative translation adjustment........................................ -- (9.0) (9.0)
Dividend payable to Viacom............................................... (1,400.0) -- (1,400.0)
Net cash contribution to Viacom.......................................... (234.1) -- (234.1)
---------- ------ ----------

BALANCE AT DECEMBER 31, 1998............................................. $ 5,695.8 $ (57.9) $ 5,637.9
---------- ------ ----------
---------- ------ ----------
</TABLE>

See notes to combined financial statements.

F-5
<PAGE>
BLOCKBUSTER INC.

COMBINED STATEMENTS OF CASH FLOWS

(IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................. $ 77.8 $ (318.2) $ (336.6)
Adjustments to reconcile net income (loss) to net cash flow provided by
operating activities:
Depreciation and amortization............................................... 948.9 1,222.4 1,518.8
Deferred income taxes....................................................... 26.7 121.5 (8.1)
Write-down of investments................................................... -- 27.1 10.5
Restructuring charge........................................................ 50.2 -- --
Equity in loss of affiliated companies, net of tax.......................... 4.0 18.9 1.3
Other....................................................................... -- (.3) --
Change in operating assets and liabilities:
Increase in receivables..................................................... (39.5) (7.8) (10.9)
Increase in merchandise inventories......................................... (73.1) (51.4) (.4)
Increase in prepaid and other assets........................................ (20.3) (15.6) (40.0)
Increase (decrease) in accounts payable..................................... 49.0 (41.4) 67.9
Increase (decrease) in accrued expenses and other liabilities............... (38.7) 36.1 32.0
--------- --------- ---------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES................................. 985.0 991.3 1,234.5
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Rental library purchases...................................................... (751.5) (860.2) (818.1)
Capital expenditures.......................................................... (323.7) (262.2) (175.0)
Cash used for acquisitions.................................................... (154.4) (79.0) (34.2)
Proceeds from sale of property and equipment.................................. -- 19.1 .3
Investments in affiliated companies........................................... (5.5) (5.8) 4.8
--------- --------- ---------
NET CASH FLOW USED IN INVESTING ACTIVITIES...................................... (1,235.1) (1,188.1) (1,022.2)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on (repayments of) credit facility............................. 25.8 22.3 (46.6)
Proceeds from term loan....................................................... -- -- 46.6
Net borrowings from notes due to Viacom....................................... 69.7 106.1 .6
Capital lease payments........................................................ (24.9) (33.2) (34.8)
Advances from (repayments to) Viacom, net..................................... 138.2 174.1 (206.9)
--------- --------- ---------
NET CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES........................ 208.8 269.3 (241.1)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH......................................... (.4) (1.5) (1.8)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................ (41.7) 71.0 (30.6)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................................. 100.3 58.6 129.6
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................................ $ 58.6 $ 129.6 $ 99.0
--------- --------- ---------
--------- --------- ---------
</TABLE>

See notes to combined financial statements.

F-6
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

(TABULAR DOLLARS IN MILLIONS)

NOTE 1--DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Blockbuster Inc. (the "Company") consists of various wholly owned entities
owned directly or indirectly by Viacom International Inc. which is a wholly
owned subsidiary of Viacom Inc. ("Viacom"). During 1998, Viacom announced its
intention to offer in an initial public offering a portion of its interest in
the common stock of Blockbuster Inc., a wholly-owned subsidiary. This initial
public offering is Viacom's first step in the planned divestiture of Blockbuster
Inc. The Company owns, operates and franchises videocassette rental and sales
stores in the United States and a number of foreign countries. The Company
offers pre-recorded videocassettes primarily for rental and also offers titles
for purchase on a "sell-through" (retail) basis. In addition, the Company offers
video games for rental and sale and sells certain other entertainment-related
merchandise.

The Company's business and operations were originally conducted by
Blockbuster Entertainment Corporation which was incorporated in Delaware in 1982
and entered the movie rental business in 1985. On September 29, 1994,
Blockbuster Entertainment Corporation was merged with and into Viacom. Since the
merger and during the period covered by the accompanying combined financial
statements, operations were conducted by various subsidiaries of Viacom. These
operations are collectively referred to herein as the "Company", "Blockbuster"
or "Blockbuster Inc." Viacom's acquisition of the Company in 1994 was accounted
for as a purchase, and accordingly, its basis in the acquired assets and
liabilities has been pushed down to Blockbuster. Viacom's initial investment and
all subsequent cash advances, with the exception of cash advanced to fund the
Company's non-U.S. operations, have been classified as contributed capital and
no interest expense or income has been allocated to the Company in the
accompanying combined financial statements.

As a part of the Reorganization Transactions (see discussion below), the
Company will purchase stock or assets from affiliates of Viacom with cash funded
by the bank credit agreement or contributed by Viacom in order to acquire
certain international operations of the Company. Advances from Viacom to
Blockbuster to fund these operations have been treated as intercompany notes in
the accompanying combined financial statements. Any difference between the
recorded intercompany notes payable to Viacom and the ultimate amount of the
purchase price for the stock or assets of these operations will be recognized as
an adjustment to Stockholders' Equity.

In anticipation of the Company's initial public offering (the "Offering")
the following transactions have been or will be completed: (1) during late 1998
numerous U.S. subsidiaries of Viacom International Inc., a wholly-owned
subsidiary of Viacom, each of which were directly or indirectly involved in the
Company's operations, were merged with and into the Company, (2) the Company
will purchase stock or assets of certain affiliates of Viacom in order to
acquire certain international operations of the Company, (3) on December 31,
1998 the Company declared a $1.4 billion dividend payable to Viacom which has
been reflected as an interest-bearing note in the accompanying combined balance
sheet, (4) the Company will enter into a revolving credit agreement with a
syndicate of lenders which will be used to fund debt owed to Viacom and the
purchase of stock or assets from affiliates of Viacom to acquire certain
international operations and (5) the Company will be recapitalized with Class A
common stock and Class B common stock. These transactions are collectively
referred to as the Reorganization Transactions.

The Company expects to offer Class A common stock in the Offering.
Subsequent to the Offering, Viacom will own none of the outstanding shares of
the Class A common stock and 100% of the outstanding shares of the Class B
common stock, which will represent no less than 80% of the voting interest of
the Company's then outstanding common stock. Viacom has expressed its current
intention to achieve a complete separation between the Company and itself
through a subsequent stock split-off or

F-7
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 1--DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
other back-up distribution. Viacom has the sole discretion to determine the
timing and all terms of the split-off or other backup distribution, and is under
no obligation to effect such separation. There can be no assurance as to whether
or when such a separation will occur, or as to the terms of such separation.

The accompanying combined financial statements are presented on a carve-out
basis and reflect the combined historical results of operations, financial
position and cash flows of the Company including entities currently owned by
Blockbuster or to be purchased from Viacom in the case of its international
operations. In this context, no direct ownership relationship existed among all
the various entities comprising Blockbuster; accordingly, Viacom and its
subsidiaries' net investment in Blockbuster is included in the Stockholder's
Equity in the combined financial statements.

For all periods presented, certain expenses reflected in the combined
financial statements include allocation of corporate expenses from Viacom (see
Note 10). All such costs and expenses have been deemed to have been paid by the
Company to Viacom in the period in which the costs were recorded. Allocations of
current income taxes receivable or payable are deemed to have been remitted, in
cash, by or to Viacom in the period the related income taxes were recorded.
Management believes that the foregoing allocations were made on a reasonable
basis; however, the allocations of costs and expenses do not necessarily
indicate the costs that would have been or will be incurred by the Company on a
stand-alone basis. Also, the financial statements may not necessarily reflect
the financial position, results of operations and cash flows of the Company in
the future or what the financial position, results of operations or cash flows
would have been if the Company had been a separate, stand-alone company during
the periods presented.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could subsequently differ from those estimates.

PRINCIPLES OF COMBINATION

The combined financial statements include the accounts of the Company and
investments of more than 50% in subsidiaries and other entities. Investments in
affiliated companies over which the Company has a significant influence or
ownership of more than 20% but less than or equal to 50% are accounted for under
the equity method. Investments of 20% or less are accounted for under the cost
method. All significant intercompany transactions have been eliminated.

CASH AND CASH EQUIVALENTS

Cash equivalents are defined as short-term (original maturities of three
months or less) highly liquid investments.

F-8
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MERCHANDISE INVENTORIES

Merchandise inventories consist primarily of prerecorded videocassette
retail inventory, video games and confectionery items and is stated at the lower
of cost or market. Merchandise inventory costs are determined using the weighted
average method, the use of which approximates the first-in, first-out basis.

RENTAL LIBRARY, NET

Effective April 1, 1998, Blockbuster adopted an accelerated method of
amortizing videocassette and game rental library in order to more closely match
expenses in proportion with anticipated revenues from revenue sharing agreements
(see Note 3).

Rental library and related accumulated amortization at December 31, are as
follows:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Rental library......................................................... $ 1,742.8 $ 2,011.5
Less: accumulated amortization......................................... 1,008.3 1,570.3
--------- ---------
Rental library, net.................................................... $ 734.5 $ 441.2
--------- ---------
--------- ---------
</TABLE>

Rental amortization expense, excluding the charge (see Note 3), approximated
$617.2 million (1996), $799.9 million (1997) and $711.6 million (1998).

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation expense is computed
principally by the straight-line method over the estimated useful lives as
follows:

<TABLE>
<S> <C>
Building.................................... 25 to 31.5 years
Building improvements....................... 10 years
Leasehold improvements...................... 4 to 10 years
Equipment and other......................... 3 to 10 years
Furniture and fixtures...................... 3 to 10 years
</TABLE>

Balances of major classes of assets and accumulated depreciation at December
31, are as follows:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Land, building and building improvements............................... $ 64.6 $ 56.3
Leasehold improvements................................................. 563.2 637.7
Equipment and other.................................................... 347.6 386.2
Furniture and fixtures................................................. 308.7 294.0
Capital leases......................................................... 244.4 248.3
--------- ---------
Total................................................................ 1,528.5 1,622.5
Less: accumulated depreciation......................................... 443.3 627.2
--------- ---------
Property and equipment, net............................................ $ 1,085.2 $ 995.3
--------- ---------
--------- ---------
</TABLE>

Maintenance and repair costs are charged to expense as incurred.
Improvements that extend the useful life of the assets are capitalized.
Depreciation expense, including capital lease amortization, was $165.5 million
(1996), $253.8 million (1997) and $212.7 million (1998). Depreciation expense
related to capital leases was $31.7 million (1996), $30.6 million (1997) and
$29.7 million (1998).

F-9
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES

Intangible assets at December 31, consist of the following:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Goodwill............................................................... $ 6,721.5 $ 6,752.7
Trademarks............................................................. 11.7 11.8
--------- ---------
Total................................................................ 6,733.2 6,764.5
Less: accumulated amortization......................................... 540.5 708.9
--------- ---------
Intangibles, net....................................................... $ 6,192.7 $ 6,055.6
--------- ---------
--------- ---------
</TABLE>

The cost of acquired businesses in excess of the fair value of tangible
assets and liabilities acquired ("goodwill"), which principally relates to
Viacom's acquisition of the Company and the resulting pushdown of goodwill
associated with the transaction, is amortized using the straight-line method
over estimated useful lives not exceeding 40 years. Amortization expense related
to intangible assets was $166.2 million (1996), $168.7 million (1997) and $170.2
million (1998).

Trademarks are amortized on a straight-line basis over the estimated
remaining economic lives, not exceeding 40 years.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 1997 and 1998, the Company's carrying value of financial
instruments approximates fair value due to the short-term maturities of these
instruments or variable rates of interest. During 1996, 1997 and 1998, no
financial instruments were held or issued for trading purposes.

IMPAIRMENT OF LONG-LIVED ASSETS

In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of." SFAS 121 requires that the Company
assess long-lived assets (primarily property, plant and equipment and goodwill)
for impairment whenever there is an indication that the carrying amount of the
assets may not be recoverable. Recoverability is determined by comparing the
forecasted undiscounted cash flows generated by these assets to the assets' net
carrying value. The amount of impairment loss, if any, will generally be
measured as the difference between the net book value of the assets and their
estimated fair value.

ADVERTISING EXPENSES

Advertising costs are expensed the first time the advertising takes place.

GIFT CARD LIABILITY

Gift card liabilities are recorded at the time of sale with the costs of
designing, printing and distributing the cards recorded as expense as incurred.
The liability is relieved and revenue recognized upon redemption of the gift
cards at any Blockbuster video store.

F-10
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION

Revenues are generally recognized at the time of sale or rental. Rental
revenue includes sales of previously viewed videocassettes and previously played
video games.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

The financial statements of the Company's foreign operations were prepared
in their respective local currencies and translated into U.S. dollars for
reporting purposes. The assets and liabilities are translated at exchange rates
in effect at the balance sheet date, while results of operations are translated
at average exchange rates for the respective periods. The cumulative effects of
exchange rate changes on net assets are included as a part of accumulated other
comprehensive loss in 1996, 1997 and 1998. Net foreign currency transaction
gains and losses were not significant for any of the years presented, except for
1997, in which the Company recognized a gain of approximately $8.0 million,
which is included in general and administrative expenses in the Combined
Statements of Operations.

HEDGING ACTIVITY

The Company has historically been considered in Viacom's overall risk
management strategy. As a part of this strategy, Viacom uses certain financial
instruments to reduce its exposure to adverse movements in foreign-exchange
rates. Viacom allocates to the Company the income and expense associated with
certain of these financial instruments used to hedge foreign currency movements.
Allocated net expense and the related notional amounts for these financial
instruments were immaterial in all years presented.

The Company is exposed to credit loss in the event of nonperformance by
counterparties to the financial instrument contracts. However, the Company does
not anticipate nonperformance by the other parties and no material loss would be
expected from their nonperformance.

CAPITALIZED SOFTWARE COSTS

The Company capitalizes qualifying costs related to developing or obtaining
internal-use software. Capitalization of costs begins after the conceptual
formulation stage has been completed. Capitalized costs are depreciated over the
estimated useful life of the software which ranges between three and five years.
Capitalized costs at December 31, 1997 and 1998 totaled $10.6 million and $11.1
million, net of accumulated depreciation of $7.0 million and $10.5 million,
respectively. In January 1998, the American Institute of Certified Public
Accountants (the "AICPA") issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 becomes effective for all fiscal years beginning after December 15,
1998. The Company's policy falls within the guidelines of SOP 98-1.

START-UP COSTS

In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 becomes effective for
all fiscal years beginning after December 15, 1998. The Company's policy falls
within the guidelines of SOP 98-5.

F-11
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES

Income taxes are provided based on the liability method of accounting
pursuant to SFAS 109, "Accounting for Income Taxes" ("SFAS 109"). Deferred
income taxes are recorded to reflect the tax benefit and consequences of future
years' differences between the tax bases of assets and liabilities and their
financial reporting basis. The Company records a valuation allowance to reduce
deferred tax assets if it is more likely than not that some portion or all of
the deferred tax assets will not be realized.

EARNINGS PER SHARE

The Company's historical capital structure is not indicative of its
prospective capital structure since no direct ownership relationship existed
among all the various units comprising Blockbuster. Accordingly, historical
earnings per share has not been presented in the Combined Financial Statements.

Unaudited pro forma basic and diluted earnings per share includes the shares
of both Class A and Class B common shares assumed to be outstanding as of the
date of the Offering. Unaudited pro forma basic and diluted earnings per share
are the same since there are currently no Company options outstanding. Pro forma
basic and diluted earnings per share have been presented for the most recent
annual period.

COMPREHENSIVE INCOME (LOSS)

Effective January 1, 1998 the Company adopted SFAS 130, "Reporting
Comprehensive Income" ("SFAS 130"), effective for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting and display of
comprehensive income (loss) and its components in financial statements.
Comprehensive income is defined as the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It consists of net income (loss) and other
gains and losses affecting stockholder's equity that, under generally accepted
accounting principles, are excluded from net income, such as unrealized gains
and losses on investments available for sale, foreign currency translation gains
and losses and minimum pension liability. Currency translation is the only item
of other comprehensive income impacting the Company. There is no tax effect
associated with comprehensive income (loss) as the foreign currency translation
adjustments are associated with operations located in foreign jurisdictions with
operating losses.

Comprehensive income (loss) for the years ended 1996, 1997 and 1998 was as
follows:

<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss)................................................................... $ 77.8 $ (318.2) $ (336.6)
Foreign currency translation gain realized.......................................... - (3.2) -
Currency translation adjustment..................................................... 9.8 (38.6) (9.0)
--------- --------- ---------
Total comprehensive income (loss)................................................... $ 87.6 $ (360.0) $ (345.6)
--------- --------- ---------
--------- --------- ---------
</TABLE>

SEGMENT INFORMATION AND PENSION DISCLOSURES

In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), effective for fiscal years
beginning after December 15, 1997. SFAS 131 establishes revised standards for
public companies relating to the reporting of financial and descriptive
information about their operating segments in financial statements. In February
1998, the FASB issued SFAS 132, "Employer's Disclosures about Pensions and Other
Post Retirement Benefits" ("SFAS 132"),

F-12
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
which is effective for fiscal years beginning after December 15, 1997. SFAS 132
standardizes the disclosure requirements for pension and other post retirement
benefits and requires additional information on benefit obligations and the fair
value of plan assets. Implementation of SFAS 131 and SFAS 132 have not had a
material effect on the financial statements as currently presented.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This new accounting standard
will require that derivative instruments be measured at fair value and
recognized in the balance sheet as either assets or liabilities, as the case may
be. The treatment of changes in the fair value of a derivative (i.e., gains and
losses) will depend on its intended use and designation. Gains and losses on
derivatives designated as hedges against the cash flow effect of a forecasted
transaction will initially be reported as a component of comprehensive income
and, subsequently, reclassified into income when the forecasted transaction
affects income. Gains and losses on all other forms or derivatives will be
recognized in income in the period of change. The Company will adopt SFAS 133
effective January 1, 2000 and anticipates that its adoption will not have a
material effect on its financial statements.

NOTE 3--CHANGE IN ACCOUNTING METHOD FOR RENTAL LIBRARY

Effective April 1, 1998, Blockbuster adopted an accelerated method of
amortizing videocassette and game rental library. Blockbuster has adopted this
new method of amortization because it has implemented a new business model,
including revenue sharing agreements with Hollywood studios, which has
dramatically increased the number of videocassettes in the stores and is
satisfying consumer demand over a shorter period of time. Revenue sharing allows
Blockbuster to purchase videocassettes at a lower product cost than the
traditional buying arrangements, with a percentage of the net rental revenues
shared with the studios over a contractually determined period of time. As the
new business model results in a greater proportion of rental revenue over a
shorter period of time, Blockbuster has changed its method of amortizing rental
library in order to more closely match expenses in proportion with the
anticipated revenues to be generated therefrom.

Pursuant to the new accounting method, the Company records base stock
videocassettes (generally less than five copies per title for each store) at
cost and amortizes a portion of these costs on an accelerated basis over three
months, generally to $8 per unit, with the remaining base stock videocassette
cost amortized on a straight-line basis over 33 months to an estimated $4
salvage value. The cost of non-base stock videocassettes (generally greater than
four copies per title for each store) are amortized on an accelerated basis over
three months to an estimated $4 salvage value. Video games are amortized on an
accelerated basis over a 12 month period to an estimated $10 salvage value.
Revenue sharing payments are expensed when revenues are earned pursuant to the
applicable contractual arrangements.

The new method of accounting has been applied to rental library that was
held at April 1, 1998. The adoption of the new method of amortization has been
accounted for as a change in accounting estimate effected by a change in
accounting principle and, accordingly, the Company recorded a non-cash pre-tax
charge of $424.3 million to cost of rental revenues. The charge represents an
adjustment to the carrying value of the rental tapes due to the new method of
accounting.

F-13
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

The Company believes that the new amortization method developed for
Blockbuster's new business model will result in a better matching of revenue and
expense recognition. Under the new model, cost of sales attributable to
videocassettes is comprised of revenue sharing payments, which are expensed when
the related revenue is recognized, amortization of product costs and residual
values of previously viewed tapes and games upon sale.

Prior to April 1, 1998 videocassette rental library was recorded at cost and
amortized over its estimated economic life. Base stock videocassettes (generally
1 to 4 copies per title for each store) were amortized over 36 months on a
straight-line basis. Non-base stock videocassettes (generally the fifth and
succeeding copies per title for each store) were amortized over six months on a
straight-line basis. Video game library was amortized on a straight-line basis
over a period of 12 to 24 months.

NOTE 4--BLOCKBUSTER CHARGES AND RESTRUCTURING

During the second quarter of 1997, the Company shifted its strategic
emphasis from retailing a broad assortment of merchandise to focusing on its
core rental business. Rationalization of the retail product lines such as sell
through video, confectionery items, literature, music and fashion merchandise
allowed the Company to devote more management time and attention, as well as
retail floor selling space, to its rental video and game business. In addition,
as part of its efforts to improve the performance of its operations, the Company
adopted a plan to close consistently underperforming stores primarily located in
the United States, United Kingdom and Australia and to exit the German market.

As a result, the Company recorded a pre-tax charge of approximately $250
million (the "Charge"). The Charge consisted principally of $100.8 million
recognized as cost of merchandise sold for a reduction in the carrying value of
excess merchandise inventories, $69.6 million for the reorganizing of operations
and closing of underperforming stores and $39.3 million recognized as general
and administrative expenses, primarily related to relocation costs incurred in
connection with the move of the Company's employees, corporate offices and data
center from Fort Lauderdale, Florida to Dallas, Texas. In addition, the Charge
consisted of $29.4 million, recognized as part of the equity in loss of
affiliated companies, associated with the Company's debt guarantee of joint
venture operations in Japan. Through December 31, 1998, the Company has fully
satisfied its obligations related to the debt guarantee.

The $69.6 million charge is comprised of a $41.8 million non-cash impairment
charge associated with long-lived assets and a $27.8 million charge for lease
exit obligations. These amounts have been recognized as depreciation expense and
general and administrative expense, respectively. Through December 31, 1998, the
Company has paid and charged approximately $12.8 million against the lease exit
obligations.

Also in the second quarter of 1997, as part of the Company's strategic
initiatives, management made the decision to dispose of certain investments that
did not relate to the Company's core business. The Company recognized a non-cash
charge of $27.1 million to write down these non-strategic investments to their
net realizable value. This charge is reflected in "Interest expense and other
items, net" in the Combined Statements of Operations.

During 1998, the Company revised its estimate of net realizable value
associated with certain investments referred to above. An additional provision
of approximately $10.5 million was recognized in the fourth quarter to reflect
this change in estimate and was included in "Interest expense and other items,
net".

F-14
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 4--BLOCKBUSTER CHARGES AND RESTRUCTURING (CONTINUED)
During the fourth quarter of 1996, the Company adopted a plan to relocate
its corporate headquarters from Fort Lauderdale to Dallas and eliminate third
party distributors. As a result of such plan, the Company recognized a
restructuring charge of approximately $50.2 million. The restructuring charge
reflects a $25.0 million reserve for estimated severance benefits payable to
approximately 650 employees who did not relocate to Dallas. The Company, through
the restructuring charge, also recognized $11.6 million of other costs of
exiting Fort Lauderdale (primarily related to the disposition of its corporate
headquarters) and $13.6 million for eliminating third party distributors. The
Company's relocation to Dallas was completed during the second quarter of 1997.
Through December 31, 1998, the Company paid and charged approximately $25.0
million against the severance liability and approximately $11.4 million against
the Fort Lauderdale exit costs.

