Blockbuster Video I. Introduction Opening remarks Blockbuster was

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					                                           Blockbuster Video

I. Introduction
         A. Opening remarks
                a. Blockbuster was incorporated in 1982 and sense then has become one the nation’s
                   largest home video rentals grossing $2.2 billion dollars.
         B. Overview of company
                a. Franchise
                b. Bricks-and-Mortar company
                c. Incorporated in 1982
                d. 37,000 employees - International Directory of Company Histories, Vol. 31. St. James
                   Press, 2000.
                e. Business model - International Directory of Company Histories, Vol. 31. St. James
                   Press, 2000.
                          i. provide a large number of copies and broad selection of movie titles
                         ii. operate conveniently located and highly visible stores
                       iii. offer superior and consistent customer service
                        iv. optimize pricing to local market conditions
                         v. nationally advertise and market Blockbuster brand name and the
                             differences between us and our competitors
                        vi. use extensive customer transaction database to effectively operate and
                             market business
                       vii. improve efficiency and lower costs through self distribution
                      viii. Key dates - International Directory of Company Histories, Vol. 31. St. James
                             Press, 2000.
                                  1. 1985: The first Blockbuster video store opens in Dallas.
                                     1986: Blockbuster goes public.
                                     1987: Founder David Cook leaves the company; company
                                     headquarters move to Fort Lauderdale.
                                     1989: Blockbuster opens its first stores in London and in Canada.
                                     1992: Blockbuster acquires Sound Warehouse and Music Plus
                                     chains to create Blockbuster Music stores.
                                     1994: Media giant Viacom Inc. acquires Blockbuster.
                                     1996: Company headquarters move to Dallas.
                                     1999: Viacom holds an initial public offering of Blockbuster shares
                                     on the New York stock exchange.

III. Capabilities Component
   A. Structure of the IT organization
          a. Board of Directors, and on the board is the CIO
                     i. Network side
                           1. network supervisor (network group)
                           2. senior network engineer Routing, Security / projects (network group)
                           3. network engineer / WSUS / projects (network group)
                           4. Exchange-AV-malware admin (network group)
                           5. SMS / MOM / SQL / projects
                    ii. Desktop support
                         1. Helpdesk Tech / first tier support
                         2. IT Administrator / Webmaster / Helpdesk backup
                         3. IT Administrator / PC support / PC distribution / Traveling support /
                            Helpdesk backup
                         4. IT Administrator / Helpdesk backup / PC support
  B. IT architecture
          a. Internet
                   i. Main Centralized database
                  ii. Backup/Redundancy database
                          1. VPN
                                 a. Store level
                                          i. high speed FIOS - router
                                                 1. Corporate firewall – firewall server
                                                         a. Building application server
                                                         b. Database server
                                                                  i. Dumb terminals
                 iii. Customer Computers
                 iv. Web Servers
                  v. diagram
  C. Alignment of business and IT strategies
IV. Conclusion
  A. Success of strategy
  B. Outlook
  C. Closing remarks
        i. VP of Information Technologies (or MIS)
               1. IT managers, one at each site or region
                       a. DBA, Database administrator
                                i. Information Security
                       b. Network Engineers
                                i. Information Security
                       c. Network administrators
                       d. Software engineers/Computer scientists
                                i. Software design & development
                               ii. Testers
                                       1. Quality Assurance
                       e. System administrators
                                i. Help desk
                               ii. Technical support

Blockbuster Inc.
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One Blockbuster Plaza
101 Elm Street
Dallas, Texas 75270

Telephone: (214) 854-3000
Toll Free: 800-224-2677
Fax: (214) 854-4848

Public Company
Incorporated: 1982 as Cook Data Services
Employees: 37,000
Sales: $2.1 billion (1998)
Stock Exchanges: New York London
Ticker Symbol: BBI
NAIC: 53223 Video Tape and Disc Rental

Company Perspectives:

The Blockbuster business model provides an advantage over other large home video chains and
significant advantage over single store competitors. The key elements of this business model are
to: provide a large number of copies and 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.

Key Dates:

1985: The first Blockbuster video store opens in Dallas.
1986: Blockbuster goes public.
1987: Founder David Cook leaves the company; company headquarters move to Fort
1989: Blockbuster opens its first stores in London and in Canada.
1992: Blockbuster acquires Sound Warehouse and Music Plus chains to create Blockbuster
Music stores.
1994: Media giant Viacom Inc. acquires Blockbuster.
1996: Company headquarters move to Dallas.
1999: Viacom holds an initial public offering of Blockbuster shares on the New York stock

Company History:

Blockbuster Inc. is a leader in the field of video and video disk rental. With approximately 27
percent of the U.S. market share, Blockbuster operates about 6,500 video stores, serving more
than 87 million customers in the United States, its territories, and 25 other nations. Founded in
the mid-1980s as an alternative to small, local operations with limited video rental selection, the
company grew quickly into a nationwide chain, with other interests in the entertainment industry
as well, including music retailing. In 1994, Blockbuster became a wholly owned subsidiary of
Viacom Inc., allowing Viacom the financial resources to proceed with its bid for Paramount
Communications. Viacom retained total control of Blockbuster until its 1999 initial public
offering of 31 million shares (about 18 percent) of Blockbuster's stock. In the late 1990s,
Blockbuster faced challenges brought about by new ownership, increased competition, and a
relatively soft market for videos. Nevertheless, the company has coped admirably by refocusing
its efforts on its core video rental business. In 1999, Blockbuster boasted a store within a ten-
minute drive of virtually every major neighborhood in the United States and strove to guarantee
the availability of new video releases in most markets.

An Immediate Hit in the Mid-1980s

Blockbuster traces its history to the formation of Cook Data Services, Inc., in 1982. This
company was founded by David Cook to supply computer software services to Texas's oil and
gas industry. When the industry went bust, the company was left without a strong customer base.
Cook was searching for another source of revenue when his wife, Sandy, a movie fan, suggested
entering the video rental business.

Cook learned that the video rental field was highly fragmented. Most stores were relatively
modest family operations that carried a small selection of former big hit movies. Providing a
large selection of movies required a large investment of capital, since distributors typically
charged approximately $70 per tape. In addition, tapes were generally not displayed, but kept
behind the counter to discourage theft, and had to be fetched and laboriously signed out to the
customer. Cook saw that operations could be greatly streamlined by a computerized system for
inventory control and check out, something his software background prepared him to develop.

After Sandy Cook conducted several months of research into the video rental industry, David
Cook sold his oil and gas software business to its managers and entered the movie rental
business. In October 1985, Cook opened the first Blockbuster Video outlet in Dallas. With 8,000
tapes covering 6,500 titles, it had an inventory many times larger than that of its nearest
competitor. In addition, tapes were displayed on shelves throughout the store, as in a bookstore,
so that customers could pick them up and carry them to the front desk for check out. A magnetic
strip on each video and sensors at the door discouraged theft. Computers were used to keep track
of inventory, and a laser scanning system, which used barcodes on the tapes and on members'
cards, simplified and reduced the time involved in conducting transactions.

The first Blockbuster store was an immediate hit. The Cooks discovered that the public had a
much greater appetite for renting video movies than anyone had previously suspected. People
were interested not just in seeing hit movies they had missed in the theaters but also in a broad
variety of other features.

By summer 1986, Cook had expanded the Blockbuster concept to