NOTE 5--STOCK OPTION PLANS

Certain of the Company's employees have been granted Viacom stock options
under Viacom's Long-term Incentive Plans (the "Plans"). The purpose of the Plans
is to benefit and advance the interests of Viacom by rewarding certain key
employees for their contributions to the financial success of Viacom and thereby
motivating them to continue to make such contributions in the future. The Plans
provide for fixed grants of equity-based interests pursuant to awards of phantom
shares, stock options, stock appreciation rights, restricted shares or other
equity-based interests and for subsequent payments of cash with respect to
phantom shares or stock appreciation rights based, subject to certain limits, on
their appreciation in value over stated periods of time. The stock options
generally vest over a four to six year period from the date of grant and expire
10 years after the date of grant.

The Company has adopted the disclosure-only provisions of SFAS 123,
"Accounting for Stock-Based Compensation". In accordance with the provisions of
SFAS 123, the Company applies Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for the Plans and accordingly, does not recognize compensation
expense for its stock option plans because Viacom typically does not issue
options at exercise prices below the market value at date of grant. Had
compensation expense for Viacom's stock option plans applicable to the Company's
employees been determined based upon the fair value at the grant date for awards
consistent with the methodology prescribed by SFAS 123, the Company's combined
pretax income would have decreased by $1.6 million ($1.0 million after tax),
$2.2 million ($1.4 million after tax) and $4.1 million ($2.6 million after tax)
in 1996, 1997 and 1998, respectively. These pro forma effects may not be
representative of expense in future periods since the estimated fair value of
stock options on the date of grant is amortized to expense over the vesting
period. Additional options may be granted in future years. Options issued prior
to January 1, 1995 were excluded from the computation.

F-15
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 5--STOCK OPTION PLANS (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Expected dividend yield (a)................................. -- -- --
Expected stock price volatility............................. 32.65% 31.75% 32.72%
Risk-free interest rate..................................... 6.43% 6.04% 5.46%
Expected life of options (years)............................ 6.0 6.0 6.0
</TABLE>

- ------------------------------

(a) Viacom has not declared any cash dividends on its common stock for any of
the periods presented and has no present intention of so doing.

On February 25, 1999, the Board of Directors of Viacom declared a 2-for-1
common stock split, effected in the form of a dividend. The additional shares
were issued on March 31, 1999 to shareholders of record on March 15, 1999. All
stock options and per share amounts have been adjusted to reflect the stock
split for all periods presented.

The weighted-average fair value of each option as of the grant date was
$8.13, $6.59 and $12.89 in 1996, 1997 and 1998, respectively.

The following table summarizes stock option activity under the various plans
as it relates to Blockbuster's employees:

<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
------------ -----------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995.................................. 20,398,918 $ 15.49
------------
Granted..................................................... 1,155,600 18.23
Exercised................................................... 7,039,854 15.15
Canceled.................................................... 1,333,634 16.90
------------
BALANCE AT DECEMBER 31, 1996.................................. 13,181,030 15.77
------------
Granted..................................................... 2,596,000 15.32
Exercised................................................... 2,778,348 14.58
Canceled.................................................... 2,766,482 15.76
------------
BALANCE AT DECEMBER 31, 1997.................................. 10,232,200 15.98
------------
Granted..................................................... 506,320 30.31
Exercised................................................... 7,102,920 14.39
Canceled.................................................... 414,356 16.00
------------
BALANCE AT DECEMBER 31, 1998.................................. 3,221,244 $ 21.75
------------
------------
</TABLE>

F-16
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 5--STOCK OPTION PLANS (CONTINUED)
The following table summarizes information concerning currently outstanding
and exercisable Viacom stock options issued to Blockbuster employees at December
31, 1998:

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------ ------------------------
WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES OPTIONS LIFE (YEARS) PRICE OPTIONS PRICE
- -------------- ---------- --------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
$ 10 to $15 20,000 8.62 $ 14.94 -- --
15 to 20 2,340,540 8.47 15.46 23,398 $ 17.50
20 to 25 14,000 9.01 21.47 -- --
25 to 30 -- -- -- -- --
30 to 35 487,320 9.61 30.57 -- --
3 to 25(a) 359,384(a) 4.16 14.29 359,384 14.29
---------- ---------
3,221,244 382,782
---------- ---------
---------- ---------
</TABLE>

- ------------------------

(a) Represents information for options assumed with the Viacom acquisition of
Blockbuster.

NOTE 6--ACCRUED EXPENSES

The Company's accrued expenses consist of the following:

<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Accrued compensation................................................. $ 42.7 $ 55.9
Accrued gift card liability.......................................... 46.7 65.9
Accrued sales tax.................................................... 27.8 24.5
Accrued property tax................................................. 27.0 38.9
Accrued revenue sharing.............................................. -- 38.0
Restructuring reserve................................................ 23.4 14.2
Store closure reserves............................................... 25.3 15.0
Assigned music liabilities (see Note 10)............................. -- 43.7
Other................................................................ 74.1 65.7
--------- ---------
$ 267.0 $ 361.8
--------- ---------
--------- ---------
</TABLE>

NOTE 7--DEBT

Effective February 1996, the Company, along with three other Viacom
affiliates, entered into a Cdn$75 million credit facility, secured by Viacom.
The Company had outstanding approximately Cdn $65.8 million of bankers
acceptances as of December 31, 1997 ($47.0 million at December 31, 1997 exchange
rates). Interest on outstanding borrowings is equal to the Canadian bankers
acceptance rate plus 40 basis points, 3.5% and 5.1% at December 31, 1996 and
1997, respectively. Interest expense related to the Canadian facility was $.3
million and $2.0 million for the years ended December 31, 1996 and 1997,
respectively.

F-17
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 7--DEBT (CONTINUED)
In March 1998, the Company entered into a 10 year term loan for Cdn $65.8
million to repay the existing credit facility. In June 1998, the note was sold
to a Viacom affiliate and accordingly, is reflected as part of notes payable to
Viacom.

Funds advanced by Viacom to the Company to fund certain international
operations have been recognized as intercompany loans. These intercompany loans
will be purchased and retired by the Company with borrowings from the Company's
credit agreement as part of its Reorganization Transactions as described in Note
1. Interest expense charged by Viacom approximated $4.1 million, $10.1 million
and $8.4 million for the years 1996, 1997 and 1998, respectively and reflects
market-based rates.

Interest expense related to capital leases was $17.6 million, $18.7 million
and $18.5 million for the years ended December 31, 1996, 1997 and 1998,
respectively. See Note 12 for further information regarding capital lease
obligations.

On December 31, 1998, the Company declared a dividend in the form of an
interest bearing (London Interbank Offered Rate "LIBOR" plus 1%, 6.12% at
December 31, 1998) promissory note to Viacom International Inc. in the principal
amount of $1.4 billion.

NOTE 8--VIACOM'S NET EQUITY INVESTMENT

Viacom funds the working capital requirements of the Company based upon a
centralized cash management system. The Viacom's net equity investment includes
accumulated equity as well as any non-interest bearing payable and receivable
due to/from Viacom resulting from cash transfers and other intercompany
activity. Viacom generally does not charge the Company interest on intercompany
balances except for intercompany debt associated with certain foreign operations
(see Note 7).

NOTE 9--INTEREST EXPENSE AND OTHER ITEMS, NET

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
INTEREST EXPENSE:
Related parties.................................................... $ 4.1 $ 10.1 $ 8.4
Capital lease...................................................... 17.6 18.7 18.5
Third party........................................................ .3 2.0 .8
--------- --------- ---------
Total interest expense............................................... 22.0 30.8 27.7
Less: Interest income................................................ (3.6) (3.7) (4.0)
--------- --------- ---------
NET INTEREST EXPENSE................................................. 18.4 27.1 23.7
Write-down of investments (Note 4)................................... -- 27.1 10.5
Other................................................................ -- .5 1.3
--------- --------- ---------
TOTAL INTEREST EXPENSE AND OTHER ITEMS, NET.......................... $ 18.4 $ 54.7 $ 35.5
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-18
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 10--RELATED PARTY TRANSACTIONS

Viacom provides the Company with certain general and administrative
services, including insurance, legal, treasury, financial and other corporate
functions. The allocation of expenses was generally based on actual costs
incurred and such costs were apportioned to the Company based upon the average
of certain specified ratios of revenues and net assets. The charges for such
services were $9.8 million (1996), $9.2 million (1997) and $12.5 million (1998).
Management believes that the methodologies used to allocate these charges are
reasonable, however, these allocations of costs and expenses do not necessarily
indicate the cash and expenses that would have been or will be incurred by the
Company on a stand-alone basis. Viacom also pays insurance premiums on behalf of
the Company for certain worker's compensation, property, general liability, and
group insurance policies. Insurance expense related to these policies was $13.2
million (1996), $13.3 million (1997) and $16.0 million (1998) and is reflected
as a component of general and administrative expenses in the Combined Statements
of Operations. See Note 13 for pension plan and additional employee benefit
costs charged by Viacom to the Company. These services between Viacom and the
Company will continue after the Offering pursuant to the transition services
described below.

Blockbuster and Viacom will enter into a transition services agreement
whereby Viacom will provide the Company cash management, accounting, financial
and tax services as well as employee benefit plan and insurance administration.
These services may change upon agreement between Viacom and the Company. The fee
for these services will approximate Viacom's cost and could be subject to
adjustment. The Company has agreed to pay or reimburse Viacom for any
out-of-pocket payments, costs and expenses associated with these services. The
services agreement expires upon the closing of a split-off or backup
distribution.

The Company, through the normal course of business, is involved in
transactions with companies owned by or affiliated with Viacom. The Company
purchases certain videocassettes for rental and sale directly from Paramount
Pictures Corporation. Total purchases were $7.6 million, $77.5 million and
$110.1 million for the years ended December 31, 1996, 1997 and 1998,
respectively. These transactions have been recognized in the Combined Financial
Statements.

In conjunction with the sale by a related party of Blockbuster Music
("Music") to Wherehouse Entertainment, Inc. ("Wherehouse"), the Company assumed
certain liabilities as a result of the disposition of Blockbuster Music with a
corresponding reduction to Viacom's net equity investment. The nature of these
liabilities was predominantly for obligations related to closed Music stores
excluded from the sale and to a lesser extent certain transaction costs and
various costs to complete the transition of operations from Music to Wherehouse.
These liabilities at the date of assignment aggregated approximately $67 million
of which $43.7 million remains in current liabilities at December 31, 1998.

All other transactions with companies owned by or affiliated with Viacom did
not have a material impact on the financial position or results of operations
presented herein. See Note 7 regarding intercompany loans related to the
Company's international operations.

NOTE 11--INCOME TAXES

The Company has been included in combined federal, state and local income
tax returns filed by Viacom. However, the tax benefit (expense) reflected in the
Combined Statements of Operations and deferred tax assets and liabilities
reflected in the Combined Balance Sheets have been prepared as if such

F-19
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 11--INCOME TAXES (CONTINUED)
benefits were computed on a separate return basis. The current income tax
liabilities for the periods presented have been satisfied by Viacom. Any tax
losses generated by the Company have been utilized by Viacom to reduce its
combined taxable income. These amounts have been reflected in Viacom's net
equity investment in the Combined Balance Sheets.

The Company and Viacom will enter into a tax matters agreement which
provides that subsequent to the Offering the Company will continue to be
included in the Viacom U.S. federal consolidated income tax return and certain
consolidated, combined, and unitary state tax returns. The tax matters agreement
requires the Company and Viacom to make payments to each other equal to the
amount of income taxes which would be paid by the Company, subject to certain
adjustments, if the Company had filed a stand alone return for any taxable year
or portion thereof beginning after the date of this offering in which the
Company is included in the Viacom group. With respect to certain tax attributes
such as net operating losses, tax credits and capital losses, the Company will
have the right of reimbursement or offset, which will be determined based on the
extent such tax attributes could be utilized by the Company if it had not been
included in the Viacom group. The right to reimbursement or offset will arise
regardless of whether the Company is a member of the Viacom group at the time
the attributes could have been used.

The tax matters agreement also requires the Company, if so requested by
Viacom, to surrender certain tax losses of our subsidiaries that are resident in
the United Kingdom for 1998 and earlier years to Viacom's United Kingdom
Operations without any rights to compensation.

The tax matters agreement specifies that Viacom will indemnify the Company
against any and all tax adjustments to Viacom's consolidated federal and
consolidated, combined and unitary state tax returns from September 29, 1994
through the date of the Offering.

The net operating loss carryforwards at December 31, 1998 are primarily
attributable to domestic ($8.2 million) and foreign ($42.5 million) subsidiaries
of the Company. These losses are subject to certain restrictions and limitations
in accordance with domestic and foreign tax laws. A valuation allowance has been
provided primarily related to foreign loss carryforwards and certain foreign
restructuring reserves as the Company believes that it is more likely than not
that these tax benefits will not be realized. Of the total amount, $27.5 million
has no expiration date, $0.7 million expires in 1998, $1.1 million expires in
1999 and $21.4 million expires thereafter.

Losses accounted for under the equity method of accounting are shown net of
tax in the Combined Statements of Operations.

Income (loss) before income taxes are attributable to the following
jurisdictions:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
United States.................................................. $ 283.3 $ (167.3) $ (313.6)
Foreign........................................................ (34.1) (102.0) (81.1)
--------- --------- ---------
$ 249.2 $ (269.3) $ (394.7)
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-20
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 11--INCOME TAXES (CONTINUED)
Components of the income tax benefit (expense) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Current:
Federal........................................................ $ (119.1) $ 89.7 $ 51.2
State and local................................................ (19.4) 3.4 3.0
Foreign........................................................ (3.5) (1.6) (2.9)
--------- --------- ---------
(142.0) 91.5 51.3
Deferred......................................................... (25.4) (121.5) 8.1
--------- --------- ---------
$ (167.4) $ (30.0) $ 59.4
--------- --------- ---------
--------- --------- ---------
</TABLE>

A reconciliation of the U.S. federal statutory tax rate to the Company's
effective tax rate on income (loss) before income taxes is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Statutory U.S. tax provision (benefit) rate..................... 35.0% (35.0)% (35.0)%
Amortization of non-deductible goodwill......................... 24.1 23.5 15.6
State and local taxes, net of federal tax benefit............... 1.7 (1.6) (4.1)
Effect of foreign operations.................................... 7.1 23.9 8.6
Other, net...................................................... (.7) .3 (.1)
--- --------- ---------
Effective tax provision (benefit) rate.......................... 67.2% 11.1% (15.0)%
--- --------- ---------
--- --------- ---------
</TABLE>

F-21
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 11--INCOME TAXES (CONTINUED)
The following is a summary of the deferred tax accounts in accordance with
SFAS 109:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Deferred tax assets:
Reserves and accrued liabilities........................................... $ 39.8 $ 38.6
Book-tax basis differences in rental library and other assets.............. -- 60.1
Book-tax basis differences in investments.................................. 17.9 10.7
Net operating loss carryforwards........................................... 50.2 50.7
--------- ---------
Total deferred tax assets.................................................... 107.9 160.1
Less: Valuation allowance.................................................... (67.1) (67.6)
--------- ---------
Net deferred tax assets...................................................... 40.8 92.5
--------- ---------
Deferred tax liabilities:
Deferred expenses.......................................................... -- (13.6)
Book-tax basis differences in rental library and other assets.............. (2.8) --
--------- ---------
Total deferred tax liabilities............................................... (2.8) (13.6)
--------- ---------
Total net deferred tax assets.............................................. $ 38.0 $ 78.9
--------- ---------
--------- ---------
</TABLE>

NOTE 12--COMMITMENTS AND CONTINGENCIES

The Company has long-term noncancelable lease commitments for various real
and personal property and office space which expire at various dates. Certain
leases contain renewal and escalation clauses. Generally, leases are five to ten
years with extended renewal options.

At December 31, 1998, minimum rental payments under noncancelable leases are
as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
----------- ---------
<S> <C> <C>
1999..................................................................... $ 369.9 $ 47.6
2000..................................................................... 319.3 39.3
2001..................................................................... 262.6 32.0
2002..................................................................... 210.8 28.0
2003..................................................................... 183.2 27.0
2004 and thereafter...................................................... 601.5 43.8
----------- ---------
Total minimum lease payments............................................. $ 1,947.3 217.7
-----------
-----------
Less amount representing interest........................................ (56.7)
---------
Present value of net minimum payments.................................... $ 161.0
---------
---------
</TABLE>

Rent expense was $269.8 million (1996), $355.3 million (1997) and $409.8
million (1998). Subtenant rental income was $5.0 million (1996), $4.8 million
(1997) and $5.6 million (1998). Future minimum lease payments have not been
reduced by future minimum subtenant rental income of $30.6 million. No
contingent rentals were paid during the three years ended December 31, 1998.

F-22
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED)
In October 1998, Music stores were sold to Wherehouse. Certain of the leases
transferred in connection with this sale had previously been guaranteed either
by Viacom or its affiliates. The remaining lease terms expire through various
dates through 2007. Blockbuster has agreed to indemnify Viacom with respect to
any amount paid under these guarantees. Blockbuster remains contingently liable
for up to approximately $93 million, undiscounted, with respect to these
guarantees if Wherehouse fails to make any payments under these leases. The
Company has not recognized any reserves related to this contingent liability in
the accompanying combined financial statements. If Wherehouse defaults, related
losses could materially affect future operating income.

Pursuant to the tax matters agreement, the Company will generally be
responsible for, among other things, any taxes imposed on Viacom or its
Subsidiaries as a result of the split-off failing to qualify as a tax-free
transaction on account of any breach of the Company's representations or
agreements or any action or failure to act by the Company or any transaction
involving the Company's assets, stock or business (regardless of whether such
transaction is within its control) following the split-off.

The Company is a defendant from time to time in other lawsuits incidental to
its business. Based on currently available information, the Company believes
that resolution of these known contingencies would not have a material adverse
impact on the Company's financial statements or liquidity. However, there can be
no assurances that future costs would not be material to results of operations
or liquidity of the Company for a particular future period. In addition, the
Company's estimates of future costs are subject to change as circumstances
change and additional information becomes available during the course of
litigation.

NOTE 13--PENSION PLANS AND OTHER EMPLOYEE BENEFITS

Viacom has a noncontributory defined benefit pension plan covering
substantially all of its employees, including the employees of the Company
during 1996, 1997 and 1998. Retirement benefits are based principally on years
of service and salary. Viacom also offers participation in a 401(k) savings plan
to the employees of the Company and has charged the Company for pension and
401(k) savings plan expenses of $4.6 million (1996), $4.6 million (1997) and
$5.3 million (1998).

Viacom also provides other employee benefits to the Company's employees,
including certain postemployment benefits, medical, dental, life and disability
insurance costs.

Management believes that the methodologies used to allocate pension and
other employee benefit charges to the Company are reasonable.

Viacom intends to spin off a Blockbuster Entertainment Investment Plan from
the Viacom Investment Plan, the provisions of which will mirror those of the
Viacom Investment Plan. The Company will continue to invest matching
contributions in Viacom's Class B common stock.

NOTE 14--ACQUISITIONS

During 1996, 1997 and 1998, the Company acquired or invested in several
businesses that own and operate videocassette rental stores. The aggregate
purchase price, consisting of cash consideration, for these businesses
approximated $154.4 million (1996), $79.0 million (1997) and $34.2 million
(1998) and was primarily allocated to video rental library, property and
equipment, and intangible assets.

F-23
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 14--ACQUISITIONS (CONTINUED)
All acquisitions were accounted for under the purchase method and,
accordingly, the operating results of the acquired businesses are included in
the combined results of operations of the Company since their respective date of
acquisition. Pro forma results of operations have not been presented due to the
immateriality of the acquisitions.

NOTE 15--EQUITY INVESTMENTS

The Company has a 50% interest in a joint venture located in Japan which
owns and operates videocassette rental stores. As discussed in Note 4, during
1997 the Company recognized a charge of $29.4 million (approximately $17.6
million net of tax) related to debt guarantees in recognition of the joint
venture's financial condition. The Company has also recognized its proportionate
share of this joint venture's net operating loss to the extent of its investment
which were as follows: $11.9 million (1996) and $12.1 million (1997). Through
December 31, 1998, the Company had fully satisfied its obligations related to
its Japan debt guarantees. As of December 31, 1997 and 1998, the Company had no
remaining net investment in its Japan joint venture and intends to dispose of
its interest in this joint venture in 1999.

NOTE 16--SUPPLEMENTAL CASH FLOW INFORMATION

Cash flows from operating activities included cash payments as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash payments for interest............................................................... $ 17.9 $ 20.4 $ 27.2

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Retail stores acquired under capitalized leases........................................ $ 40.6 $ 14.4 $ 3.8
</TABLE>

On December 31, 1998, the Company declared a cash dividend in the amount of
$1.4 billion payable to Viacom in the form of an interest-bearing promissory
note to Viacom International Inc.

All income tax obligations have been satisfied by Viacom as the Company has
been included in Viacom's combined tax return.

NOTE 17--OPERATIONS BY GEOGRAPHIC AREA

The Company operates in one industry segment: rental and retail sales of
videocassettes, video games and other entertainment related merchandise. The
principal geographic areas of the Company's operations are the United States and
Europe. Operations in Latin America, Australia, Canada and Asia are classified
in "International--all other".

F-24
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 17--OPERATIONS BY GEOGRAPHIC AREA (CONTINUED)
The following table shows revenues and long-lived assets by geographic area.
Transfers between geographic areas were not significant.

<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
United States................................................................ $ 2,427.9 $ 2,611.5 $ 3,090.1
Europe....................................................................... 259.1 355.9 427.9
International--all other..................................................... 255.1 346.2 375.4
--------- --------- ---------
Total revenues........................................................... $ 2,942.1 $ 3,313.6 $ 3,893.4
--------- --------- ---------
--------- --------- ---------
LONG-LIVED ASSETS(1):
United States(2)............................................................. $ 7,484.6 $ 7,395.5 $ 6,942.2
Europe....................................................................... 371.2 380.9 362.8
International--all other..................................................... 306.4 295.4 245.6
--------- --------- ---------
Total long-lived assets.................................................. $ 8,162.2 $ 8,071.8 $ 7,550.6
--------- --------- ---------
--------- --------- ---------
</TABLE>

- ------------------------

(1) Includes all non-current assets, except deferred income taxes.

(2) Includes substantially all intangible assets.

NOTE 18--QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for 1998 and 1997 appears below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997(1) QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
- ------------------------------------------------------------ --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenue..................................................... $ 823.8 $ 765.3 $ 817.7 $ 906.8 $ 3,313.6
Gross profit................................................ $ 538.3 $ 370.5 $ 504.5 $ 539.8 $ 1,953.1
Net income (loss)........................................... $ (19.3) $ (227.3) $ (37.8) $ (33.8) $ (318.2)

1998(2)
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue..................................................... $ 931.2 $ 890.0 $ 985.4 $ 1,086.8 $ 3,893.4
Gross profit................................................ $ 604.6 $ 100.2 $ 591.7 $ 640.5 $ 1,937.0
Net income (loss)........................................... $ 15.8 $ (318.0) $ (21.5) $ (12.9) $ (336.6)
</TABLE>

- ------------------------

(1) The second quarter of 1997 included a pre-tax charge of approximately $250
million principally representing a reduction in the carrying value of excess
retail inventory and a reserve for the reorganization of international
operations and closing of under performing stores in domestic and
international markets as well as expenses associated with the Company's
corporate relocation (see Note 4). In addition, the Company recognized a
non-cash charge of $27.1 million to write down certain non-strategic
investments to their estimated net realizable value.

(2) The second quarter of 1998 included a $424.3 million charge for a change in
estimate effected by a change in accounting principle for rental library.
During the fourth quarter of 1998, the Company

F-25
<PAGE>
BLOCKBUSTER INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR DOLLARS IN MILLIONS)

NOTE 18--QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
revised its estimate of net realizable value associated with the planned
disposition of certain non-strategic investments and recognized an
additional provision of approximately $10.5 million (See Note 3 and 4).

F-26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Blockbuster Inc.

Class A Common Stock

[BLOCKBUSTER LOGO]

------

P R O S P E C T U S

, 1 9 9 9

---------

SALOMON SMITH BARNEY

BEAR, STEARNS & CO. INC.
------

CREDIT SUISSE FIRST BOSTON

GOLDMAN, SACHS & CO.

J.P. MORGAN & CO.
-------

ING BARING FURMAN SELZ LLC

NATIONSBANC MONTGOMERY SECURITIES LLC

PAINEWEBBER INCORPORATED

SCHRODER & CO. INC.

SG COWEN

WIT CAPITAL CORPORATION

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
<PAGE>
P R O S P E C T U S
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED , 1999

[BLOCKBUSTER LOGO]

BLOCKBUSTER INC.

CLASS A COMMON STOCK

$ PER SHARE
---------

We are selling shares of our class A common stock. Of the shares
of class A common stock that we are selling, shares are being offered
outside the United States and Canada by a syndicate of international
underwriters and shares are being offered concurrently in the United
States and Canada by a syndicate of U.S. underwriters.

In addition, the international underwriters may purchase up to
additional shares of our class A common stock under certain circumstances. The
U.S. underwriters may also purchase up to additional shares of our class A
common stock under certain circumstances.

This is an initial public offering of our class A common stock. We currently
expect the initial public offering price to be between $ and $ per
share, and have applied to have the class A common stock listed on the New York
Stock Exchange under the symbol "BBI."

--------------

INVESTING IN THE CLASS A COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS"
BEGINNING ON PAGE 10.

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about ,
1999.
--------------

--------------

JOINT BOOK-RUNNING MANAGERS
SALOMON SMITH BARNEY INTERNATIONAL BEAR, STEARNS INTERNATIONAL LIMITED
----------

CREDIT SUISSE FIRST BOSTON
GOLDMAN SACHS INTERNATIONAL
J.P. MORGAN SECURITIES LTD.
ING BARINGS
NATIONSBANC MONTGOMERY SECURITIES LLC
PAINEWEBBER INTERNATIONAL
SCHRODERS
SG COWEN

, 1999
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Blockbuster Inc.

Class A Common Stock

[BLOCKBUSTER LOGO]

------

P R O S P E C T U S

, 1 9 9 9

---------

SALOMON SMITH BARNEY INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED

------

CREDIT SUISSE FIRST BOSTON
GOLDMAN SACHS INTERNATIONAL
J.P. MORGAN SECURITIES LTD.
-------

ING BARINGS
NATIONSBANC MONTGOMERY SECURITIES
PAINEWEBBER INTERNATIONAL
SCHRODERS
SG COWEN

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
SEC registration fee................................................ $ *
NASD filing fee..................................................... *
NYSE listing fee.................................................... *
Blue Sky fees and expenses.......................................... *
Attorneys' fees and expenses........................................ *
Accountants' fees and expenses...................................... *
Transfer Agent's and Registrar's fees and expenses.................. *
Miscellaneous....................................................... *
---------
Total........................................................... *
---------
---------
</TABLE>

- ------------------------

* To be supplied by amendment

The amounts set forth above are estimates except for the SEC registration
fee and the NASD filing fee.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law provides, in summary,
that directors and officers of Delaware corporations are entitled, under certain
circumstances, to be indemnified against all expenses and liabilities (including
attorney's fees) incurred by them as a result of suits brought against them in
their capacity as a director or officer, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the Company,
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, they are fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Any such indemnification may be made by the Company only as authorized
in each specific case upon a determination by the shareholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct.

The Company's Amended and Restated Certificate of Incorporation provides
that no director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) in
respect of certain unlawful dividend payments or stock redemptions or purchases;
or (iv) for any transaction from which the director derived an improper personal
benefit.

The Company's Certificate of Incorporation and By-Laws provide for
indemnification of its directors and officers to the fullest extent permitted by
Delaware law, as the same may be amended from time to time.

Section 8 of the Underwriting Agreement (Exhibit 1.1 hereto) contains
provisions for certain indemnification rights to the directors and officers of
the Registrant.

In addition, the Company maintains liability insurance for its directors and
officers.

II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Not applicable.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>

*1.1 Form of Underwriting Agreement.

*3.1 Amended and Restated Certificate of Incorporation of the Registrant.

*3.2 Bylaws of the Registrant.

*4.1 Specimen Certificate representing Class A Common Stock.

*5.1 Opinion of Shearman & Sterling as to the legality of the Common Stock.

*10.1 Form of Initial Public Offering and Split-Off Agreement among the Registrant, Viacom International Inc.
and Viacom Inc.

*10.2 Form of Release and Indemnification Agreement between the Registrant and Viacom Inc.

*10.3 Form of Transition Services Agreement between the Registrant and Viacom Inc.

*10.4 Form of Registration Rights Agreement between the Registrant and Viacom Inc.

*10.5 Form of Tax Matters Agreement between the Registrant and Viacom Inc.

+10.6 Revenue-Sharing Agreement, dated as of November 21, 1997, between the Registrant and the party named
therein.

+10.7 Revenue-Sharing Agreement, dated as of September 29, 1998, between the Registrant and the party named
therein.

+10.8 Revenue-Sharing Agreement, dated as of August 25, 1998, between the Registrant and the party named
therein.

+10.9 Revenue-Sharing Agreement, dated as of October 13, 1998, between the Registrant and the party named
therein.

+10.10 Revenue-Sharing Agreement, dated as of January 20, 1999, between the Registrant and the party named
therein.

*10.11 Employment Agreement between the Registrant and , dated .

*10.12 Employment Agreement between the Registrant and , dated .

*10.13 Employment Agreement between the Registrant and , dated .

*10.14 Employment Agreement between the Registrant and , dated .

*10.15 Employment Agreement between the Registrant and , dated .

*10.16 Deferred Compensation Plan for Outside Directors.

*10.17 1999 Long-Term Management Incentive Plan.

*10.18 Senior Executive Short-Term Incentive Plan.

*21.1 List of Subsidiaries of the Registrant.
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
23.1 Consent of PricewaterhouseCoopers LLP.

*23.2 Consent of Shearman & Sterling (included in its opinion in Exhibit 5.1).

24.1 Powers of Attorney (included on signature page in this Registration Statement).

*27.1 Financial Data Schedule.
</TABLE>

- ------------------------

* To be filed by amendment.

+ Exhibits for which Registrant is seeking confidential treatment for certain
portions.

(B) FINANCIAL STATEMENT SCHEDULES.

The schedules have been omitted because of the absence of circumstances
under which they could be required.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933
shall be deemed to be part of this registration statement as of the
time it was declared effective.

(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the U.S. Underwriting Agreement and the
International Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in Dallas,
Texas on May 6, 1999.

BLOCKBUSTER INC.

BY: /S/ EDWARD B. STEAD
-----------------------------------------
Edward B. Stead
EXECUTIVE VICE PRESIDENT AND GENERAL
COUNSEL

POWER OF ATTORNEY

The undersigned Directors and Officers of Blockbuster Inc. hereby constitute
and appoint Edward B. Stead, as true and lawful attorney-in-fact for the
undersigned, with full power of substitution and resubstitution, for and in the
name, place and stead of the undersigned, to sign and file with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), any and all amendments (including post-effective amendments)
and exhibits to this Registration Statement, any related registration statement
and its amendments and exhibits filed pursuant to Rule 462(b) under the
Securities Act and any and all applications and other documents to be filed with
the Securities and Exchange Commission pertaining to the registration of the
securities covered hereby or under any related registration statement or any
amendment hereto or thereto, with full power and authority to do and perform
each and every act and thing requisite and necessary or desirable, hereby
ratifying and confirming all that such attorney-in-fact or its substitute shall
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.

SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------

/s/ JOHN F. ANTIOCO Chairman, President and
- ------------------------------ Chief Executive Officer May 6, 1999
John F. Antioco

Executive Vice President,
/s/ LARRY J. ZINE Chief Financial Officer
- ------------------------------ and Chief Accounting May 6, 1999
Larry J. Zine Officer

/s/ PHILIPPE P. DAUMAN Director
- ------------------------------ May 6, 1999
Philippe P. Dauman

/s/ THOMAS E. DOOLEY Director
- ------------------------------ May 6, 1999
Thomas E. Dooley

/s/ SUMNER M. REDSTONE Director
- ------------------------------ May 6, 1999
Sumner M. Redstone

II-4

<PAGE>

Exhibit 10.6

REVENUE SHARING AGREEMENT

THIS AGREEMENT (the "Agreement") is made the 21st day of November, 1997.

BETWEEN:

(1) * and

(2) BLOCKBUSTER VIDEO INC. whose principal place of business is at 1201 Elm
Street, 31st Floor, Dallas, Texas 75270 (hereinafter referred to as
"Blockbuster," which shall be deemed to include its permitted assigns).

WHEREAS:

(A) Blockbuster and certain of its Affiliates own, operate and franchise
retail stores throughout the United States and Canada which, among other
things, rent, sell and market pre-recorded videocassette tapes to the
general public; and

(B) * and certain of its Affiliates acquire, produce, license market and sell
motion pictures on pre-recorded videocassette tapes; and

(C) Blockbuster is willing to purchase on a per Store (the terms initially
capitalized in this Agreement and not otherwise defined herein shall have
the respective meanings set forth in Paragraph 19 of this Agreement) basis
a specified number of videocassette copies of each Rental Picture; and

(D) Blockbuster is willing to provide various marketing, advertising and
promotional services and activities in support of the Rental Pictures; and

(E) Blockbuster is willing to report electronically on an ongoing basis
information as to the rental and sales of Rental Pictures.

- ----------

* Pages where confidential treatment has been requested are stamped
"Confidential material omitted and separately filed with the Commission
under an application for confidential treatment", and the confidential
section has been marked with a star (*).
<PAGE>

NOW THEREFORE, based on the above premises and in consideration of the covenants
and agreements contained herein, the parties agree as follows:

1. AGREEMENT TERM:

The term of this Agreement shall be for * (the "Term"), commencing as of
the date of this Agreement. Each year of the Term, as measured from the date of
this Agreement, is a "Contract Year."

2. TERRITORY:

The territory for purposes of this Agreement with respect to each Picture
shall be the United States and Canada, their territories and possessions (the
"Territory"), except with respect to those Pictures for which * has only United
States Home Video Distribution Rights, in which case, the Territory with respect
to such Pictures shall be limited to the United States and, if and to the extent
* owns or controls such rights, to territories and possessions of the United
States (the "U.S. Territory").

3. BLOCKBUSTER COMMITMENTS:

Beginning as of the date of this Agreement for Stores located in the
United States, for Stores located in Canada within three (3) calendar months
hereafter, and for Participating Franchises within twelve (12) calendar months
hereafter, Blockbuster agrees as follows:

a. Purchasing: The following purchasing requirements shall apply to
all Stores and Participating Franchises (as defined in Paragraph 3.c.
below):

(1) *

(2) *

(3) *

(a) *

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

(b) *

(4) Missing Copies: For each Copy that is lost, stolen or
otherwise not reasonably accounted for, for more than thirty (30)
calendar days during the period commencing upon delivery to
Blockbuster's distribution center and ending on the last day of the
relevant Revenue Sharing Period (each, a "Missing Copy"),
Blockbuster shall pay to *. For any such Missing Copy recovered by
Blockbuster or * will reimburse Blockbuster the applicable
distribution wholesale price less the applicable average Purchase
Price received by *.

(5) Payment: *

(6) Remedy: The parties acknowledge and agree that if
Blockbuster fails to order the number or Copies required under this
Paragraph 3, Blockbuster shall pay to *, as liquidated damages, an
amount equal to * for each Copy which Blockbuster failed to order.
If * fails to deliver the number or Copies ordered by Blockbuster
under this Paragraph 3, * shall pay to Blockbuster, as liquidated
damages, an amount equal to * for each Copy which * failed to
deliver. The parties hereto expressly agree and acknowledge that
actual damages for purposes of this Subparagraph would be difficult
to ascertain and that the amount set forth above represents the
parties' reasonable estimate of such damages.

b. Marketing:

(1) * With respect to said advertising of Rental Pictures,
Blockbuster agrees to consult with * and to keep * reasonably
apprised of its marketing plans and activities and to comply with *
then-current customary marketing support policies and practices to
the extent they are reasonable and practicable. * shall have the
right to approve such plans, and Blockbuster shall provide a
meaningful

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

and timely opportunity for said approval by *. * shall exercise its
approval rights in a timely and reasonable manner.

(2) Should * fail to comply in good faith with its obligations
under Paragraph 3.b.(1), Blockbuster shall be entitled to give
written notice to * of such failure. *. In no event shall
Blockbuster be obligated to provide such advertising which it would
otherwise have been obligated to provide during such time as
Blockbuster's obligations hereunder were suspended because of *'s
failure to fulfill its obligations under this Paragraph 3.b.(1).

c. Participating Franchises: While Blockbuster cannot guarantee that
its Franchises will adopt the Agreement, Blockbuster will use good faith
commercially reasonable efforts to recommend adoption of the Agreement to
its Franchises and anticipates a high level of adoption thereby.
Blockbuster hereby agrees that each Participating Franchise shall execute
a letter agreement, which has been approved by * in form and substance, in
favor of *, agreeing to be bound by the terms and conditions of this
Agreement as if it were a party hereto (the "Participating Franchise").
Blockbuster shall be liable for each Participating Franchise's performance
of its financial obligations hereunder as if such Participating Franchise
were a Store. * shall have the right to proceed against Blockbuster for
money only for any failure of a Participating Franchise to fully perform
the financial terms and conditions of this Agreement. Participating
Franchises shall be subject to the same terms and conditions under the
Agreement as Stores, unless specifically designated otherwise.
Implementation of the Agreement at the Franchise level and Franchise
payments thereunder will be administered by Blockbuster.

d. Overage: *.

e. Placement: Blockbuster shall exercise good faith commercially
reasonable efforts to maximize Rental Revenue on the Rental Pictures. At
all times during the entire Revenue Sharing Period, Blockbuster shall
display for rental at each Store all of the Copies of the Rental Picture
purchased for such Store, which are not currently being rented, in the
"New Releases" rental section of such Store (or another section of such
Store which has been preapproved by *).

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

f. *. All sell-off copies will be prominently labeled as "Previously
Viewed Rental Product." Sell-off revenue is not included in Rental
Revenue.

g. Packing and Shipping: Blockbuster will be solely responsible for
making the Copies ready for consumer rental and for shipping the Copies
from its distribution center to its Stores.

h. Delivery: As between * and Blockbuster, title in and to the
Copies and risk of loss shall pass upon delivery of the Copies to
Blockbuster's distribution center in accordance with Paragraph 4.b.

i. Returns/Exchanges: The purchase requirements set forth in this
Paragraph 3 shall not be subject to any returns by Blockbuster. * will
exchange defective or damaged Copies for a working Copy of the same title.
Defective Copies shall mean those videocassettes which are mechanically
defective, mispackaged or contain extraneous material. Damaged Copies
shall mean those videocassettes which become materially damaged by Store
personnel, customers or otherwise, during the first * of the Revenue
Sharing Period. Blockbuster shall report defective or damaged Copies to *
promptly following discovery of such defect or damage.

j. Store Count: Blockbuster will report to * on a calendar month
basis the number of currently operating Stores, including Participating
Franchises, non-participating Franchises, New Blockbuster Stores and
recently store closed locations.

k. Demographic Information: Blockbuster will provide to *, on an
ongoing basis, information regarding the demographic make-up generally of
those customers renting the Copies.

4. * COMMITMENTS:

a. Marketing Support: In lieu of specific marketing support programs
such as rebate, co-op and MDF programs, and as payment for services and in
consideration for the various other services and activities which
Blockbuster has agreed to perform hereunder for the benefit of *, such as
sales and rental reporting functions, * agrees to credit on a per Rental
Picture basis (on the relevant invoice) Blockbuster with marketing

- ----------

* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".
<PAGE>

support funds ("Marketing Support Funds") in the amount of * of the
Purchase Price generated by a Rental Picture for *, excluding any Purchase
Price generated by Overage Copies. Marketing Support Funds shall not be
used to advertise, promote or otherwise market product not distributed by
*. In addition to Marketing Support Funds, * shall continue to provide
Blockbuster with * standard in-store point of purchase marketing materials
as customarily utilized by Blockbuster.

(1) Blockbuster shall use * of the Marketing Support Funds to
advertise in measured media the availability of Rental Pictures in
Stores. With respect to said advertising of Rental Pictures,
Blockbuster agrees to consult with * and to keep * reasonably
apprised of its marketing plans and activities and to comply with *
then-current customary marketing support policies and practices to
the extent that they are reasonable and practicable. * shall have
the right to approve such plans, and Blockbuster shall provide a
meaningful and timely opportunity for said approval by *. * shall
exercise approval rights in a timely and reasonable manner.

(2) With respect to * of the Marketing Support Funds, * and
Blockbuster shall jointly determine how said monies will be used to
advertise, promote or otherwise market the Rental Pictures.

(3) Blockbuster shall use * of the Marketing Support Funds for
in-store Rental Picture specific marketing and promotion.

(4) Should Blockbuster fail to comply in good faith with its
obligations under paragraphs 4.a (1), (2) and (3), * shall be
entitled to give written notice to Blockbuster of such failure. If
Blockbuster fails to remedy such failure to *'s satisfaction within
ten (10) calendar days following receipt of such notice, * shall be
relieved of its obligations to provide Marketing Support Funds,
until such time as Blockbuster complies in good faith with its
obligations under this Paragraph 4.a. In no event shall Blockbuster
be entitled to receive Marketing Support Funds which would otherwise
have accrued during such time as Blockbuster's rights hereunder were
suspended because of its failure to fulfill its obligations under
this Paragraph 4.a.

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

b. Shipping: * will deliver the Copies to one (1) primary
distribution center in the United States, currently in McKinney, Texas, at
least ten (10) calendar days prior to Street Date and will use good faith
efforts to deliver the Copies fourteen (14) calendar days prior to Street
date.

c. *

5. ELECTRONIC REPORTING:

At no cost or expense to *, Blockbuster will provide to *, electronically,
daily access to all * Rental Picture information along with weekly summaries, in
such form as may be reasonably specified by * from time to time, of all
performance information as to Blockbuster's rental of the Rental Pictures,
including, but not limited to, daily rental turn data, daily inventory and daily
Rental Revenue from each Store on a Store by Store, Rental Picture by Rental
Picture, Copy by Copy basis. *. At no cost or expense to Blockbuster, * will,
through SuperComm, assist in data collection services and facilitate electronic
reporting.

6. REVIEW:

Within thirty (30) calendar days following the end of each Contract Year,
the parties shall meet and in good faith review the terms of this Agreement.
Should no agreement be reached between the parties with respect to adjusting or
amending the terms of the Agreement, the then current terms of the Agreement
shall remain in full force and effect. Within the thirty (30) calendar days
following the end of the forty-second (42nd) month of the Term, either party may
give six (6) months' notice to terminate the Agreement. If such notice is given
by either party, from such notification forward, Blockbuster shall have no right
or obligation to purchase additional Rental Pictures under this Agreement and *
shall be relieved of any right or obligation to sell Rental Pictures to
Blockbuster under this Agreement.

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

7. *

8. TERMINATION:

a. The following transactions or occurrences shall constitute
material events of default (each an "Event of Default") by the applicable
party (the "defaulting party") hereunder such that, in addition to and
without prejudice to or limiting any other rights and remedies available
to the non-defaulting party at law or in equity the non-defaulting party
may elect to immediately and prospectively terminate this Agreement at the
sole discretion of the non-defaulting party by giving written notice
thereof to the other party at any time after the occurrence of an Event of
Default setting forth sufficient facts to establish the existence of such
Event of Default:

(1) A material breach by a party of any material covenant,
material warranty, or material representation contained herein,
where such defaulting party fails to cure such breach within thirty
(30) calendar days after receipt of written notice thereof, or
within such specific cure period as is expressly provided for
elsewhere in this Agreement; or

(2) A party makes an attempt to make any arrangement for the
benefit of creditors, or a voluntary or involuntary bankruptcy,
insolvency or assignment for the benefit of creditors of a party or
in the event any action or proceeding is instituted relating to any
of the foregoing and the same is not dismissed within thirty (30)
calendar days after such institution; or

(3) A failure by either party to make payment of any monies
payable pursuant to this Agreement as and when due.

b. Should * terminate this Agreement pursuant to Paragraph 9.a., *
shall immediately be relieved from any further obligations under Paragraph
4 of this Agreement.

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

c. Except as otherwise provided herein, no termination of this
Agreement for any reason shall relieve or discharge any party hereto from
any duty, obligation or liability hereunder which was accrued as of the
date of such termination.

9. PUBLIC DISCLOSURE AND CONFIDENTIALITY:

a. Public Disclosure: Each party agrees that no press release or
public announcement relating to the existence or terms of this Agreement
(including within the context of a trade press or other interview or
advertisement in any media) shall be issued without the express prior
written approval of the other party hereto.

b. Confidential Information: During the Term and for a period of
three (3) years thereafter, Blockbuster and * shall hold, and shall cause
each of their directors, officers, employees and agents to hold in
confidence the terms of this Agreement (including the financial terms and
provisions hereof and all information received pursuant to, or developed
in accordance with, this Agreement) specifically including but not limited
to the *. Blockbuster and * hereby acknowledge and agree that all
information contained in, relating to or furnished pursuant to this
Agreement, not otherwise known to the public, is confidential and
proprietary and is not to be disclosed to third parties without the prior
written consent of both Blockbuster and *. Neither Blockbuster nor * shall
disclose such information to any third party (other than to officers,
directors, employees, attorneys, accountants and agents of Blockbuster and
* or the affiliates of either, who have a business reason to know or have
access to such information, and only after each of whom agrees to being
bound by this paragraph) except:

(1) To the extent necessary to comply with any Law or the
valid order of a governmental agency or court of competent
jurisdiction or as part of its normal reporting or review procedure
to regulatory agencies or as required by the rules of any major
stock exchange on which either party's stock may be listed;
provided, however, that the party making such disclosure shall seek,
and use reasonable efforts to obtain, confidential treatment of said
information and shall promptly, to the greatest extent practicable,
notify the other party in advance of such disclosure;

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

(2) As part of the normal reporting or review procedure by its
parent company, its auditors and its attorneys;

(3) To the extent necessary to obtain appropriate insurance,
to its insurance agent or carrier, that such agent or carrier agrees
to the confidential treatment of such information; and

(4) To actual or potential successors in interest, provided,
however, that such person or entity shall have first agreed in
writing to the confidential treatment of such information.

10. NO RIGHT TO USE NAMES:

a. Neither Blockbuster nor Stores nor Participating Franchises shall
acquire any right to use, nor shall the same use any copyrights,
trademarks, characters or designs owned or controlled by * or any of its
Affiliates, including without limitation, the names *, alone or in
conjunction with other words or names, in any advertising, publicity or
promotion, either express or implied, without *'s prior consent in each
case, and in no case shall any Blockbuster or Store advertising,
publicity, or promotion, express or imply any endorsement of the same.

b. * shall not acquire any right to use, nor shall the same use, the
name Blockbuster alone or in conjunction with other words or names, or any
copyrights, trademarks, characters or designs of the same in any
advertising, publicity or promotion, either express or implied, with
Blockbuster's prior consent in each case, and in no case shall any *
advertising, publicity, or promotion, express or imply any endorsement of
the same.

11. ASSIGNMENT:

This Agreement and the rights and licenses granted hereunder are personal
and neither party shall have the right to sell, assign, transfer, mortgage,
pledge nor hypothecate (each an "Assignment") any such rights or licenses in
whole or in part without the prior written consent of the non-assigning party,
nor will any of said rights or licenses be assigned or transferred to any third
party by operation of law, including, without limitation, by merger or
consolidation or

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

otherwise; provided, however, that an Assignment pursuant to or resulting from a
sale of all or substantially all of the assets or all or a majority of the
equity of Blockbuster to any Person or Persons or any other form of business
combination, such that the Blockbuster business as currently existing remains
substantially intact, including, without limitation, a sale to the public, shall
not require such consent so long as such Assignment is not to an unaffiliated
motion picture studio; and provided further that any Assignment by (i)
Blockbuster, to any Affiliate of Viacom or (ii) * to any Affiliate of *, where
such Affiliate has access to the * library of films generally equivalent to that
of * at the time of this Agreement, shall also not require consent. In the event
that Blockbuster or * assigns its rights or interest in or to this Agreement in
whole or in part, the assigning party will nevertheless continue to remain fully
and primarily responsible and liable to the other party for prompt, full,
complete and faithful performance of all terms and conditions of this Agreement.

12. AUDIT RIGHTS:

a. During the Term and continuing until the date six (6) months
following the date of expiration or earlier termination of this Agreement
* may, audit the financial books, information systems and records of
Blockbuster as reasonably necessary to verify Blockbuster's compliance
with its obligations under this Agreement; provided, however, that (a)
such audit shall be at the sole cost and expense of * (unless such audit
reveals that payments due to * for any twelve (12) month period were
understated by more than five percent (5%), in which case, in addition to
all other rights which * may have, Blockbuster shall promptly reimburse *
to the extent of its reasonable out-of-pocket costs of such audit), (b) *
may not audit more than twice per year (and no such audit shall continue
for more than thirty (30) calendar days from the date the auditors are
given access to the applicable records), and (c) any such audit shall be
conducted only during regular business hours and in such a manner as not
unreasonably to interfere with the normal business activities of
Blockbuster. Blockbuster shall keep and maintain complete and accurate
books of account and records in connection with its obligations under this
Agreement at its principal place of business until the date thirty-nine
(39) months following the date of rendering of the initial statement
reflecting such records unless a legal action with regard thereto is
commenced during such period.

b. During the Term and continuing until the date six (6) months
following the date of expiration or earlier termination of this Agreement,
* may inspect and audit

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

the books, records and store premises of Stores and Participating
Franchises as reasonably necessary to verify compliance with this
Agreement; provided, however, that (a) such audit shall be at the sole
cost and expense of *(unless such audit reveals that payments due to * for
any twelve (12) month period were understated by more than five percent
(5%), in which case, in addition to all other rights which * may have,
Blockbuster shall promptly reimburse * to the extent of its reasonable
out-of-pocket costs of such audit), and (b) any such audit shall be
conducted only during regular business hours and in such a manner as not
unreasonably to interfere with the normal business activities of Store or
Participating Franchises.

13. *'S REPRESENTATIONS AND WARRANTIES:

* represents and warrants that:

a. It is a corporation organized and existing under the laws of the
* with its principal place of business in the *;

b. The undersigned has the full right, power and authority to sign
this Agreement on behalf of *;

c. The execution, delivery and performance of this Agreement does
not and will not, violate any provisions of *'s articles or certificates
or incorporation and bylaws, or any contract or other Agreement to which *
is a party;

d. There is no broker, finder or intermediary involved in connection
with the negotiations and discussions incident to the execution of this
Agreement, and no broker, finder, agent or intermediary who might be
entitled to a fee, commission or any other payment upon the consummation
of the transactions contemplated by this Agreement;

e. This Agreement has been duly executed and delivered and
constitutes the legal, valid and binding obligation of *, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereinafter in effect, affecting the enforcement of creditors'
rights in general and by general principles of equity, regardless of
whether such enforceability is considered in a proceeding in equity or at
law; and

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

f. Copies shall be new and unused and comparable in quality to other
videocassette units being sold by * in rental distribution channels.

14. BLOCKBUSTER'S REPRESENTATIONS AND WARRANTIES:

Blockbuster represents and warrants that:

a. It is a corporation organized and existing under the laws of the
State of Delaware with its principal place of business in the State of
Texas;

b. The undersigned has the full right, power and authority to sign
this Agreement on behalf of Blockbuster;

c. There is no broker, finder or intermediary involved in connection
with the negotiations and discussions incident to the execution of this
Agreement, and no broker, finder, agent or intermediary who might be
entitled to a fee, commission or any other payment upon the consummation
of the transactions contemplated by this Agreement;

d. This Agreement has been duly executed and delivered and
constitutes the legal, valid and binding obligation of Blockbuster
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereinafter in effect, affecting the enforcement of
creditors' rights in general and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law; and

e. The execution, delivery and performance of this Agreement does
not, and will not, violate any provisions of Blockbuster's articles or
certificates of incorporation and bylaws, or any contract or other
Agreement to which Blockbuster is a party.

15. FORCE MAJEURE:

The duties and obligations of the parties hereunder may be suspended upon
the occurrence and continuation of any "Event of Force Majeure" which inhibits
or prevents performance hereunder, and for a reasonable start-up period
thereafter. An "Event of Force Majeure" shall mean any act, cause, contingency
or circumstance beyond the reasonable control

- ----------

* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".
<PAGE>

of such party (whether or not reasonably foreseeable), including, without
limitation, to the extent beyond the reasonable control of such party, any
governmental action, nationalization, expropriation, confiscation, seizure,
allocation, embargo, prohibition of import or export of goods or products,
regulation, order or restriction (whether foreign, federal or state), war
(whether or not declared), civil commotion, disobedience or unrest,
insurrection, public strike, riot or revolution, lack or shortage of, or
inability to obtain, any labor, machinery, materials, fuel, supplies or
equipment from normal sources of supply, strike, work stoppage or slowdown,
lockout or other labor dispute, fire, flood, earthquake, drought or other
natural calamity, weather or damage or destruction to plants and/or equipment,
commandeering of vessels or other carriers resulting from acts of God, or any
other accident, condition, cause, contingency or circumstances including
(without limitation, acts of God) within or without the United States. Neither
party shall, in any manner whatsoever, be liable or otherwise responsible for
any delay or default in, or failure of, performance resulting from or arising
out of or in connection with any Event of Force Majeure and no such delay,
default in, or failure of, performance shall constitute a breach by either party
hereunder. As soon as reasonably possible following the occurrence of an Event
of Force Majeure, the affected party shall notify the other party, in writing,
as to the date and nature of such Event of Force Majeure and the effects of
same. If any Event of Force Majeure shall prevent the performance of a material
obligation of either party hereunder, and if the same shall have continued for a
period of longer than 180 days, then either party hereto shall have the right to
terminate this Agreement by written notice to the other party hereto.

16. INDEMNIFICATION:

Each party (the "Indemnifying Party") shall indemnify and hold the other
party and its affiliates and their respective employees, officers, agents,
attorneys, stockholders and directors, and their respective permitted
successors, licensees and assigns (the "Indemnified Party(ies)") harmless from
and against (and shall pay as incurred) any and all claims, proceedings,
actions, damages, costs, expenses and other liabilities and losses (whether
under a theory of strict liability, or otherwise) of whatsoever kind or nature
("Claim(s)") incurred by, or threatened, imposed or filed against, any
Indemnified Party (including, without limitation, (a) actual and reasonable
costs of defense, which shall include without limitation court costs and
reasonable attorney and other reasonable expert and reasonable third party fees;
and (b) to the extent permitted by Law, any fines, penalties and forfeitures) in
connection with any proceedings against an Indemnified Party caused by any
breach (or, with respect to third party claims only, alleged breach) by the
Indemnifying Party of any representation, term, warranty or agreement hereunder.
Neither party shall settle, compromise or consent to the entry of any judgment
in or otherwise seek to terminate any pending or threatened Claim in respect of
which the Indemnified Party is entitled to indemnification hereunder (whether or
not the Indemnified Party is a party thereto), without the prior written consent
of the other party hereto; provided, however, that the Indemnifying Party shall
be entitled to settle any claim without the written consent of the Indemnified
Party so long as such settlement only involves the payment of money by the
Indemnifying Party and in no way affects any rights of the Indemnified Party.
<PAGE>

17. REMEDIES:

No remedy conferred by any of the specific provisions of this Agreement is
intended to be exclusive of any other remedy which is otherwise available at
law, in equity, by statute or otherwise, and except as otherwise expressly
provided for herein, each and every other remedy shall be cumulative and shall
be in addition to every other remedy given hereunder or now or hereafter
existing at law, in equity, by statute or otherwise and no provision hereof
shall be construed so as to limit any party's available remedies in the event of
a breach by the other party hereto. The election of any one or more of such
remedies by any of the parties hereto shall not constitute a waiver by such
party of the right to pursue any other available remedies.

18. DEFINITIONS:

a. "Affiliate" shall mean an entity in which either party has a
controlling interest.

b. "Copy" or "Copies" shall mean VHS videocassette units. Other
formats, including laserdisc and DVD are not included under this
Agreement.

c. *

d. "Franchises" shall mean all Blockbuster stores which Blockbuster
informs * are Franchises.

e. *

f. "Home Video" shall mean the providing of motion pictures and
other programming to members of the general public by means of the
temporary or permanent transfer of physical possession of a VHS
videocassette for non-public viewing on a home television receiver.

g. "Home Video Distribution Rights" shall mean the right to record
and distribute a motion picture on videocassette.

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

h. "Laws" shall mean all international, federal, national, state,
provincial, municipal or other laws, ordinances, orders, statutes, rules
or regulations.

i. "New Blockbuster Store" shall mean a Store which Blockbuster or
any of its Franchisees first owns or operates after the commencement date
of this Agreement, excluding Blockbuster's acquisition of franchised
Blockbuster Stores.

j. "Non-Theatrical Pictures" shall mean audio-visual Pictures
initially distributed in the Territory via a medium other than theatrical
release (e.g., via Home Video, cable, pay or free television exhibition)
and which are being distributed to all rental channels of home video
distribution.

k. "Picture" shall mean any motion picture, including but not
limited to live-action, animated or other medium, or any other programming
for which * owns or controls Home Video Distribution Rights in the
Territory or in the U.S. Territory as applicable. Further, * shall
exercise equivalent practices relating to the acquisition and distribution
of Rental Pictures throughout the Term of this Agreement as it does
currently. Every Picture for which * or its Affiliates has home video
distribution rights in the Territory and elects to distribute as a Rental
Picture in the Territory shall be made available to Blockbuster under the
terms of this Agreement.

l. *

m. "Prebook Date" shall mean, with respect to any Picture, the date
specified by *, in its sole discretion, when * videocassette orders are
due for all channels of distribution.

n. "Rental Picture" shall mean each and every Picture provided such
Picture is at least seventy (70) minutes in length and is not a sports
event, concert film, stage play, video or theatrical re-release or library
film, distributed by *, which when initially released on videocassette is
priced by * at a "rental price" (as opposed to a "sell-through price"), as
such terms are generally understood in the Home Video industry in Los
Angeles, California.

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

o. "Revenue Sharing Period" shall mean the period commencing on the
Video Street Date of the relevant Picture and running through the end of
the twenty-sixth (26th) week thereafter.

p. "Store" shall mean any video store in the United States or
Canada, which, at any time during the Term of this Agreement, is wholly
owned and/or operated by Blockbuster, whether or not such store is
operated under the "Blockbuster" trademarks, excluding only the "Sixteen
Thousand Video" stores operated by Blockbuster in Florida. Should
Blockbuster undertake to own or operate retail outlets different than the
retail outlets it has traditionally operated, such as by way of example,
kiosks, carts, "stores within a store", "rack jobbing" operations or
vending machines, the parties shall negotiate in good faith to agree upon
terms for the inclusion of such retail outlets in this Agreement.

q. "Video Street Date" shall mean, with respect to any Picture, the
first date on which, in the Territory, both: (i) such Picture is
authorized by * for Home Video distribution, and (ii) Home Video copies of
such Picture are actually available to the general public.

19. MISCELLANEOUS:

a. This Agreement shall not constitute any partnership, joint
venture or agency relationship between the parties hereto. The parties
shall be considered independent contractors.

b. This Agreement, together with the attached Exhibits, embodies the
entire understanding of the parties with respect to the subject matter
hereof and may not be altered, amended or otherwise modified except by an
instrument in writing executed by both parties.

c. The headings in this Agreement are for convenience of reference
only and shall not have any substantive effect.

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

d. All rights and remedies granted to the parties hereunder are
cumulative and are in addition to any other rights or remedies that the
parties may have at law or in equity.

e. Should any non-material provision of this Agreement be held to be
void, invalid or inoperative, as a matter of law the remaining provisions
hereof shall not be affected and shall continue in effect as though such
unenforceable provision(s) have been deleted herefrom.

f. Unless otherwise indicated, all dollar amounts referenced herein
shall refer to and be paid in United States dollars.

g. No waiver of any right under or breach of this Agreement shall be
effective unless it is in writing and signed by the party to be charged.

h. This Agreement shall be governed by and construed in accordance
with the internal Laws of the *, applicable to Agreements entered into and
wholly performed therein. Blockbuster hereby consents to and submits to
the jurisdiction of the * and any action or suit under this Agreement may
be brought in any * with appropriate jurisdiction over the subject matter
established or sitting within the *.

i. None of the provisions of this Agreement is intended for the
benefit of or shall be enforceable by any third parties.

j. This Agreement may be executed in separate counterparts each of
which shall be an original and all of which taken together shall
constitute one and the same Agreement.

k. All notices shall be in writing and either personally delivered,
mailed first-class mail (postage prepaid), sent by reputable overnight
courier service (charges prepaid), or sent by transmittal by any
electronic means whether now known or hereafter developed, including, but
not limited to, telex, telecopier or laser transmissions, able to be
received by the party intended to receive notice, to the parties at the
following addresses:

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* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".
<PAGE>

If to Blockbuster:

Blockbuster Entertainment Inc.
1201 Elm Street
31st Floor
Dallas, Texas 75270
Attention: John Antioco, Chairman and CEO
Edward B. Stead, Executive Vice President and General Counsel

If to *:

*
*
*
*
Attention:*

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

IN WHEREOF, the parties have executed this Agreement as of the date and
year first above written.

/s/ *
----------------------------------
By: *

Title: *

BLOCKBUSTER VIDEO INC.

/s/ Edward B. Stead
----------------------------------

By: Edward B. Stead

Title: Executive Vice President and General Counsel

/s/ John Antioco
----------------------------------

By: John Antioco

Title: Chairman and Chief Executive Officer

- ----------

* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".

<PAGE>

Exhibit A

BLOCKBUSTER BUY MATRIX

Copies per Rental Picture per Store
*

- ----------

* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".

<PAGE>

Exhibit 10.7

REVENUE SHARING AGREEMENT

THIS AGREEMENT (the "Agreement") is made the 29th day of September, 1998 (the
"Effective Date").

BETWEEN:

(1) BLOCKBUSTER INC. whose principal place of business is at 1201 Elm Street,
Dallas, Texas 75270 (hereinafter referred to as "Blockbuster," which shall be
deemed to include its assigns once assigned); and

(2) *

WHEREAS:

(A) Blockbuster and certain of its Affiliates (the terms initially capitalized
in this Agreement and not otherwise defined herein shall have the respective
meanings set forth in Paragraph 1 of this Agreement), own, operate and franchise
retail stores which, among other things, rent, sell and market pre-recorded
videocassette tapes to the general public; and

(B) * and certain of its Affiliates acquire, produce, lease, market and sell
motion pictures on pre-recorded videocassette tapes; and

(C) Blockbuster is willing to lease from * on a per Participating Store basis a
specified number of Copies of each Rental Picture released during the Term as
set forth herein; and

(D) * is willing to lease to Blockbuster on a per Participating Store basis a
specified number of Copies of each Rental Picture released during the Term as
set forth herein; and

(E) Blockbuster is willing to report electronically on an ongoing basis during
the Revenue Sharing Period information as to the rental of Copies per Rental
Picture as set forth in Exhibit C, attached hereto and made a part hereof.

- ----------

NOW THEREFORE, based on the above premises and in consideration of the mutual
covenants and agreements contained herein, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

1. DEFINITIONS:

a. "Affiliate" shall mean an entity in which either party has a
controlling interest or any entity that has a direct or indirect parent in
common.

b. *

c. *

d. "Blockbuster Headquarters" shall mean the corporate office of
Blockbuster located at 1201 Elm Street, Dallas, Texas 75270.

e. "Copy(ies)" shall mean VHS videocassettes of the Rental Pictures leased
by Blockbuster from * under this Agreement. Other formats, including laserdisc
and DVD are not included under this Agreement.

f. "Defective Copies" shall mean those Copies that are mechanically
defective, mispackaged or contain extraneous material upon delivery to
Blockbuster.

g. "Distribution Center" shall mean Blockbuster's distribution center that
is currently in McKinney, Texas. Blockbuster may add two (2) additional delivery
points at its option.

h. "Franchise Stores" shall mean Blockbuster franchise stores operated
under the Blockbuster trademarks and designated by Blockbuster from time to time
as ordering Copies through Blockbuster, subject to Paragraph 4.c. hereof.

i. *

j. "Home Video Distribution" or "Home Video Distribution Rights" shall
mean the right to manufacture, record, sell and/or otherwise distribute a motion
picture on videocassette.

k. "Month" or "Monthly" shall mean Blockbuster's accounting cycles that is
based upon a four week, four week, five week rotation as set forth in Exhibit B,
attached hereto and made a part hereof.

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

l. "Participating Store" shall mean (i) any Video Store in the United
States, which at any time during the Term of this Agreement, is wholly owned
and/or operated by Blockbuster and/or its Affiliates under the Blockbuster
trademarks; and (ii) Franchise Stores subject to Paragraph 4.c. hereof.

m. *

n. "Rental Picture" shall mean each and every feature motion picture for
which * owns or controls Home Video Distribution Rights in the Territory,
provided such picture: (1) (A) is offered in Copy form to the rental trade by *
at a wholesale "rental price" (as opposed to a "sell-through-price") of no less
than Thirty-five Dollars (US$35.00) per unit whether purchased as a single unit
or in multiple unit quantities; (B) if rated by the MPAA, is not rated NC-17 or
more restrictive; and (C) upon initial release in Copy form, is intended by * to
be rented rather than sold to consumers, and (2) is either (A) a picture
previously released theatrically in the Territory; or (B) if not previously
released theatrically, is either a Movie of the Week ("MOW") or Direct to Video
("DTV"), is at least seventy (70) minutes in length, and is not a sports event,
documentary or concert film, stage play (i.e., film of an on-stage performance),
theatrical re-release, or library film.

o. *

p. "Revenue Sharing Period" shall mean the period commencing upon the
first rental of the applicable Rental Picture Copy and running for the
twenty-six (26) weeks after the Video Street Date of such Rental Picture.

q. "Rental Transaction" shall mean that period of time that a title is
rented to a customer, including any extended viewing period, as defined by
Blockbuster's then current practices across all videocassettes available for
rental from all videocassette suppliers.

r. "Video Store" shall mean a retail outlet which has at least one
thousand five hundred (1,500) square feet that is primarily engaged in the
rental of videocassettes to the public for home viewing entertainment purposes.

s. "Video Street Date" shall mean, with respect to any Rental Picture, the
first date on which, in the Territory such Rental Picture is authorized by * for
Home Video Distribution.

2. AGREEMENT TERM:

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

The term of this Agreement shall be for * (the "Term"), commencing as of
the Effective Date, but * may terminate this Agreement as of December 22, 1999
by giving Blockbuster ninety (90) days prior written notice. However, any Copies
in Blockbuster's possession at the time of termination shall continue to be
leased under the terms of this Agreement until such Copies are returned to * or
sold by Blockbuster.

3. TERRITORY:

The territory for the purposes of this Agreement with respect to each
Rental Picture shall be the United States, its territories and possessions, if
and to the extent * owns or controls such rights to territories and possessions
of the United States (the "Territory").

4. BLOCKBUSTER COMMITMENTS:

Beginning as of the date of this Agreement, Blockbuster agrees as follows:

a. Ordering Requirements: Blockbuster shall timely submit orders of
Copies of Rental Pictures in compliance with this Agreement. Blockbuster
may purchase or otherwise obtain VHS videocassettes of Rental Pictures
from sources other than * (the "Excess Copies"). All such Excess Copies,
regardless of how obtained, shall be deemed to be "Copies" and reported
and * share of Rental Revenue and PVT Share paid as if such VHS
videocassettes were obtained under this Agreement unless * has materially
breached its obligations under Paragraph 5.c. hereof. In such event,
Blockbuster shall not be obligated under the Agreement for any such Excess
Copies.

b. Lease: The following terms shall apply to Rental Pictures:

(1) *

(2) *

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

(3) *

a. *

b. *

(4) *. If Blockbuster fails to provide * with all information
required by Exhibit C when due, then Blockbuster shall provide a
good faith estimate of all such information so that * can generate
appropriate invoices. Following delivery of all information required
by Exhibit C to * shall reconcile the information estimated by
Blockbuster with the actual information, * shall promptly issue
appropriate invoices and/or credits to Blockbuster. Nothing herein
shall serve to limit * remedies regarding Blockbuster's failure to
provide * with all information required by Exhibit C when due.

c. Participating Franchisees: Blockbuster may distribute Copies of
the Rental Pictures received under this Agreement to its Franchise Stores
that have elected to participate for at least the lesser of six (6) months
or the remaining Term of this Agreement, provided however, that Franchise
Stores who elect to participate may not start and stop more than one time
each. Subject to the requirements of this Paragraph 4.c., terms for
implementation of this Agreement at the franchise level and franchise
payments thereunder will be controlled and administered by Blockbuster.
For purposes of this Agreement and to the extent a Franchise Store elects
to participate hereunder, such Franchise Store shall be considered a
Participating Store. Blockbuster agrees that Franchise Stores shall be
obligated to Blockbuster to perform to terms that will provide *

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

with all of the benefits of this Agreement, including, without limitation,
with respect to *'s audit rights under Paragraph 6 hereof.

d. *

e. Packing and Shipping: Promptly upon receipt of any Copies at the
Distribution Center and prior to any shipment to another location or
rental or sale thereof, Blockbuster shall barcode each Copy. Thereafter,
Blockbuster shall make all Copies (including Replenishment Copies) ready
for consumer rental and shall ship such Copies (except for Replenishment
Copies) to all Participating Stores for rental to members of the public
beginning no sooner and no later than the Video Street Date. Promptly upon
receipt of any Copies at a Participating Store and prior to any rental or
sale thereof, each Participating Store shall enter all applicable barcodes
and related information in such Participating Store's POS system.
Blockbuster shall comply with all generally applicable Video Street Date
policies of *, shall not copy any Copies or related marketing materials
nor rent any Copies to any customer it has knowledge intends to copy such
Copies. Blockbuster shall not cause or permit Copies to be sold, leased or
otherwise transferred to or by distributors, sub-distributors or Video
Stores other than Participating Stores, except as permitted in Paragraph
4.c. and 4.d. hereof. Blockbuster shall maintain and/or store all Copies
only at the Participating Store to which they were originally delivered,
except as follows: (i) during rentals to the public or following PVT sales
as permitted under Paragraph 4.c. and 4.d. hereof; (ii) during viewing by
employees of Blockbuster, provided such viewing is accounted for on a
dated employee checkout log or in accordance with Blockbuster's ordinary
checkout procedure for employees; or (iii) following shipment from one
Participating Store to another, provided that each such shipment and the
location of all Copies shipped is reported to * at all times during the
applicable Revenue Sharing Period pursuant to Exhibit C. Except as
required by Paragraph 4.d. hereof, Copies shall not be shipped from a
Participating Store to the Distribution Center at any time during the
Revenue Sharing Period, unless such Copies are Defective Copies.
Blockbuster shall be responsible for all physical distribution of Copies
following delivery by * to the Distribution Center, including shipment,
return and replacement of Defective Copies and non-defective Copies to and
from each Participating Store.

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

f. Rental and Sale of Copies: (i) Blockbuster shall consult with *
with respect to all of Blockbuster's plans for marketing, advertising and
promotion of each Rental Picture Title, if any, including, without
limitation, all expenditures to be reimbursed by * pursuant to this
Agreement; (ii) Blockbuster shall display Revenue Share Copies of each
Rental Picture in the "new release" or equivalent section of each
Participating Store for at least the period commencing upon the applicable
Video Street Date and ending fourteen (14) weeks thereafter; and (iii)
prior to December 22, 1999, Blockbuster shall spend at least One Million
Dollars (US$1,000,000) of its own marketing funds (subject to proof of
performance and not using any Marketing Support Funds, Promotional and
Operational Credits or other amounts deducted from amounts due to *
hereunder) on advertisements relating to Rental Pictures to be selected by
mutual agreement.

g. Title to Copies: As between * and Blockbuster, title in and to
the Copies and risk of loss shall remain in * until the earlier of the end
of the Revenue Sharing Period or until sell-off by Blockbuster in
accordance with the above subparagraph 4.d.

h. Missing Copies: For any Copy that is lost, stolen or destroyed
subsequent to delivery to Blockbuster, Blockbuster agrees to pay to * of
such Copy's then applicable suggested retail price ("SRP") (the
"Replacement Value") less the Upfront Fee and revenue share amounts
already paid to *. Blockbuster shall determine whether a Copy is lost,
stolen or destroyed; however, no Copy shall be unaccounted for longer than
forty-five (45) days. The Replacement Value shall be due and payable
within ten (10) days of the loss, theft or destruction of a Copy. Copies
discovered missing in the ordinary course of business are to be recorded
and paid for when discovered as if they had been sold off pursuant to
Paragraph 4.d. of this Agreement. Blockbuster shall notify * of any theft
or loss of any Copy that occurs outside of the ordinary course of business
at the time Blockbuster discovers the same.

i. Returns/Exchanges: Blockbuster shall destroy any Defective
Copies. In lieu of any obligation to return or account to * for Defective
Copies, Blockbuster shall have the right to deduct an allowance for
Defective Copies in the amount of * of each order, which deduction shall
be reflected in the invoice issued by * that corresponds to such order.
There shall be no other charge to * for Defective Copies.

j. Reporting: Blockbuster shall comply with the reporting
requirements set forth in Exhibit C. Notwithstanding the foregoing, *
shall have the right to modify its reporting requirements from time to
time provided it notifies Blockbuster at least ninety

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

(90) days in advance of any proposed modification, and provided further,
that Blockbuster is able to comply with each such proposed modifications,
without business disruption or material expense, following good faith
efforts to do so. Blockbuster shall only be obligated to report to * until
the earlier of such time Copies of a Rental Picture are sold pursuant to
Paragraph 4.d. or the end of the Revenue Sharing Period.

5. * COMMITMENTS:

a. Grant: * grants Blockbuster the right to distribute the Copies of
the Rental Pictures to Participating Stores for the transfer of possession
on a temporary or permanent basis to members of the general public for
home viewing purposes.

b. Marketing Support: For each Rental Picture, Copies of which are
leased to Blockbuster under this Agreement, * grants to Blockbuster an
allowance for cooperative advertising and market development funds equal
to * of the aggregate of the Upfront Fees, * share of Rental Revenues
(after all deductions for Bad Debt and Promotional and Operational
Credits) and * PVT Share received by * with respect to such Rental Picture
(the "Marketing Support Funds"). Such Marketing Support Funds shall be
available solely for advertising Rental Pictures in compliance with *
published advertising conditions, including without limitation, those
contained in Exhibit F * attached hereto and made a part hereof. * shall
have the right to audit Blockbuster's use of the Marketing Support Funds
as provided in Paragraph 6 below.

C. Shipping: Assuming Blockbuster is not in Default under this
Agreement as defined in Paragraph 10 hereof, * will deliver the Copies to
the Distribution Center at least three (3) weeks prior to Video Street
Date per Rental Picture but shall use reasonable commercial business
efforts to deliver the Copies four (4) weeks prior to Video Street Date
per Rental Picture.

6. AUDIT:

During the Term and continuing until the date six (6) months following the
date of expiration or earlier termination of this Agreement, Blockbuster agrees
that *, with twenty-four (24) hours advance written notice, may conduct, during
normal business hours: (a) a reasonable number of audits per year of
Blockbuster's business operations and records relating to performance under this
Agreement at the Blockbuster Headquarters; and (b) a reasonable number of audits
per year, to be conducted Monday through Wednesday only, of business operations
and records at Participating Stores, solely pertaining to the Copies leased by
Blockbuster pursuant to

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

this Agreement and limited to the information specified in Section 7 of Exhibit
C. Any additional audit request of information not provided for above including,
without limitation, any audit of Bad Debt or Promotional and Operational Credits
shall be performed by Blockbuster's certified public accountant on an annual
basis. Any audits conducted pursuant to this section shall relate to
Blockbuster's compliance with the terms of this Agreement and shall not
unreasonably interfere with Blockbuster's daily business operations. Within six
(6) business days following * or its designee's reasonable request, Blockbuster
shall deliver to * or its designee (including an on-site auditor for either) a
list of every Rental Picture, Copies of which are leased to Blockbuster under
this Agreement, the number and location of each Copy of each Rental Picture in
each Participating Store and in the Distribution Center, and, if such Copy is
rented to a consumer, the Participating Store from which such Copy was rented. *
agrees that the data and other information collected by * may be used by * only
in connection with such audits to fulfill * commitments under this Agreement. If
any such audit establishes a material breach of this Agreement, Blockbuster
shall promptly pay any deficiency (to the extent such amount is disputed) and
the reasonable cost to conduct such audit.

7. * REPRESENTATION AND WARRANTIES:

* represents and warrants that:

a. It is a corporation organized and existing under the laws of the * with
its principal place of business in the *.

b. * is the proper entity to be entering into this Agreement and
performing its respective obligations provided hereunder.

c. The undersigned has the full right, power and authority to sign this
Agreement on behalf of *.

d. The execution, delivery and performance of this Agreement does not and
will not, violate any provisions of * articles or certificates of incorporation
and bylaws, or any contract or other agreement to which * is a party.

e. There is no broker, finder or intermediary involved in connection with
the negotiations and discussions incident to the execution of this Agreement,
and no broker, finder or intermediary who might be entitled to a fee,
commissions or any other payment upon the consummation of the transactions
contemplated by this Agreement.

- ----------

* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".
<PAGE>

f. This Agreement has been duly executed and delivered and constitutes the
legal, valid and binding obligation of * enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect,
affecting the enforcement of creditors' rights in general and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law.

g. Copies shall be new and unused and comparable in quality to other
videocassette units being sold by * in rental distribution channels.

8. BLOCKBUSTER'S REPRESENTATIONS AND WARRANTIES:

Blockbuster represents and warrants that:

a. It is a corporation organized and existing under the laws of the State
of Delaware, with its principal place of business in the State of Texas.

b. Blockbuster Inc. is the proper entity to be entering into this
Agreement and performing its respective obligations provided hereunder.

c. The undersigned has the full right, power and authority to sign this
Agreement on behalf of Blockbuster.

d. The execution, delivery and performance of this Agreement does not and
will not, violate any provisions of Blockbuster's articles or certificates of
incorporation and bylaws, or any contract or other agreement to which
Blockbuster is a party.

f. This Agrement has been duly executed and delivered and constitutes the
legal, valid and binding obligation of Blockbuster enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereinafter
in effect, affecting the enforcement of creditors' rights in general and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

9. INDEMNIFICATION:

(i) * agrees to, at all times, defend, indemnify and hold
Blockbuster, its parent company, their affiliates, subsidiaries,
franchisers and the officers, directors, agents and employees of each,
harmless from and against any and all claims, suits, damages, losses,
liabilities, obligations, fines, penalties, costs and expenses (whether
based on libel, slander, invasion of privacy, breach of contract, product
liability, patent, trademark, license or copyright infringement or
otherwise), including legal fees and expenses, of whatever kind or nature
(collectively, "Loss"), arising out of or based on (a) a breach or
violation of this Agreement by * or any failure by * to perform any of the
agreements, terms, covenants, conditions, representations or warranties of
this Agreement to be performed by *; (b) the content of any Copy of a
Rental Picture leased by Blockbuster pursuant to this Agreement; or (c)
negligent acts or omissions by * its employees and/or agents.

(ii) Blockbuster agrees to, at all times, defend, indemnify and hold
*, its parent company, their affiliates, subsidiaries and the officers,
directors, agents and employees of each, harmless from and against any
Loss, arising out of or based on (a) a breach or violation of this
Agreement by Blockbuster or any failure by Blockbuster to perform any of
the agreements, terms, covenants, conditions, representations or
warranties of this Agreement to be performed by Blockbuster; (b)
Blockbuster's distribution of Copies including the use of advertising
materials not supplied by * and the actual rental and/or retail sale
thereof; or (c) negligent acts or omissions by Blockbuster, its employees
and/or agents.

(iii) The Indemnified Party shall give written notice to the
Indemnifying Party and the Indemnifying Party will promptly, at the
Indemnified Party's request, assume and diligently conduct the entire
defense of any suit or action, or the making of any claim as to which
indemnity may be sought hereunder, including settlements and appeals, at
the Indemnifying Party's sole cost and expense, and the Indemnifying Party
shall pay and discharge any and all settlement amounts, judgments or
decrees which may be rendered.

(iv) The Indemnifying Party shall not, except with the consent of
the Indemnified Party, consent to entry of any judgment or administrative
order or enter into any settlement that (i) could affect the intellectual
property rights or other business interest of the Indemnified Party; or
(ii) does not include as an unconditional term thereof the giving by the
claimant or plaintiff to the Indemnified Party of a release from all
liability with respect to such claim or litigation.

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

(v) In the event that the Indemnifying Party is not asked or does
not accept the defense of any matter as above provided, the Indemnified
Party shall have the full right to defend against any such claim or
demand, and shall be entitled to settle or agree to pay in full such claim
or demand, in its sole discretion without releasing any obligation or
liability of the Indemnifying Party.

10. TERMINATION:

The non-defaulting party may terminate this Agreement if a Default, as
defined below, by the other party has occurred and is continuing by giving
written notice to the defaulting party. The term "Default" shall mean any of the
following: (a) failure by a party to comply with or perform any provision or
condition of this Agreement that results in a material breach of this Agreement
and, if such material breach can be cured, continuance of such failure for
thirty (30) days after written notice to such party (if cure is not practicable,
the thirty (30) day notice period is not required); (b) a party becomes
insolvent, is unable to pay its debts as they mature or is the subject of a
petition in bankruptcy, whether voluntary or involuntary, or of any other
proceeding under bankruptcy, insolvency or similar laws; or makes an assignment
for the benefit of creditors; or is named in, or its property is subject to a
suit for appointment of a receiver; or is dissolved or liquidated; or (c) any
material warranty or representation made in this Agreement is breached, false or
misleading in any material respect. In the event of such termination, the
non-defaulting party shall be entitled to pursue any and all remedies provided
in law and recover any damages it may have suffered by reason of such Default,
provided however, that * expressly waives its right to seek equitable relief
including, without limitation, seeking injunctive relief. * acknowledges that no
specification of a particular legal or equitable remedy by Blockbuster shall be
construed as a waiver, prohibition or limitation of any legal or equitable
remedies in the event of a breach of this Agreement. Upon Default, any Copies in
Blockbuster's possession at time of termination shall continue to be leased
under the terms of this Agreement until such Copies are returned to * or sold by
Blockbuster in accordance with the terms and conditions of this Agreement.

11. REMEDIES: No remedy conferred by any of the specific provisions of this
Agreement is intended to be exclusive of any other remedy which is otherwise
available at law, in equity, by statute or otherwise, and except as otherwise
expressly provided for herein, each and every other remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law, in equity, by statute or otherwise and no provision
hereof shall be construed so as to limit any party's available remedies in the
event of a breach by the other party hereto. The election of any one or more of
such remedies by any of the parties hereto shall not constitute a waiver by such
party of the right to pursue any other available remedies.

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

12. MISCELLANEOUS:

12.2 NOTICE: Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given and received on the date
of delivery or on the third (3rd) business day following the day of mailing of
the same, or on the day of transmission by telecopier or other form of recorded
communication service of the same, as the case may be to the party to be
notified at the addresses set forth below:

If to Blockbuster: Blockbuster Inc.
1201 Elm Street, 21st Floor
Dallas, Texas 75270
Attn: General Counsel
cc: Chief Executive Officer

If to *: *
*
*
Attn: *

or such other address as may be designated by either party by written notice to
the other as hereinabove provided.

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

with respect to the subject matter by either party or by any agent or
representative of either party which is not contained in this Agreement shall be
valid or binding between the parties.

12.4 RELATIONSHIP OF PARTIES: The parties are independent contractors, and
nothing in this Agreement shall be deemed or construed to create, or have been
intended to create a partnership, joint venture, employment or agency
relationship between the parties. Each party agrees that it neither has nor will
give the appearance or impression of possessing the legal authority to bind or
commit any other party in any way except as provided in this Agreement.

12.5 EFFECT OF HEADINGS: The headings and subheadings of the sections of
this Agreement are inserted for convenience of reference only and shall not
control or affect the meaning or construction of any of the agreements, terms,
covenants and conditions of this Agreement in any manner.

12.6 CONSTRUCTION: This Agreement has been fully reviewed and negotiated
by the parties and their respective legal counsel. Accordingly, in interpreting
this Agreement, no weight shall be placed upon which party or its counsel
drafted the provision being interpreted.

12.7 SEVERABILITY: If any term or provision of this Agreement shall be
found to be void or contrary to law, such term or provision shall, but only to
the extent necessary to bring this Agreement within the requirements of law, be
deemed to be severable from the other terms and provisions of this Agreement,
and the remainder of this Agreement shall be given effect as if the parties had
not included the severed term herein.

12.8 AMENDMENTS: No provision of this Agreement may be modified, waived or
amended except by a written instrument duly executed by each of the parties. Any
such modifications, waivers or amendments shall not require additional
consideration to be effective.

12.9 COUNTERPARTS: This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

12.10 IMPLIED WAIVER: Any failure on the part of either party to insist
upon the performance of this Agreement or any part of this Agreement, shall not
constitute a waiver of any right under this Agreement.

12.11 ASSIGNMENT: * may not assign its rights or delegate its obligations
under this Agreement except to a parent, subsidiary or Affiliate, without
Blockbuster's prior written

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

consent. Any attempted assignment, sublicense, transfer, encumbrance or other
disposal by * (other than as permitted by this Paragraph 12.11) without such
consent shall be void and shall constitute a material breach of this Agreement.
"Transfer" within the meaning of this Section 12.11 shall include any merger or
consolidation involving *, any sale or transfer of all or substantially all of
*'s assets and any transaction or series of related transactions resulting in
the transfer of thirty percent (30%) or more of the voting stock of *.
Blockbuster may assign its rights and obligations under this Agreement, provided
that the assignment is coextensive with an assignment of the video rental
business of Blockbuster and the obligations of Blockbuster under this Agreement
are assumed with any assignment (including where applicable the required use of
the Blockbuster trademarks).

12.12 SURVIVAL: All representations, warranties and indemnities made
herein shall survive the termination of this Agreement and shall remain in full
force and effect. All of a party's rights and privileges, to the extent they are
fairly attributable to events or conditions occurring or existing on or prior to
the termination of this Agreement, shall survive termination and shall be
enforceable by such party and its successors and assigns.

12.13 CONFIDENTIALITY: Except as otherwise required by applicable federal
and state laws, each party shall keep the information regarding the details of
this Agreement confidential and restrict dissemination to each of its own
personnel and to third parties to only a "need to know" basis, using the
standard of care which each uses to protect its own information from disclosure
during the Term of this Agreement and for two (2) years thereafter. The party
disclosing confidential information to its own personnel and third parties shall
require that these persons be bound by the confidentiality obligations set forth
in this Agreement. In addition to the foregoing, both parties agree to keep all
information provided hereunder in accordance with this Agreement confidential
and any unauthorized disclosure shall be considered a material breach of this
Agreement.

12.14 GOVERNING LAW: This Agreement shall be construed in accordance with
the laws of the * without regard to its rules on conflicts of law.

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first above
written.

* BLOCKBUSTER INC.
- -------------------------------

Name: * Name: Edward B. Stead
-------------------------- --------------------------------

Signature: /s/ * Signature: /s/ Edward B. Stead
--------------------- ---------------------------
Title: Title: EVP
------------------------- -------------------------------

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* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".
<PAGE>

Exhibit A

Matrix

(See Attached)

Matrix of Base Units/Location
*

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

Exhibit B

Accounting calendar denoting timing of certain events.
<PAGE>

Exhibit C

Electronic Reporting

- ----------

* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment". Five pages have been
omitted from Exhibit C.
<PAGE>

Exhibit D

Average Minimum for Rental Pictures with a Video Street Date during the
Period Commencing on the Effective Date and continuing through *.

- ---------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

Exhibit E

Average Minimum for Rental Pictures with a Video Street Date of * and
thereafter during the Term of this Agreement.

- ---------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
<PAGE>

Exhibit F

- ----------

* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment. Fifteen pages have been
omitted from Exhibit F.

<PAGE>

Exhibit 10.8

REVENUE SHARING AGREEMENT

THIS AGREEMENT (the "Agreement") is made the 25th day of August, 1998 (the
"Effective Date").

BETWEEN:

(1) BLOCKBUSTER VIDEOS, INC. whose principal place of business is at 1201 Elm
Street, Dallas, Texas 75270 (hereinafter referred to as "Blockbuster," which
following assignment shall include its actual assigns); and

(2) *

WHEREAS:

(A) Blockbuster and certain of its Affiliates (the terms initially capitalized
in this Agreement and not otherwise defined herein shall have the respective
meanings set forth in Paragraph 1 of this Agreement) own, operate and franchise
retail stores which, among other things, rent, sell and market pre-recorded
videocassette tapes to the general public; and

(B) * and certain of its Affiliates acquire, produce, license, market and sell
motion pictures on pre-recorded videocassette tapes; and

(D) Blockbuster is willing to obtain, on the terms and subject to the conditions
hereinafter set forth, a specified number of Copies of each Rental Picture and
each * distributed by * during the Term; and

(E) Blockbuster is willing and has the operational capacity to report
electronically on an ongoing basis during the Revenue Sharing Period information
as to the rental of Copies per Rental Picture as set forth in Exhibit C,
attached hereto and made a part hereof.

- ----------
* Pages where confidential treatment has been requested are stamped
"Confidential material omitted and separately filed with the Commission
under an application for confidential treatment", and the confidential
section has been marked with a star (*).

<PAGE>
2

1. DEFINITIONS:

a. "Affiliate" shall mean (i) in the case of *; and (ii) in the case of
Blockbuster or Blockbuster Entertainment Inc., all companies which are
controlled by Blockbuster and/or Blockbuster Entertainment Inc. or which have a
common direct or indirect parent.

b. *

c. "Blockbuster Headquarters" shall mean the corporate office of
Blockbuster located at 1201 Elm Street, Dallas, Texas 75270.

d. "Copy(ies)" shall mean VHS videocassettes of the Rental Pictures and *
obtained by Blockbuster from * for Home Video Distribution. Other formats,
including, without limitation, laserdisc and DVD, are not included under this
Agreement.

e. *

f. "Distribution Center" shall mean Blockbuster's distribution center that
is currently in McKinney, Texas. Blockbuster may add an additional two (2)
delivery points at its option.

g. *

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
3

Video Distribution Rights in the Territory that fails to satisfy the
requirements set forth in this subparagraph shall not be subject to this
Agreement.

h. "Franchise Stores" shall mean Blockbuster franchise stores that are
operated pursuant to binding franchise agreements. If designated by Blockbuster
as ordering Copies through Blockbuster, such Franchise Store shall become a
Participating Store.

i. *

j. "Home Video Distribution" or "Home Video Distribution Rights" shall
mean the right to manufacture, record, sell and/or otherwise distribute a motion
picture on videocassette.

k. *

l. "Missing Copies" shall mean those Copies of a particular Rental Picture
that are unaccounted for due to theft or loss occurring outside of the ordinary
course of business. Blockbuster, in its good faith discretion, will determine if
a Copy is lost or stolen.

m. "Month" or "Monthly" shall mean Blockbuster's accounting cycle that is
based upon a four week, four week, five week rotation as set forth in Exhibit B,
attached hereto and made part hereof.

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
4

n. "Participating Store" shall mean (i) any Video Store in the United
States, which at the relevant time during the Term of this Agreement, is wholly
owned and/or operated by Blockbuster and/or its Affiliates under the Blockbuster
trademarks; (ii) if designated by Blockbuster as ordering Copies through
Blockbuster, any Video Store in the United States, which at the relevant time
during the Term of this Agreement, is wholly owned and/or operated by
Blockbuster and/or its Affiliates not under the Blockbuster trademarks which
elect to participate pursuant to the terms and conditions hereof; and (iii)
Franchise Stores which elect to participate pursuant to the terms and conditions
hereof. For Copy quantity allocation purposes, Kiosks and Video Vending Machines
(the "Special Formats") shall not be included in the definition of
"Participating Stores."

o. *

p. "Rental Picture" shall mean each and every feature motion picture for
which * owns or controls Home Video Distribution Rights in the Territory,
provided such picture: (1) is at least seventy (70) minutes in length; (2) is
within Blockbuster's guidelines of the MPAA rating system (i.e., Blockbuster
does not make available for rental to its customers pictures which are not rated
or which have a rating of NC17 or more restrictive); (3) is not a documentary,
foreign language film (excepting those qualifying under subparagraph g. of this
Paragraph 1), sports event, concert film, stage play, video or theatrical
re-release, or library/category film; and (4) is one theatrically distributed,
which when initially released on videocassette is priced and distributed by * at
a "rental price" and no less than a "net effective unit price" of at least *, as
such terms are generally understood in the home video industry in Los Angeles,
California. "Net effective unit price" shall mean the price invoiced and accrued
(before adjustment for any marketing support funds) for each Copy of a specific
Rental Picture by the videocassette distributor, supplies and/or retail/rental
outlet which purchases videocassettes directly from * other than through leasing
and/or "buy back" programs. *. Every other feature motion picture for which *
owns or controls Home Video Distribution Rights in the Territory that is priced
and distributed by * that fails to satisfy the requirements set forth in this
subparagraph shall not be subject to this Agreement.

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
5

q. *

r. "Revenue Sharing Period" shall mean the period commencing on the Video
Street Date of the relevant Rental Picture and running through the end of
twenty-six (26) weeks immediately thereafter.

s. "Video Store" shall mean a retail outlet that has at least one thousand
five hundred (1,500) square feet and that is primarily engaged in the rental of
videocassettes to the public for home viewing entertainment purposes.

t. "Video Street Date" shall mean, with respect to any Rental Picture, the
first date on which, in the Territory, both: (i) such Rental Picture is
authorized by * for Home Video Distribution, and (ii) Copies of such Rental
Picture are actually available to the general public at Participating Stores.

2. AGREEMENT TERM:

The term of this Agreement shall be for * (the "Term"), commencing as of
September 1, 1998.

3. TERRITORY:

The territory for purposes of this Agreement with respect to each Rental
Picture shall be the United States, its territories and possessions, if any to
the extent * owns or controls such rights to territories and possessions of the
United States (the "Territory"). Blockbuster and * agree to discuss the
inclusion of Canada, its provinces, territories and possessions in the Territory
in accordance with the terms and conditions of this Agreement or comparable
terms mutually agreed upon by the parties; provided however, that neither party
shall have any obligation to agree to such inclusion.

- ----------
* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".

<PAGE>
6

4. BLOCKBUSTER COMMITMENTS:

Beginning as of the date of this Agreement for Participating Stores,
Blockbuster agrees as follows:

a. The following terms shall apply to Rental Pictures:

(1) *

(2) *

(3) *

Blockbuster may retain up to * of the Revenue Share Copies of each
Rental Picture (including * ) and up to * at its Distribution Center
for replenishment, new Participating Stores and unexpected spikes in
product performance (the "Replenishment Copies").

(4) *

(5) *

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
7

(6) *

(7) *

(8) *

(a) *

(b) *

(9) Payment.-Blockbuster shall pay: *

b. Participating Franchisees: Blockbuster may distribute Copies of the
Rental Pictures received under this Agreement to its Franchise Stores
which have elected to be governed by the terms and conditions of this
Agreement for all Rental Pictures whose

- ----------
* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".

<PAGE>
8

Video Street Dates fall within a consecutive period of no less than six
(6) months, provided however, that if a Franchise Store elects to
discontinue participation hereunder, any Rental Pictures for which orders
have been placed or in its possession shall continue to be subject to the
terms of this Agreement for the applicable Revenue Sharing Period until
such Copies are returned to * or sold by Blockbuster (in accordance with
Paragraph 4.c below) and all parties shall remain obligated to perform
their respective obligations with respect thereto under this Agreement.
Terms for implementation of this Agreement at the franchise level and
franchise payments thereunder will be controlled and administered by
Blockbuster. For purposes of this Agreement and to the extent a Franchise
Store elects to participate under this Agreement, such Franchise Store
shall be considered a Participating Store. For the purposes of payment
only and in the event that a Franchise Store which has elected to
participate hereunder is unable to pay when due any amounts due and owing
to *, Blockbuster shall pay * any undisputed amount pursuant to Paragraph
4.a(9) of this Agreement.

c. *

d. Packing and Shipping: Blockbuster will be responsible for making the
Copies ready for consumer rental and for shipping the Copies for its
Distribution Center to its Participating Stores.

e. Missing Copies: During the first sixty (60) days of the applicable
Revenue Sharing Period, Blockbuster agrees to pay to * less the Upfront
Price and revenue share amounts already paid to * for any Missing Copy.
Blockbuster shall notify * of any theft or loss of any Copy that occurs
outside of the ordinary course of business at the time Blockbuster
discovers the same.

f. Damaged/Defective: "Damaged Copies" shall mean those videocassettes
which become materially damaged by Participating Store personnel,
customers, or otherwise, during the Revenue Sharing Period. "Defective
Copies" shall mean those Copies that are

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
9

mechanically defective, mispackaged or contain "extraneous material" (as
defined in Paragraph 9(i) below). * shall deliver to Blockbuster, at no
cost, additional Copies of each Rental Picture in the amount of * of the
Base Buy Copies as set forth on Exhibit A for Blockbuster to retain at its
Distribution Center and to use solely, in its discretion, as replacement
of Defective Copies and Damaged Copies; provided however, that if any of
these Copies are placed in the Participating Stores, * shall receive its
share of the Rental Revenue for the Copy used to replace the Damaged or
Defective Copy since no Rental Revenue will thereafter be generated from
the Damaged or Defective Copy.

g. *

5. * COMMITMENTS:

a. Grant: * grants Blockbuster the right, and Blockbuster hereby obligates
itself, to distribute the Revenue Share Copies of the Rental Pictures
(excluding Replenishment Copies) for placement on the shelves of its
Participating Stores during the applicable Revenue Sharing Period, for the
transfer of possession on a temporary or permanent basis consistent with
this Agreement to members of the general public for home viewing purposes.
* is obligated to ship the Copies to Blockbuster pursuant to the terms and
conditions of this Agreement.

b. Marketing-Support: In lieu of specific marketing support programs and
as payment for services and in consideration for the various other
services and activities which Blockbuster has agreed to perform hereunder,
* agrees that Blockbuster shall accrue on a Qualified Rental Picture basis
marketing support funds (the "Marketing Support Funds") in a minimum
amount of * of the Minimum Guarantee for each Qualified Rental Price.
Blockbuster shall use the Marketing Support Funds to advertise the Rental
Pictures in its discretion and * and shall reimburse Blockbuster for the
Marketing Support Funds when used.

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
10

c. Shipping: * will deliver the Copies to the Distribution Center at least
three (3) weeks prior to Video Street Date per Rental Picture.

6. AUDIT:

During the Term and continuing until the date twelve (12) months following
the date of expiration or earlier termination of this Agreement, Blockbuster
agrees that *, with not less than three (3) business days advance notice, any
conduct, during normal business hours, Monday through Wednesday: (i) one (1)
audit per year of Blockbuster's business operation and records at the
Blockbuster Headquarters; and (ii) a total of ten (10) audits per year of the
business records at a Participating Store (i.e., ten (10) total audits and not
ten (10) audits per Participating Store), solely pertaining to the Copies
licensed by Blockbuster pursuant to this Agreement. Any additional audit request
of information not provided for above including, without limitation, any audit
of Bad Debt, Promotional or Operational Credits shall be performed by
Blockbuster's certified public accountant on an annual basis and provided to *
within fifteen (15) days of their request. Any audits conducted pursuant to this
section shall relate to Blockbuster's compliance with the terms of this
Agreement and shall not unreasonably interfere with Blockbuster' daily business
operations. * agrees that the data and other information collected by * may be
used by * only in connection with such audits and to fulfill * commitments under
this Agreement and to enable * to enforce its rights hereunder. Blockbuster
agrees to reimburse * for actual costs incurred if any audit results in
deviation in excess of ten percent (10%) or more between the percentage of
Rental Revenue paid to * by Blockbuster and the percentage of Rental Revenue due
to * by Blockbuster.

7. * REPRESENTATIONS AND WARRANTIES:

* represents and warrants that:

a. It is a corporation organized and existing under the laws of the *, with its
principal place of business in the *

b. The undersigned has the full right, power and authority to sign this
Agreement on behalf of *

c. The execution, delivery and performance of this Agreement does not and will
not violate any provisions of * articles or certificates of incorporation and
bylaws, or any contract or other agreement to which * is a party.

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
11

d. There is no broker, finder or intermediary involved in connection with the
negotiations and discussions incident to the execution of this Agreement, and no
broker, finder, agent or intermediary who might be entitled to a fee,
commissions or any other payment upon the consummation of the transactions
contemplated by this Agreement.

e. This Agreement has been duly executed and delivered and constitutes the
legal, valid and binding obligation of * enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect,
affecting the enforcement of creditors' rights in general and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law.

f. Copies shall be new and unused and comparable in quality to other
videocassette units being sold by * in rental distribution channels.

8. BLOCKBUSTER'S REPRESENTATIONS AND WARRANTIES:

Blockbuster represents and warrants that:

a. It is a corporation organized and existing under the laws of the State of
Delaware, with its principal place of business in the State of Texas.

b. The undersigned has the full right, power and authority to sign this
Agreement on behalf of Blockbuster.

c. The execution, delivery and performance of this Agreement does not and will
not, violate any provisions of Blockbuster's articles or certificates of
incorporation and bylaws, or any contract or other agreement to which
Blockbuster is party.

d. There is no broker, finder or intermediary involved in connection with the
negotiations and discussions incident to the execution of this Agreement, and no
broker, finder, agent or intermediary who might be entitled to a fee,
commissions or any other payment upon the consummation of the transactions
contemplated by this Agreement.

e. This Agreement has been duly executed and delivered and constitutes the
legal, valid and binding obligation of Blockbuster enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereinafter
in effect, affecting the enforcement of creditors' rights in general

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
12

and by general principles of equity, regardless of whether such enforceability
is considered in a proceeding in equity or at law.

9. INDEMNIFICATION:

(i) * agrees to, at all times, defend, indemnify and hold Blockbuster, its
parent company, their affiliates, subsidiaries, franchisees and the
officers, directors, agents and employees of each, harmless from and
against any and all claims, suits, damages, losses, liabilities,
obligations, fines, penalties, costs and expenses (whether based on libel,
slander, invasion of privacy, breach of contract, product liability,
patent, trademark, license or copyright infringement or otherwise),
including legal fees and expenses, of whatever kind or nature
(collectively, "Loss"), arising out of or based on (a) a breach or
violation of this Agreement by * or any failure by * to perform any of the
agreements, terms, covenants, conditions, representations or warranties of
this Agreement to be performed by *; (b) any third party claim that any
Rental Picture infringes the copyright, trademark, contractual rights,
right of publicity, right of privacy, or otherwise defames such third
party; or (c) any third party claim regarding any extraneous material
contained on any Copy of a Rental Picture provided to Blockbuster pursuant
to this Agreement. Such extraneous material may include, without
limitation, pornographic, obscene material or scenes of an inappropriate
nature placed on such Copies, provided however, that such extraneous
material shall not include the actual feature motion picture content or
trailers so long as such content is not altered in any way and is in
compliance with the MPAA rating and the definition of Rental Pictures, *
and * contained in this Agreement.

(ii) Blockbuster agrees to, at all times, defend, indemnify and hold *,
its parent company, their affiliates, subsidiaries, and the officers,
directors, agents and employees of each, harmless from and against any
Loss arising out of or based on a breach or violation of this Agreement by
Blockbuster or any failure by Blockbuster to perform any of the
agreements, terms, covenants, conditions, representations or warranties of
this Agreement to be performed by Blockbuster.

(iii) The Indemnified Party shall give written notice to the Indemnifying
Party and the Indemnifying Party will promptly assume and diligently
conduct the entire defense of any third party suit or action, or the
making of any third party claim as to which indemnity may be sought
hereunder, including settlements and appeals, at the Indemnifying Party's
sole cost and expense, and the Indemnifying Party shall pay and discharge
any and all settlement amounts, judgments or decrees which may be
rendered.

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
13

(iv) The Indemnifying Party shall not, except with the consent of the
Indemnified Party, consent to entry of any judgment or administrative
order or enter into any settlement that (i) could affect the intellectual
property rights or other business interest of the Indemnified Party; or
(ii) does not include as an unconditional term thereof the giving by the
claimant or plaintiff to the Indemnified Party of a release from all
liability with respect to such claim or litigation.

(v) In the event that the Indemnifying Party does not accept the defense
of any matter as above provided, the Indemnified Party shall have the full
right to defend against any such claim or demand, and shall be entitled to
settle or agree to pay in full such claim or demand, in its sole
discretion without releasing any obligation or liability of the
Indemnifying Party.

10. TERMINATION:

A non-defaulting party may terminate this Agreement if a Default, as
defined below, by the other party has occurred and is continuing by giving
written notice to the defaulting party. The term "Default" shall mean any of the
following: (a) failure by a party to comply with or perform any provision or
condition of this Agreement that results in a material breach of this Agreement
and, if such material breach can be cured, continuance of such failure for
thirty (30) days after written notice to such party (if cure is not practicable,
the thirty (30) day notice period is not required); (b) a party becomes
insolvent, is unable to pay its debts as they mature or is the subject of a
petition in bankruptcy, whether voluntary or involuntary, or of any other
proceeding under bankruptcy, insolvency or similar laws; or makes an assignment
for the benefit of creditors; or is named in, or its property is subject to a
suit for appointment of a received; or is dissolved or liquidated; or (c) any
material warranty or representation made in this Agreement is breached, false or
misleading in any material respect. In the event of such termination, the
non-defaulting party shall be entitled to pursue any and all remedies provided
in law and in equity and recover any damages it may have suffered by reason of
such Default. The parties acknowledge that no specification of a particular
legal or equitable remedy by a non-defaulting party shall be construed as a
waiver, prohibition or limitation of any legal or equitable remedies in the
event of a breach of this Agreement. Upon Default, any Copies in Blockbuster's
possession at time of termination shall continue to be subject to the terms of
this Agreement until such Copies are returned to * or sold by Blockbuster and
both parties shall remain obligated to perform their respective obligations with
respect thereto under this Agreement.

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
14

11. REMEDIES:

a. No remedy conferred by any of the specific provisions of this Agreement
is intended to be exclusive of any other remedy which is otherwise available at
law, in equity, by statute or otherwise, and except as otherwise expressly
provided for herein, each and every other remedy shall be cumulative and shall
be in addition to every other remedy given hereunder or now or hereafter
existing at law, in equity, by statute or otherwise and no provision hereof
shall be construed so as to limit any party's available remedies in the event of
a breach by the other party hereto. The election of any one or more of such
remedies by any of the parties hereto shall not constitute a waiver by such
party of the right to pursue any other available remedies.

b. Except as provided herein, no civil action with respect to any dispute,
claim or controversy arising out of or relating to this Agreement may be
commenced until:

(i) The parties attempt in good faith to resolve through negotiation
any dispute, claim or controversy arising out of or relating to this
Agreement. Either party may initiate negotiations by providing written
notice in letter form to the other party, setting forth the subject of the
dispute and the relief requested. The recipient of such notice will
respond in writing within (5) business days with a statement of its
position on and recommended solution to the dispute. If the dispute is not
resolved by this exchange or correspondence, then representatives of each
party with full settlement authority will meet at a mutually agreeable
time and place within ten (10) business days of the date of the initial
notice in order to exchange relevant information and perspectives, and to
attempt to resolve the dispute. If the dispute is not resolved by these
negotiations, the matter will be submitted to J. A. M. S/ENDISPUTE, or its
successor, for non-binding arbitration; and

(ii) If the parties are unable to resolve the dispute, claim or
controversy arising out of or relating to this Agreement pursuant to the
above subparagraph b.(i), such dispute, claim or controversy shall be
submitted to non-final and non-binding arbitration before J. A. M.
S/ENDISPUTE, or its successor, pursuant to the United States Arbitration
Act, 9 U.S.C. Sec. 1 et seq. Either party may commence the arbitration
process called for in this Agreement by filing a written demand for
arbitration with J. A. M. S/ENDISPUTE, with a copy to the other party. The
arbitration will be conducted in accordance with the provisions of J. A.
M. S/ENDISPUTE'S Streamlined Arbitration Rules and Procedures in effect at
the time of filing of the demand for arbitration. The parties will
cooperate with J. A. M. S/ENDISPUTE and with one another in selecting an
arbitrator from J. A. M. S/ENDISPUTE'S panel of neutrals, and in
scheduling the arbitration proceedings. The parties covenant that they
will participate in the arbitration in good faith, and that they will
share equally in its costs. The provisions of this Paragraph may be
enforced by any court of competent jurisdiction, and the party seeking
enforcement shall be entitled to an award of all costs, fees and expenses,
including attorneys fees, to be paid by the party against whom enforcement
is ordered.

<PAGE>
15

(iii) Notwithstanding the provisions of subparagraphs (i) and (ii)
above, a party seeking preliminary or temporary injunctive relief may, in
connection therewith, proceed before a court of competent jurisdiction (as
provided in Paragraph 12.14 below) for such purpose without regard to the
provisions of subparagraphs (i) and (ii) above.

12. MISCELLANEOUS:

12.1 FORCE MAJEURE: Neither party shall be considered in default of this
Agreement or be liable for damages, for any failure of performance hereunder
occasioned by an act of God, force of nature, war or warlike activity,
insurrection or civil commotion, labor dispute, transportation delay,
governmental regulatory action whether or not with proper authority or other
cause similar or dissimilar to the foregoing and beyond its reasonable control,
provided the party so affected gives prompt notice to the other. In the event of
a suspension of any obligation by reason of this section which extends beyond
ten (10) days, the party not affected may, at its option, elect to cancel those
aspects of this Agreement which are reasonably feasible to terminate, provided
however, that this Paragraph shall only excuse performance by the parties of the
stated obligations on the affected Rental Picture and shall not be a basis to
terminate the overall Agreement unless such suspension or nonperformance relates
to multiple Rental Pictures to the extent that such suspension or nonperformance
renders this Agreement impracticable for the party not affected. Such
cancellation shall be effective thirty (30) days after written notice of such
cancellation has been given to the other party.

If to Blockbuster: Blockbuster Videos, Inc.
1201 Elm Street, 21st Floor
Dallas, Texas 75270
Attn: General Counsel

If to * *

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
16

or such other address as may be designated by either party by written notice to
the other as hereinabove provided.

12.3 ENTIRE AGREEMENT: This Agreement, together with all Exhibits attached
hereto, represents the entire agreement and understanding between the parties
with respect to the subject matter of this Agreement, and supersedes any other
agreement or understanding, written or oral, that the parties hereto may have
had with respect thereto. No statement or inducement with respect to the subject
matter by either party or by any agent or representative of either party which
is not contained in this Agreement shall be valid or binding between the
parties.

12.4 RELATIONSHIP OF PARTIES: The parties are independent contractors, and
nothing in this Agreement shall be deemed or construed to create, or have been
intended to create a partnership, joint venture, employment or agency
relationship between the parties. Each party agrees that it neither has nor will
give the appearance or impression of possessing the legal authority to bind or
to commit any other party in any way except as provided in this Agreement.

12.5 EFFECT OF HEADINGS: The headings and subheadings of the sections of
this Agreement are inserted for convenience of reference only and shall not
control or affect the meaning or construction or any of the agreements, terms,
covenants and conditions of this Agreement in any manner.

12.7 AMENDMENTS: No provision of this Agreement may be modified, waived or
amended except by a written instrument duly executed by each of the parties. Any
such modifications, waivers or amendments shall not require additional
consideration to be effective.

12.8 COUNTERPARTS: This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

12.9 IMPLIED WAIVER: Any failure on the part of either party to insist
upon the performance of this Agreement or any part of this Agreement, shall not
constitute a waiver of any right under this Agreement.

<PAGE>
17

12.10 ASSIGNMENT:

a. By *: * may not assign its rights or delegate its obligations under
this Agreement without Blockbuster's prior written consent, subject to the
following (each, a "Permitted Transfer"): (i) * may assign its rights or
delegate its obligations to (1) an Affiliate or (2) an entity acquiring all or
substantially all of the U.S. videocassette distribution business of *, provided
that such entity obtains or retains substantially the same access to the * trade
names/trademarks and the Home Video Distribution Rights to * "new" (i.e., yet
to-be-released) theatrical releases as * enjoyed immediately prior to the
applicable transfer; and (ii) shall have the right to assign its right to
receive payments hereunder. A "change-of-control" of *, by direct transfer or by
operation of law, shall be considered to result in an assignment of * rights and
a delegation of * obligations under this Agreement; provided, that such
"change-of-control" shall be considered a Permitted Transfer if, following such
"change-of-control," * (or any successor entity) obtains or retains
substantially the same access to the "*" trade names/trademarks and Home Video
Distribution Rights to* "new" theatrical releases as * enjoyed at the time of
entering into this Agreement. In connection with any Permitted Transfer, the
permitted transferee shall assume * obligations hereunder. Any attempted
assignment or other transfer by *, other than a Permitted Transfer, without
Blockbuster's prior written consent shall be null and void.

b. By Blockbuster: Blockbuster may not assign its rights and delegate its
obligations under this Agreement without * prior written consent, subject to the
following (each a "Permitted Transfer"): (i) Blockbuster may assign its rights
or delegate its obligations to (1) an Affiliate or (2) any financially
responsible party, other than a Competing Major Studio (as defined below),
capable of performing all of Blockbuster's obligations under this Agreement,
provided that such assignment is coextensive with an assignment to such
financially responsible party of the video rental business of Blockbuster and
the "Blockbuster" trade names/trademarks. For the purposes of the foregoing, the
following entities shall be deemed to be financially responsible parties: (a) a
publicly traded entity into which or through which the video rental business of
Blockbuster and the "Blockbuster" trade names/trademarks are "spun-off" and
either directly or indirectly owned and (b) any other assignee that has a
Standard & Poor's or Moody's rating which is not less than one rating level
below that assigned to Blockbuster immediately prior to any such assignment. A
"change-of-control" of Blockbuster, by direct transfer or by operation of law,
shall be considered to result in an assignment of Blockbuster's rights and a
delegation of Blockbuster's obligations under this Agreement; provided, that
such "change-of-control," other than one involving a "Competing Major Studio,"
shall be considered a Permitted Transfer if, following such "change-of-control,"
Blockbuster (or any successor entity): (x) directly or indirectly obtains or
retains the video rental business of Blockbuster; (y) retains the rights to use
the "Blockbuster" trade names/trademarks; and (z) is financially responsible and
is capable of performing all of

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
18

Blockbuster's obligations under this Agreement (with any entity that satisfies
clauses (a) or (b) above being deemed to be financially responsible). In
connection with any Permitted Transfer, the permitted transferee shall assume
Blockbuster's obligations hereunder; provided that no such assignment or other
transfer by Blockbuster, other than a Permitted Transfer, without * (prior
written consent shall be null and void. As used herein, a "Competing Major
Studio" shall mean *, or any division or any of the foregoing, or any entity
which controls, is controlled by, or is under common control with any of the
foregoing.

c. "Change of Control":

(i) A "change-of-control" of Blockbuster shall be deemed to have
occurred, if, following the applicable transaction: (A) a person, entity
or group of persons or entities, within the meaning of section 13(d) or
14(d) of the Securities Exchange Act of 1934, or any comparable successor
provisions, other than Viacom, Inc. ("Viacom"), shall, directly or
indirectly, own fifty percent (50%) or more of the equity interests in
Blockbuster; or (B) Viacom shall cease to own, indirectly or indirectly,
at least fifty-one percent (51%) of the equity interests in Blockbuster.

(ii) A "change-of-control" of * shall be deemed to have occurred if,
following the applicable transaction: (A) a person, entity or group of
persons or entities, within the meaning of section 13(d) or 14(d) of the
Securities Exchange Act of 1934, or any comparable successor provisions,
other than *, shall, directly or indirectly, own fifty percent (50%) or
more of the equity interests in *, or (B) * shall each cease to own,
directly or indirectly, at least fifty-one percent (51%) of the equity
interests in *.

12.11 SURVIVAL: All representations, warranties and indemnities made
herein shall survive the termination of this Agreement and shall remain in full
force and effect. All of a party's rights and privileges, to the extent they are
fairly attributable to events or conditions occurring or existing on or prior to
the termination of this Agreement, shall survive termination and shall be
enforceable by such party and its successors and assigns.

12.12 CONFIDENTIALITY: Except as otherwise required by applicable federal
and state securities laws, each party shall keep the information regarding the
details of this Agreement confidential and restrict dissemination to each of its
own personnel and to third parties to only a "need to know" basis, using the
standard of care which each uses to protect its own information from disclosure
during the Term of this Agreement and thereafter. The party disclosing
confidential information to its own personnel and third parties shall require
that these persons be bound by the confidentiality obligations set forth in this
Agreement. In addition to the

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
19

foregoing, * must keep all information provided by Blockbuster in accordance
with this Agreement confidential and any unauthorized disclosure shall be
considered a material breach of this Agreement. Any press release issued by *
must be approved by Blockbuster prior to its release.

12.13 GOVERNING LAW: The substantive laws (as distinguished from the
choice of law rules) of the state of * applicable to contracts shall govern (i)
the validity and interpretation of this Agreement, (ii) the performance by the
parties of their respective obligations hereunder, and (iii) all other causes of
action (whether sounding in contract or in tort) arising out of or relating to
this Agreement or the termination of this Agreement. Only the * will have
jurisdiction over any controversies regarding this Agreement; any action or
other proceeding which involves such a controversy will be brought in these
courts and not elsewhere.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first above
written.

* BLOCKBUSTER VIDEOS, INC.

Name: * Name: Edward B. Stead
-------------------------------------------

Signature: /s/ * Signature: /s/ Edward B. Stead
-------------------------------------------

Title: * Title: EVP
-------------------------------------------

- ----------
* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".

<PAGE>

Exhibit A

Matrix
(See Attached)

BLOCKBUSTER PER STORE UNIT MATRIX

- ---------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment. Two pages have been
omitted from Exhibit A.

<PAGE>

Exhibit B

Accounting Calendar denoting timing of certain events.

<PAGE>

Exhibit C

Electronic Reporting
(See Attached)

- ---------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment. Two pages have been
omitted from Exhibit C.

<PAGE>

Exhibit D

- ---------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment. Two pages have been
omitted from Exhibit D.

<PAGE>

Exhibit E

- ---------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment. Two pages have been
omitted from Exhibit E.

<PAGE>

Exhibit 10.9

* REVENUE SHARING * AGREEMENT

THIS AGREEMENT (the "Agreement") is made the 13th day of October, 1998 (the
"Effective Date").

BETWEEN:

(2) *

WHEREAS:

(A) Blockbuster and certain of its Affiliates (the terms initially capitalized
in this Agreement and not otherwise defined herein shall have the respective
meanings set forth in Paragraph 1 of this Agreement) own, operate and franchise
retail stores which, among other things, rent, sell and market pre-recorded
videocassette tapes to the general public; and

(B) * and certain of its Affiliates acquire, produce, license, market and sell
motion pictures on pre-recorded videocassette tapes;

(C) * and Blockbuster are willing to enter into this Agreement under which
Blockbuster licenses, and has the option to purchase at the end of the Revenue
Sharing Period from *, the specified number of Copies of each Rental Picture set
forth herein;

(D) Blockbuster is willing to report electronically on an ongoing basis during
the Revenue Sharing Period information as to the rental of Copies per Rental
Picture as set forth in Exhibit D, attached hereto and made a part hereof.

<PAGE>
2

1. DEFINITIONS:

a. "Affiliate" shall mean (i) in the case of *, all companies which are
controlled by or in which * has a controlling interest or which have a common
direct or indirect parent; and (ii) in the case of Blockbuster, all companies
which are controlled by or in which Blockbuster has a controlling interest or
which have a common direct or indirect parent.

b. *

c. *

d. "Blockbuster Headquarters" shall mean the corporate office of
Blockbuster located at 1201 Elm Street, Dallas, Texas 75270.

e. "Copy(ies)" shall mean English language and Spanish sub-titled VHS
videocassettes of the Rental Pictures licensed by Blockbuster from * for Home
Video Distribution. All other formats, including laserdisc, digital, divx and
DVD are not included under this Agreement.

f. "Damaged Copies" shall mean those Copies which become materially
damaged by Participating Store personnel, customers, or otherwise, during the
first ninety (90) calendar days of the Revenue Sharing Period.

g. "Defective Copies" shall mean those Copies that are mechanically
defective, mispackaged or contain extraneous material. Such extraneous material
may include, without limitation, pornographic, obscene or scenes of an
inappropriate nature placed on Copies, provided, however, that such extraneous
material shall not include the actual feature motion

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
3

picture content or trailers so long as such content is not altered in any way
and is in compliance with the MPAA rating and the definition of Rental Pictures.

h. "Distribution Center" shall mean Blockbuster's distribution center that
is currently in McKinney, Texas. Blockbuster may add an additional two (2)
delivery points in the United States at its option.

i. *

j. "Franchise Stores" shall mean Blockbuster franchise stores designated
by Blockbuster from time to time as ordering Copies through Blockbuster. If a
Franchise Store elects to participate hereunder and is therefore designated by
Blockbuster pursuant to this Paragraph, it shall be deemed a Participating
Store.

k. *

l. "Home Video Distribution" or "Home Video Distribution Rights" shall
mean the right to manufacture, record, sell and/or distribute a motion picture
on videocassettes.

m. "Month" or "Monthly" shall mean Blockbuster's accounting cycles that
are based upon a four week, four week, five week rotation as set forth in
Exhibit C attached hereto and made a part hereof.

n. "Non-Theatrical Rental Pictures" shall mean each and every
non-theatrical feature motion picture for which * owns or controls Home Video
Distribution Rights in the Territory except for * provided such picture; (1) is
at least seventy (70) minutes in length; (2) is within Blockbuster's guidelines
of the MPAA rating system (i.e., Blockbuster does not make available for rental
to its customers' pictures which are either not rated or which have a rating of
NC17 or more restrictive); (3) is not a sports event, concert film, stage play,
foreign film, (with the exception of foreign produced films in the English
language), documentary, video or theatrical re-release, or library film; and (4)
is initially distributed by * via a medium other than theatrical release (e.g.,
via home video, cable, pay or free television exhibition) which when released on
videocassette is priced and distributed by * at the then current "wholesale
price for rental" now estimated at Fifty-eight Dollars (US$58.00) (as opposed to
a "sell-through price"), and is intended by * to be rented rather than sold to
consumers. If * and a third party execute a direct

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
4

revenue sharing agreement which contains more favorable compensation terms than
the terms of this Agreement (the "New Output Agreement"), then Blockbuster shall
have the option to substitute all, but not less than all, of the terms of the
New Output Agreement for the terms of this Agreement during the remainder of the
Term of this Agreement. Further, * shall exercise practices relating to the
acquisition and distribution of Rental Pictures throughout the Term of this
Agreement substantially similar to those in which it engages at the time of
entering this Agreement, and to the extent such practices deviate, it shall be a
basis for Blockbuster to refuse any Rental Picture.

o. "Participating Store" shall mean (i) any Video Store in the United
States, which at any time during the Term of this Agreement, is wholly owned
and/or operated by Blockbuster or its Affiliates under the Blockbuster
trademarks; (ii) if designated by Blockbuster as ordering Copies through
Blockbuster, any Video Store in the United States, which at any time during the
Term of this Agreement, is wholly owned and/or operated by Blockbuster or its
Affiliates not under the Blockbuster trademarks; and (iii) Franchise Store. With
regard to Blockbuster stores in Canada, it shall mean those stores designated by
Blockbuster or an Affiliate from time to time as ordering Copies through
Blockbuster. For Copy quantity allocation purposes, Kiosks and Video Vending
Machines (the "Special Formats") shall not be included in the definition of
"Participating Stores." Blockbuster will continue to test various Special
Formats and at the time of general adoption by Blockbuster of a Special Format
following completion of a test, the parties shall discuss the results of the
test and mutually develop a matrix to facilitate the license of Copies for such
Special Formats.

p. *

q. "Rental Picture" and "Theatrical Rental Picture" shall mean each and
every feature motion picture for which * owns or controls Home Video
Distribution Rights in the Territory except for *, provided such picture: (1) is
at least seventy (70) minutes in length; (2) is within Blockbuster's guidelines
of the MPAA rating system (i.e., Blockbuster does not make available for rental
to its customers pictures which are either not rated or which have a rating of
NC17 or more restrictive); (3) is not a sports event, concert film, stage play,
foreign film (with the exception of foreign produced films in the English
language), documentary, video or theatrical re-release, or library film; and (4)
is distributed by * when initially released on videocassette, is

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
5

priced and priced by * at the then current "wholesale price for rental" now
estimated at Fifty-eight Dollars (US$58.00) (as opposed to a "sell-through
price"), and is intended by * to be rented rather than sold to consumers. If *
and a third party execute a direct revenue sharing output agreement which
contains more favorable compensation terms than the terms of this Agreement (the
"New Output Agreement"), then Blockbuster shall have the option to substitute
all, but not less than all, of the terms of the New Output Agreement for the
terms of this Agreement during the remainder of the Term of this Agreement.
Further, * shall exercise practices relating to the acquisition and distribution
of Rental Pictures throughout the Term of this Agreement substantially similar
to those in which it engages at the time of entering this Agreement, and to the
extent such practices deviate, it shall be a basis for Blockbuster to refuse any
Rental Picture.

r. *

s. "Rental Transaction" shall mean that period of time that a title is
rented to a customer, including any extended viewing period, as defined by
Blockbuster's then current practices across all videocassettes available for
rental from all videocassettes suppliers.

t. "Revenue Sharing Period" shall mean the period commencing on the Video
Street Date of the relevant Rental Picture and running for the twenty-six (26)
weeks immediately following.

u. "Video Store" shall mean a retail outlet that is at least one thousand
five hundred (1,500) square feet that is primarily engaged in the rental of
videocassettes to the public for home viewing entertainment purposes.

v. "Video Street Date" shall mean, with respect to any Picture, the first
date on which, in the Territory, both: (i) such Picture is authorized by * for
Home Video Distribution, and (ii) Copies of such Picture are actually available
to the general public.

2. AGREEMENT TERM:

The term of this Agreement shall be for * (the "Term"), commencing as of
the Effective Date.

3. TERRITORY:

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
6

The territory for purposes of this Agreement with respect to each Rental
Picture shall be the United States, its territories and possessions, if and to
the extent * owns or controls such rights to territories and possessions of the
United States (the "Territory"). Blockbuster and * agree to discuss the
inclusion of Canada, its provinces, territories and possessions in the Territory
in accordance with the terms and conditions of this Agreement or comparable
terms mutually agreed upon by the parties.

4. BLOCKBUSTER COMMITMENTS:

Beginning as of the date of this Agreement for Participating Stores,
Blockbuster agrees as follows:

a. License: The following terms shall apply to Rental Pictures:

(1) *

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
7

(2) *

(a) *

(1) *

(i) *

(ii) *

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
8

(iii) *

(iv) *

(2) *

(b) *

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
9

(1) *

(i) *

(ii) *

(iii) *

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
10

(iv) *

(2) *

(3) *

b. Participating Franchise Stores: In accordance with the terms and
conditions of this Agreement, Blockbuster may distribute Copies of the Rental
Pictures received under this Agreement to its Franchise Stores. Terms for
implementation of this Agreement at the franchise level and franchise payments
thereunder will be controlled and administered by Blockbuster but shall not be
inconsistent with the terms and conditions of this Agreement. For purposes of
this Agreement if a Franchise Store elects to participate under this Agreement,
such Franchise Store shall be a Participating Store.

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
11

c. *

d. Packing and Shipping: Blockbuster will be responsible for making the
Copies ready for consumer rental at the Distribution Center and will pay for
shipping the Copies from its Distribution Center to its Participating Stores.

e. Damages/Defective Copies: * shall deliver to Blockbuster, at no cost,
additional Copies of each Rental Picture in the amount of * of the Base Buy
Copies as set forth on Exhibit A for Blockbuster to retain at its Distribution
Center and to use solely as replacement of Defective Copies and Damaged Copies;
provided, however, that if any of these Copies are placed in the Participating
Stores, * shall receive its share of the Rental Revenue for the new Copy used

- ----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
12

to replace the Damaged or Defective Copy in place of its share of the Rental
Revenue for the Damaged or Defective Copy.

f. Reporting: On a weekly basis throughout each Rental Picture's
respective Revenue Sharing Period and until such time Revenue Share Copies of
such Rental Picture are purchased pursuant to Paragraph 4.c., Blockbuster shall
electronically (or by any other means mutually agreed to by * and Blockbuster)
deliver to * reports (in a form mutually agreed to by * and Blockbuster)
detailing the number of rental transactions per Rental Picture licensed pursuant
to this Agreement and in a format set forth on Exhibit D.

g. No First Sale: Blockbuster agrees that the license of a Copy of any
Rental Picture and every Non-Theatrical Rental Picture under this Agreement
shall not be deemed a "sale or other transfer of ownership" within the meaning
of Section 106(3) of the Copyright Act, 17 U.S.C. Section 106(3), and shall not
render Blockbuster an "owner" of the Copy of that Theatrical Rental Picture or
Non-Theatrical Rental Picture within the meaning of the Section 109(a) of the
Copyright Act, 17 U.S.C. Section 109(a). Blockbuster expressly agrees that as
license it has no right to "sell or otherwise dispose of the possession of any
Copy of any Rental Picture and every Non-Theatrical Rental Picture except as
expressly provided in this Agreement.

5. * COMMITMENTS:

a. Grant: * grants Blockbuster the right to distribute the Copies of the
Rental Pictures to Participating Stores or Blockbuster owned alternative
distribution channels including, without limitation, video vending machines, for
the transfer of possession on a temporary or permanent basis to members of the
general public for home viewing purposes.

b . Marketing Support: In consideration for the various services and
activities which Blockbuster has agreed to perform hereunder for the benefit of
*, such as rental reporting functions, * agrees to credit Blockbuster on a per
Rental Picture basis (on the relevant invoice) with marketing support funds (the
"Marketing Support Funds") in a minimum amount of * of the fixed revenue
generated for * on the Base number of Copies by Theatrical Rental Pictures
(i.e., * x base number of Copies for those with * or greater x * x base number
of Copies for those with Gross Box Office of less than * Marketing Support
Funds) on * per respective Copy. * of the Marketing Support Funds shall be
utilized by Blockbuster at its discretion for title specific promotion of a
particular Rental Picture and advertising the availability or association of
such Rental Picture with Blockbuster (with a * right of consultation) while the
remaining * shall be utilized by * at its discretion (with a Blockbuster right
of consultation) for title specific promotion of particular Rental Pictures
featuring Blockbuster's trademarks and logos in any such

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
13

advertisement where applicable (the "Advertisement"). All Advertisements and
marketing materials shall be submitted to the respective party at least fifteen
(15) days prior to broadcast or publication for written approval. If such party
fails to respond within the fifteen (15) days such submission shall be deemed
approved. Both parties shall attempt to work within the allotted time period for
the approval process, provided, however, that if such time period becomes
unreasonable for either Blockbuster or *, the parties shall discuss and extend,
if desired, the time period. In certain instances, based on written
communication of specific shorter deadlines, all reasonable efforts will be made
to meet these shorter deadlines. Each party shall promptly provide the other
with written documentation that funds have been spent in accordance with the
terms of this Paragraph.

c. Shipping: * will deliver the Copies to the Distribution Center at least
three (3) weeks prior to Video Street Date and will make a good faith effort to
deliver the Copies up to four (4) weeks prior to Video Street Date per each
respective Rental Picture as long as Blockbuster submits its order by the stated
deadline reasonably provided by *, provided, however, that consistent failure by
* to deliver the Copies within the specified time period will be considered a
material breach of this Agreement.

6. AUDIT:

a. Audit. During the Term and continuing until the date six (6) months
following the date of expiration or earlier termination of this Agreement,
Blockbuster agrees that * or * authorized designee with three (3) business days
advance written notice, may conduct, during normal business hours, Monday
through Wednesday; (i) a total of four (4) audits per year of Blockbuster's
business operation and records at the Blockbuster Headquarters; and (ii) a total
of ten (10) audits per year of the business records at a Participating Store
(i.e., ten (10) total audits and not ten (10) audits per Participating Store),
solely pertaining to the Copies licensed by Blockbuster pursuant to this
Agreement. Any additional audit request of information not provided for above
including, without limitation, any audit of Bad Debt or Promotional and
Operational Credits shall be performed by an independent certified public
accountant on an annual basis who will only be given access to those records
pertaining to * Revenue Share Copies. Any audits conducted pursuant to this
section shall relate to Blockbuster's compliance with the terms of this
Agreement and shall not unreasonably interfere with Blockbuster's daily business
operations. * agrees that the data and other information collected by * may be
used by * only in connection with such audits and to fulfill * commitments under
this Agreement. Blockbuster agrees to reimburse * for actual costs incurred if
any audit results in deviation of five percent (5%) or more between the
percentage of Rental Revenue paid to * by Blockbuster and the percentage of
Rental Revenue due to * by Blockbuster.

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under an application for confidential treatment.

<PAGE>
14

b. Rentrak/SuperComm: Blockbuster shall provide a daily transaction file
in standard Blockbuster format for each Rental Picture to the entity designated
by *, which shall be either Rentrak or SuperComm, to allow Rentrak or SuperComm,
as the case may be, to account for revenues due to * pursuant to the terms of
this Agreement.

7. * REPRESENTATIONS AND WARRANTIES:

* represents and warrants that:

a. It is a corporation organized and existing under the laws of the * with
its principal place of business in the *.

b. The undersigned has the full right, power and authority to sign this
Agreement on behalf of *.

c. The execution, delivery and performance of this Agreement does not and
will not, violate any provisions of * articles or certificates of incorporation
and bylaws, or any contract or other agreements to which * is a party.

d. There is no broker, finder or intermediary involved in connection with
the negotiations and discussions incident to the execution of this Agreement,
and no broker, finder, agent or intermediary who might be entitled to a fee,
commissions or any other payment upon the consummation of the transactions
contemplated by this Agreement.

e. This Agreement has been duly executed and delivered and constitutes the
legal, valid and binding obligation of * enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or any other laws now or hereinafter in effect and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.

f. Copies shall be new and unused and comparable in quality to other
videocassette units being purchased by * in rental distribution channels.

8. BLOCKBUSTER'S REPRESENTATIONS AND WARRANTIES:

Blockbuster represents and warrants that:

a. It is a corporation organized and existing under the laws of the State
of Delaware, with its principal place of business in the State of Texas.

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
15

b. The undersigned has the full right, power and authority to sign this
Agreement on behalf of Blockbuster.

c. The execution, delivery and performance of this Agreement does not and
will not, violate any provisions of Blockbuster's articles or certificates of
incorporation and bylaws, or any contract or other agreement to which
Blockbuster is a party.

d. There is no broker, finder or intermediary involved in connection with
the negotiations and discussions incident to the execution of this Agreement,
and no broker, finder, agent or intermediary who might be entitled to a fee,
commissions or any other payment upon the consummation of the transactions
contemplated by this Agreement.

e. This Agreement has been duly executed and delivered and constitutes the
legal, valid and binding obligation of Blockbuster enforceable in accordance
with its terms, except as enforceability may be limited to bankruptcy,
insolvency, reorganization, moratorium or any other laws now or hereinafter in
effect and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.

9. INDEMNIFICATION:

(ii) Blockbuster agrees to, at all times, defend, indemnify and hold *,
its parent company, their affiliates, subsidiaries, franchisees and the
officers, directors, agents and employees of each, harmless from and
against any Loss, arising out of or based on (a) a material breach or
violation of this Agreement by Blockbuster any failure by Blockbuster to
perform any of the agreements, terms, covenants, conditions,
representations or

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
16

warranties of this Agreement to be performed by Blockbuster, or (b)
negligent acts or omissions by Blockbuster, its employees and/or agents.

(iii) The Indemnified Party shall give written notice to the Indemnifying
Party and the Indemnifying Party will promptly, at the Indemnified Party's
request, assume and diligently conduct the entire defense of any suit or
action, or the making of any claim as to which indemnity may be sought
hereunder, including settlements and appeals, at the Indemnifying Party's
sole cost and expense, and the Indemnifying Party shall pay and discharge
any and all settlement amounts, judgments or decrees which may be
rendered.

(iv) The Indemnifying Entity shall not, except with the consent of the
Indemnified Party, consent to entry of any judgment or administrative
order or enter into any settlement that (i) could affect the intellectual
property rights or other business interest of the Indemnified Party; or
(ii) does not include as an unconditional term thereof the giving by the
claimant or plaintiff by the Indemnified Party of a release from all
liability with respect to such claim or litigation.

(v) In the event that the Indemnifying Party is not asked or does not
accept the defense of any matter as above provided, the Indemnified Party
shall have the full right to defend against any such claim or demand, and
shall be entitled to settle or agree to pay in full such claim of demand,
in its sole discretion without releasing any obligation or liability of
the Indemnifying Party.

10. TERMINATION:

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under an application for confidential treatment.

<PAGE>
17

waives its right to seek equitable relief including, without limitation, seeking
injunctive relief. Upon Default and/or termination hereunder, any Copies in
Blockbuster's possession at time of termination shall continue to be licensed
under the terms of this Agreement until such Copies are returned to * or
purchased by Blockbuster.

11. REMEDIES:

b. Except as provided herein, no civil action with respect to any dispute,
claim or controversy arising out of or relating to this Agreement may be
commenced until:

(i) The parties attempt in good faith to resolve through negotiation
any dispute, claim or controversy arising out of or relating to this
Agreement. Either party may initiate negotiations by sending written
notice in letter form to the other party, setting forth the subject of the
dispute and the relief requested. The recipient of such notice will
respond in writing within five (5) business days with a statement of its
position on and recommend a solution to the dispute. If the dispute is not
resolved by this exchange of correspondence then representatives of each
part with full settlement authority will meet at a mutual agreeable time
and place within ten (10) business days of the date of the initial notice
in order to exchange relevant information and perspectives, and to attempt
to resolve the dispute. If the dispute is not resolved by these
negotiations, the matter will be submitted to J.A.M.S/ENDISPUTE, or its
successor, for binding arbitration; and

(ii) If the parties are unable to resolve the dispute, claim or
controversy arising out of or relating to this Agreement pursuant to the
above subparagraph b., such dispute, claim or controversy shall be
submitted to final and binding arbitration before J.A.M.S/ENDISPUTE, or
its successor, pursuant to the United States Arbitration Act, 9 U.S.C.
Sec. 1 et seq. Either party may commence the arbitration process called
for in this Agreement by filing a written demand for arbitration with
J.A.M.S/ENDISPUTE, with a copy to the other party. The arbitration will be
conducted in accordance with the provisions of J.A.M.S/ENDISPUTE's
Streamlined Arbitration Rules and Procedures in

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
18

effect at the time of filing of the demand for arbitration. The parties
will cooperate with J.A.M.S/ENDISPUTE and with one another in selecting an
arbitrator from J.A.M.S/ENDISPUTE's panel of neutrals, and in scheduling
the arbitration proceedings. The parties covenant that they will
participate in the arbitration in good faith, and that they will share
equally in its costs. The provisions of this Paragraph may be enforced by
any court of competent jurisdiction, and the party seeking enforcement
shall be entitled to an award of all costs, fees and expenses, including
attorneys fees, to be paid by the party against whom enforcement is
ordered.

12. MISCELLANEOUS:

12.1 FORCE MAJEURE: Neither party shall be considered in default of this
Agreement or be liable for damage for any failure of performance hereunder
occasioned by an act of God, force of nature, war or warlike activity,
insurrection or civil commotion, labor dispute, lock out (whether or not such is
under the parties' control, transportation delay, governmental regulatory action
whether or not with proper authority or other cause similar or dissimilar to the
foregoing and beyond its reasonable control, provided the party so affected
gives prompt notice to the other. In the event of a suspension of any obligation
by reason of this section which extends beyond ten (10) days, the party not
affected may, at its option, elect to cancel those aspects of this Agreement
which are reasonably feasible to terminate. Such cancellation shall be effective
thirty (30) days after written notice of such cancellation has been given to the
other party.

12.2 NOTICE: Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given and received on the date
of delivery or on the third (3rd) business day following the date of mailing of
the same, or on the day of transmission by telecopier or other form of recorded
communication service of the same, as the case may be to the party to be
notified at the addresses set forth below:

If to Blockbuster: Blockbuster Inc.
1201 Elm Street, 21st Floor
Dallas, Texas 75270
Attn: General Counsel
Facsimile: (214) 854-3677
cc: Chief Executive Officer

If to *: *

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under an application for confidential treatment.

<PAGE>
19

with a copy to: *

or such other address as may be designated by either party by written notice to
the other as hereinabove provided.

12.6 CONSTRUCTION: The Agreement has been fully reviewed and negotiated by
the parties and their respective legal counsel. Accordingly, in interpreting
this Agreement, no weight shall be placed upon which party or its counsel
drafted the provision being interpreted.

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
20

12.9 COUNTERPARTS: This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

12.11 ASSIGNMENT: Neither party may assign its rights or delegate its
obligations under this Agreement without the other party's prior written
consent, subject to the following: (i) as to *, * may assign its rights or
delegate its obligations under this Agreement to an Affiliate, provided that
such entity obtains or retains substantially the same access to the trade
names/trademarks of * and the Home Video Distribution Rights to * "new" (i.e.,
yet-to-be-released) theatrical releases as * enjoyed immediately prior to the
applicable transfer; and (ii) * shall have the right to assign its right to
receive payments to any entity hereunder; and (ii) as to Blockbuster,
Blockbuster may assign its rights or delegate its obligations under this
Agreement, to an Affiliate, provided that such assignment is coextensive with an
assignment of all or substantially all the video rental business of Blockbuster.

12.12 SURVIVAL: All representations, warranties and indemnities made
herein shall survive the termination of this Agreement and shall remain in full
force and effect for a period of two (2) years. All of the party's rights and
privileges, to the extent they are fairly attributable to events or conditions
occurring or existing on or prior to the termination of this Agreement, shall
survive termination and shall be enforceable by such party and its successors
and assigns.

12.13 CONFIDENTIALITY: Except as otherwise required by applicable federal
and state laws, or as may be required for the preparation of tax returns or
other legally required documents or as reasonably necessary to the employees,
agents, lawyers, accountants, or auditors of either party, or in any action to
enforce the provisions hereof, each party shall keep the information regarding
the details of this Agreement confidential and restrict dissemination to each of
its own personnel and to third parties to only a "need to know" basis, using the
standard of care which each uses to protect its own information from disclosure
thereafter. The party disclosing confidential information to its own personnel
and third parties shall require that these persons be bound by the
confidentiality obligations set forth in this Agreement. In addition to the
foregoing, the parties must keep all information provided by each other in
accordance with this

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
21

Agreement confidential and any unauthorized disclosure shall be considered a
material breach of this Agreement. Any press release issued hereunder by either
party must be approved in writing by the other party prior to its release.

12.14 GOVERNING LAW: This Agreement shall be constructed in accordance
with the laws of the * without regard to its rules on conflicts of law.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date and year first above
written.

* BLOCKBUSTER INC.

Name: * Name: Edward B. Stead
--------------------------------
Signature: /s/ * Signature: /s/ Edward B. Stead
---------------------------
Title: * Title: EVP
-------------------------------

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* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".

<PAGE>

Exhibit A

Blockbuster Direct Revenue Sharing Matrix

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment. Two pages have been
omitted from Exhibit A.

<PAGE>

Exhibit B

Spanish Sub-titled Matrix to be negotiated and inserted at a later date.

<PAGE>

Exhibit C

Accounting calendar denoting timing of certain events.

<PAGE>

Exhibit D

Electronic Reporting Format

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* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".

<PAGE>

Exhibit 10.10

January 20, 1999

Mr. Dean Wilson
Executive Vice President
General Merchandising Manager
Blockbuster Inc.
1201 Elm Street
Dallas, TX 75270

RE: VHS REVENUE SHARING * AGREEMENT

Dear Dean:

The following (the "Letter Agreement") sets forth the terms of the license
agreement (the "License") between * and Blockbuster Inc. ("Blockbuster") for
revenue sharing on * Rental Picture output.

1. TERM: * year period commencing upon the "Street Date" of the first "Rental
Picture" (as such terms are defined below) released by * on or after March
1, 1999.

2. TERRITORY: United States only; provided, however, Blockbuster shall have
the option to enter into an agreement with * (Canada) on substantially the
same terms and conditions, and for a term coextensive with the Term
hereof, upon one hundred and eighty (180) days prior written notice to *.

3. DEFINITIONS AND CALCULATIONS:

a. *

(i) *

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* Pages where confidential treatment has been requested are stamped
"Confidential material omitted and separately filed with the Commission
under an application for confidential treatment", and the confidential
section has been marked with a star (*).

<PAGE>

(A) *

(B) *

(D) *

(E) *

(F) *

(ii) *

b. *

c. *

d. "Guarantee Program" shall mean the program under which Blockbuster
nationally advertises a money-back guarantee or free rental to
consumers if videocassettes of certain titles are not available for
rental from the Stores or another comparable program.

e. *

f. "Month" shall be defined as set forth on Exhibit 3(e) attached
hereto and by this reference made a part hereof.

g. "Picture Term" means for each Rental Picture the first 26 weeks of
rental release beginning with Street Date.

h. "Rental Picture" means each and every new release on videocassette
of a feature motion picture for which * owns or controls home video
distribution rights in the Territory (subject to any and all
approvals required by any third party) of not

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

2
<PAGE>

fewer than seventy (70) minutes in length, priced for rental in the
retail market; provided, however, the following shall be
specifically excluded from Rental Pictures: (i) * distributed lines
(unless and until the terms of this Letter Agreement are accepted
and agreed by any such distributed line), (ii) product controlled by
third parties who do not approve of the terms hereof and (iii)
videocassettes of sports events, concert footage, stage plays,
documentaries, video or theatrical re-releases, foreign language
titles or product rated NC-17 or more restrictive by the MPAA, or
library titles.

i. *

(i) *

(ii) *

(iii) "Taxes" shall mean any and all sales, excise, value added or
other taxes which meet the following qualifications: (A) the
taxes are separately stated, (B) the taxes are required by law
to be collected from Blockbuster's customers, and (C) the
taxes are actually paid by Blockbuster to taxing authorities.

j. "Stores" shall mean (i) all Blockbuster-owned rental retail stores,
(ii) any and all Blockbuster franchises that elect to participate
in, and comply with, the obligations set forth under this Letter
Agreement and any other obligations that Blockbuster may impose to
administer the terms hereof with respect to any such franchisees,
and (iii) Blockbuster-owned alternative direct-to-consumer VHS
rental distribution systems by which Blockbuster rents VHS
videocassettes to consumers for home use and/or sells PVTs to
consumers via internet, vending machines and/or kiosks
(collectively, "Alternative Distribution Systems"). * All
franchisees that participate shall be treated as Blockbuster Stores
for the purposes of this Letter Agreement, and the actual rental
transactions of such franchisees on Measurement Titles shall be
included in Blockbuster's total rental transactions. In the event
that there is insufficient historical data, the parties shall use
good faith efforts to agree on estimated rental transactions for
such franchisees. "Stores" shall specifically exclude any new store
or stores owned or controlled by Blockbuster operating under any
name other than Blockbuster. The parties agree

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

3
<PAGE>

that with respect to stores and/or chains of stores acquired by
Blockbuster during the Term, such stores shall be eligible to assume
the rights and obligations set forth hereunder provided Blockbuster
shall report for such new stores through its existing established
reporting mechanism, and, any existing revenue sharing agreement of
any such store with * shall terminate. Upon the addition or
acquisition of stores, Blockbuster shall notify * immediately in
writing, and the parties shall begin good faith discussions to
immediately increase the number of Base Units to reflect such store
acquisitions and/or additions.

k. "Street Date" means the first day retailers are permitted by * to
make a title available for rental to consumers.

4. LICENSED RIGHTS:

a. Homevideo Distribution License: * licenses to Blockbuster on a
limited and non-exclusive basis homevideo distribution rights to all
Rental Pictures in the VHS format for rental (i) only to consumers
for home use and (ii) only from Stores in the Territory during the
Term, subject to the terms hereunder.

b. Reservation of Title: Legal title to, and risk of loss of, the
Licensed Units hereunder shall remain vested in *, subject to
disposition of PVTs pursuant to Paragraph 8 below. Blockbuster shall
not permit any encumbrance to attach to any Licensed Units delivered
pursuant to this Letter Agreement.

5. *

a. *

(i) *

(ii) *

b. *

c. *

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

4
<PAGE>

6. *

a. *

b. *

c. *

7. STATEMENTS AND PAYMENTS:

a. Statements: On a Monthly basis, * Blockbuster shall provide to *, in
the formats reasonably requested and as periodically amended by *, a
statement (the "Statement") which reflects the rental and related
activities for such Month, *.

b. Payments: For each Rental Picture, to the extent any amounts are due
pursuant to the Statements, Blockbuster shall wire transfer such
amounts to an account designated by * no later than *.

8. DISPOSITION OF PREVIOUSLY VIEWED TAPES:

a. Sale: For each Rental Picture, * may direct Blockbuster, as its
licensee, to sell previously viewed tapes ("PVTs") to consumers
pursuant to the following conditions:

(i) *

(ii) *

(iii) *

(A) *

(B) *

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

5
<PAGE>

(iv) No Revenue Share: There shall be no revenue sharing between
Blockbuster and * with respect to the proceeds from sales of
PVTs by Blockbuster *.

(v) *

(vi) In the event * changes its current practice with respect to
directing Blockbuster to sell PVTs consistent with
Subparagraphs (i)-(v) of 8.a. above ("Redirection"), the
parties shall in good faith review and reduce * Revenue Share
effective with any Redirection, if necessary, to provide for
the sharing on a pre-established * basis of revenues generated
by Blockbuster under this Letter Agreement in excess of the
revenues Blockbuster would have earned prior to the parties'
revenue sharing relationship. The calculation of * Revenue
Share shall be based on historical data relating to revenues
generated from the Rental Pictures during the prior year and
shall be subject to audit. The Minimum Share shall be adjusted
on a pro rata basis to reflect any new * Revenue Share
percentage.

b. Other Disposition:

(i) *

(A) *

(B) *

(ii) *

c. *

9. PLACEMENT OF LICENSED UNITS: Blockbuster shall place all licensed Units of
each Rental Picture licensed hereunder (except those units out for rental
by consumers) on prominent "new release" display walls or another agreed
equivalent in-store location

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under an application for confidential treatment.

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<PAGE>

for not fewer than * after Street Date, subject to prior sale pursuant to
the terms of Paragraph 8.a. above.

10. ADVERTISING SUPPORT: * shall provide advertising support to Blockbuster
for Base Units only, consistent with current practices, provided, however,
in the event that any two (2) other major motion picture studios (e.g., *)
(each, a "Major Studio") offer substantially different advertising support
that results in a material change in the video industry, * shall have the
option to modify its advertising support accordingly with respect to the
Rental Pictures hereunder. In such event, Blockbuster shall have the
option to modify the Base Units calculation, provided that, in the event
that Blockbuster modifies the calculation to decrease the Base Units by *
or more, * shall have the option immediately to terminate this Letter
Agreement.

11. DELIVERY: *, at its cost, shall use its reasonable good faith efforts to
deliver product to Blockbuster's distribution center in McKinney, Texas
four (4) weeks prior to Street Date for each Rental Picture. The parties
agree that for each Rental Picture, Blockbuster may retain up to * of the
Base Units at its distribution center for replenishment of defectives (the
"Replenishment Units"), new stores, and unexpected spikes in product
performance. To the extent the Replenishment Units are still in the
distribution center at the end of the applicable Picture Term for each
Rental Picture, such Replenishment Units shall be subject to disposition
pursuant to the terms of Paragraph 8.b. above.

12. INFORMATION TO BE PROVIDED BY BLOCKBUSTER: To the extent reasonably
available to Blockbuster and with respect to * product only, Blockbuster
agrees to provide the following information to * at Blockbuster's expense:

a. Revenue Share Reporting: On a bi-weekly basis, Blockbuster shall
deliver to * reports detailing the number of rental transactions and
gross revenues per Rental Picture for all *-distributed labels
subject to this Letter Agreement.

b. Other Information: Blockbuster and * shall mutually agree on other
information to be provided to * for all *-distributed labels subject
to this Letter Agreement.

13. SHARING OF COSTS: * shall reimburse Blockbuster for a portion of its
reasonable, out-of-pocket, third party costs for the following: (i) making
the Bonus Units rental-

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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

7
<PAGE>

ready; (ii) shipping the Bonus Units to the Stores; and (iii) purchasing
Amaray boxes for the Bonus Units. Such reimbursement amount shall be * for
each Bonus Unit.

14. AUDIT RIGHTS: Upon not less than fourteen (14) days advance written
notice to Blockbuster, *, or its representatives or designees, shall have
the right during normal business hours, but not more than two (2) times
during each calendar year of the Term and one (1) time after the
expiration or earlier termination of the Term, to inspect, audit and make
extracts of the books and records of Blockbuster insofar as said books and
records relate to the calculation or determination by Blockbuster of (a)
Revenue, (b) * Revenue Share, (c) Credit, (d) Bad Debt, and (e) the rights
licensed hereunder as they relate to *; provided, however, * shall have
the right to conduct store audits as reasonably required throughout the
Term. Such rights of audit shall continue for a period of two (2) years
following the expiration of all Picture Terms as provided for under this
Letter Agreement. The parties agree that Blockbuster shall have the right
reasonably to approve independent auditors hired by * to conduct an audit,
provided that the internal auditors of * and/or * and the accounting firm
of * or * then existing auditors shall be deemed pre-approved for any and
all audits conducted pursuant hereto. Notwithstanding the foregoing, the
parties agree that no * or * employees shall have direct or indirect
access to Blockbuster's information relating to * competitors or
Blockbuster's aggregate market data; provided, however, * auditors shall
have the right to review Blockbuster's aggregate market data subject to
executing a confidentiality agreement.

15. CONFIDENTIALITY: Each of * and Blockbuster acknowledges that all
information and data (including, without limitation, rental and revenue
forecasts, projections and estimates and actual results, in whatever form
or medium) (collectively, the "Confidential Information") provided by each
party to the other under this Letter Agreement is highly proprietary and
confidential. Each of * and Blockbuster agrees that it shall not use
(other than in (a) connection with the performance of its obligations
under this Letter Agreement, or (b) the exercise of its rights, under this
Letter Agreement, or (c) as required by law, but only to the extent the
law so requires, or (d) unless compelled by subpoena or court order) or
disclose to any person (other than its officers, employees, agents,
representatives, licensors and participants on a need-to-know basis only
and who agree to be bound by the confidentiality obligations hereunder)
any such Confidential Information. * This Paragraph 15 shall survive
expiration or earlier termination of this Letter Agreement.

- ----------------------
* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".

8
<PAGE>

16. INDEMNIFICATION:

a. Indemnification by Blockbuster: Except as otherwise provided in
Paragraph 16.b. below, Blockbuster shall defend, indemnify and hold
*, its parent company, their affiliates and subsidiaries, and the
officers, directors, agents and employees of each, free and harmless
from all suits, claims, demands and other liabilities and expenses
(including reasonable attorneys' fees) (each, a "Claim") which may
arise directly or indirectly out of or by reason of (i) the
unauthorized use by Blockbuster of any patented invention, or of any
copyrighted material provided by *, (ii) a Claim from a customer
arising out of Blockbuster's rental or retail practices or course of
dealing with respect to such customer, and/or (iii) a breach or
violation of this Letter Agreement by Blockbuster.

b. Indemnification by *: Except as otherwise provided in Paragraph
16.a. above, * shall defend, indemnify and hold Blockbuster, its
parent company, their affiliates, subsidiaries, and franchisees, and
the officers, directors, agents, and employees of each, free and
harmless from all Claims (including reasonable attorneys' fees)
which may arise directly or indirectly out of or by reason of (i)
copyright infringement by, or other third party Claim against, *
with respect to the content of any Rental Picture, provided such
Claim or infringement is not the result of the negligence of
Blockbuster or any employee or agent of Blockbuster, (ii) a physical
defect in any Licensed Unit provided to Blockbuster hereunder by *,
provided such defect was not caused by the negligence of Blockbuster
or any employee or agent of Blockbuster, and/or (iii) a breach or
violation of this Letter Agreement by *.

17. REMEDIES: Each of * and Blockbuster acknowledge and agree that a material
breach by either party of any of its obligations under this Letter
Agreement, gives the other party the right to terminate this Letter
Agreement upon * prior written notice. Blockbuster waives any rights to
seek injunctive relief with respect to the sale, license and/or other
distribution of any Rental Picture, provided that Blockbuster does not
waive any right it may have to seek specific performance under this Letter
Agreement with respect to any Rental Picture being distributed by *. The
termination of this Letter Agreement shall not relieve the parties of any
obligations incurred prior to such termination.

- ----------------------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

9
<PAGE>

18. DEFECTIVES: The parties agree that there shall be no replacements of, or
credits or set-offs against the Initial Payment, overages, or any other
amounts owed to * by Blockbuster for, defective Licensed Units. For each
Rental Picture, to the extent defectives exceed * of the total number of
Licensed Units delivered to Blockbuster during the first thirty (30) days
after Street Date, Blockbuster may exchange defectives for new videos from
* to be delivered within a reasonable time thereafter, which reasonable
time shall be within seventy-two (72) hours, provided that Blockbuster
utilizes * eight hundred (800) number defective replacement system.

19. MISCELLANEOUS:

a. Amendment and Waiver: Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Letter
Agreement shall be effective against any party unless such
modification, amendment or waiver is approved in writing by
Blockbuster and *. The failure of any party to enforce any of the
provisions of this Letter Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Letter
Agreement in accordance with its terms.

b. Severability: Whenever possible, each provision of this Letter
Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Letter
Agreement is held to be invalid, illegal or unenforceable in any
respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any
other provision or any other jurisdiction, but this Letter Agreement
shall be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been
contained herein.

c. Entire Agreement: Except as otherwise expressly set forth herein,
this document embodies the complete agreement and understanding
between the parties hereto with respect to the subject matter hereof
and supersedes and preempts any prior understandings, agreements or
representations by or between the parties, written or oral, which
may have related to the subject matter hereof in any way.

d. Assignment:

- ----------------------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

10
<PAGE>

(i) Blockbuster Assignment: This Letter Agreement shall not be
assigned by Blockbuster without the prior written consent of
*, except (a) to any corporation or entity with which
Blockbuster is merged or consolidated, or (b) to any
corporation or entity which succeeds to all or substantially
all of Blockbuster's assets, or (c) to any corporation or
entity which controls, is controlled by, or under common
control with Blockbuster. All the foregoing exceptions shall
be subject to (1) written notice to * on or before assignment,
(2) Paragraph 3.i. above with respect to non-Blockbuster
stores, (3) *.

(ii) *Assignment: This Letter Agreement shall not be assigned by *
without the prior written consent of Blockbuster, except (a)
to any corporation or entity with which * is merged or
consolidated, or (b) to any corporation or entity which
succeeds to all or substantially all of * assets, or (c) to
any corporation or entity which controls, is controlled by, or
under common control with * (in each instance, an "Excluded
Assignment"); provided, however, the assignee continues to
distribute the Rental Pictures under the * or similar name and
logo. To the extent a non-Excluded Assignment by * results in
a material change in the mix of Rental Pictures or a material
decrease in the number of Rental Pictures, Blockbuster shall
have the option to terminate this Letter Agreement upon
written notice to *.

(iii) Purchase of Blockbuster by a Major Studio or Retailer:

(A) Purchase By Major Studio: In the event a Major Studio
enters into an agreement to acquire Blockbuster, * shall
be given prompt notice of such agreement and shall have
the option to terminate this Letter Agreement
immediately upon written notice to Blockbuster. Promptly
following such notice of acquisition agreement,
Blockbuster, in consultation with *, shall undertake to
provide adequate assurance in writing to * that
proprietary and confidential information of * shall not
be disclosed to, or otherwise made accessible to, the
management or other employees of such Major Studio
following such acquisition. As used in this Paragraph
19.d.(iii) (A), the term "Major Studio" shall (i) also
include, without limitation, (x) * and (y) the
respective affiliated

- ----------------------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

11
<PAGE>

corporations which control, are controlled by, or are
under common control with, each Major Studio and (ii)
exclude Viacom and the affiliated corporations which
control, are controlled by, or are under common control
with Viacom. The term "control" shall refer to the
ownership of at least fifty percent (50%) of the
outstanding voting power of the corporation or entity
which is subject to such "control".

(B) Purchase By/of Retailer: In the event a retailer enters
into an agreement to acquire Blockbuster or Blockbuster
enters into an agreement to acquire a retailer, * and
Blockbuster agree that in such event, the terms of this
Letter Agreement shall apply only (i) to already
existing Blockbuster stores and (ii) to any new stores
which operate under the Blockbuster name at the retail
level, and/or to the extent such new stores are capable
of reporting through Blockbuster's established reporting
mechanism.

(C) Definition of "Purchase": For purposes of this
Subparagraph 19.d.(iii) the term "Purchase" shall
include acquisition, merger and/or other consolidation.

e. Counterparts. This Letter Agreement may be executed in separate
counterparts each of which shall be an original and all of which
taken together shall constitute one and the same agreement.

f. Due Authorization. Each of * and Blockbuster represents and warrants
that the officer executing this Letter Agreement has been duly
authorized and that this Letter Agreement when executed and
delivered shall be valid and binding and enforceable in accordance
with its terms.

g. Notices. All notices provided for in this Letter Agreement shall be
in writing and shall be either personally delivered, or mailed first
class mail (postage prepaid) or sent by reputable overnight courier
service (charges prepaid) to the parties at the following address:

If to Blockbuster:

- ----------------------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

12
<PAGE>

Blockbuster Inc.
1201 Elm Street
Dallas, TX 75270
Attention: Dean Wilson, Executive Vice President
General Merchandising Manager
Ed Stead, Executive Vice President and General Counsel

If to *

h. Governing Law. This Letter Agreement and all matters or issues
material thereto shall be governed by the laws of the *, applicable
to contracts performed entirely therein. * and Blockbuster hereby
agree that all actions, proceedings or litigation relating to this
Letter Agreement shall be instituted and prosecuted solely within
the * and each party hereby consents to the jurisdiction of the *
and the * with respect to any matter arising out of or relating to
this Letter Agreement.

i. Descriptive Headings. The descriptive headings of this Letter
Agreement are inserted for convenience only and do not constitute a
part of this Letter Agreement.

j. Relationship of Parties. Nothing contained herein shall constitute a
partnership, joint venture, association or principal and agent
relationship or be construed to evidence the intention of the
parties to constitute such. Blockbuster and * are independent
contractors and neither has any authority to act on the other's
behalf or to bind the other in any way.

k. Force Majeure. Whenever performance by any party of its obligations
under this Letter Agreement, other than any of Blockbuster's payment
obligations hereunder, is substantially prevented by reason of any
act of God, strike, lock-out, or other industrial or
transportational disturbance, fire, lack of materials, law,
regulation or ordinance, war or war conditions, or by reason of any
other matter beyond such party's reasonable control, then such
performance shall be excused and this Letter Agreement shall be
deemed suspended during the continuation of such

- ----------------------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

13
<PAGE>

prevention, and the term shall be extended for a period equal to the
time of such suspension.

l. Third Parties. None of the provisions of this Letter Agreement is
intended for the benefit of or shall be enforceable by any third
party including creditors of Blockbuster or *.

In WITNESS WHEREOF, this Letter Agreement was executed by the parties on the
date first written above.

BLOCKBUSTER INC. ("Blockbuster") *

By: /s/ Edward B. Stead By: /s/ *
----------------------------- -------------------------------

Its: EVP Its: *
----------------------------- -------------------------------

- ----------------------
* "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".

<PAGE>

Exhibit 3(a)(i)

BLOCKBUSTER REVENUE SHARE AGREEMENT EXHIBIT

- ----------------------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>

Exhibit 3(a)(i)(B)

BLOCKBUSTER REVENUE SHARE AGREEMENT EXHIBIT

- ----------------------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>

Exhibit 3(a)(i)(F)

- ----------------------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>

Exhibit 3(b)

- ----------------------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>

January 20, 1999

Mr. Dean Wilson
Senior Vice President
General Merchandising Manager
Blockbuster, Inc.
1201 Elm Street
Dallas, TX 75270

RE: VHS REVENUE SHARING * AGREEMENT - *

Dear Mr. Wilson:

Reference is hereby made to that certain Revenue Sharing * Agreement (the
"Agreement") dated January 20, 1999 by and between * and Blockbuster Inc.
("Blockbuster") for VHS revenue sharing on *'s Rental Picture output.
Capitalized terms used herein and not otherwise defined shall have the same
meaning as in the Agreement.

Pursuant to Paragraph 3 of the Agreement, the parties agree that the term
"Rental Pictures" shall include all * titles distributed by *, subject to the
exclusions set forth in Paragraph 3.h. of the Agreement.

Except as otherwise modified herein, all other terms and conditions of the
agreement are hereby ratified and shall remain in full force and effect.

- ----------------------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>

IN WITNESS WHEREOF, this letter agreement was executed by the parties on the
date first written above.

By: /s/ *
-----------------------

Its: *
-----------------------

BLOCKBUSTER INC. ("Blockbuster")

By: /s/ Edward B. Stead
-----------------------

Its: EVP
-----------------------

- ----------------------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated May 4, 1999 relating to the financial statements of Blockbuster
Inc., which appears in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.

PricewaterhouseCoopers LLP

Dallas, Texas
May 6, 1999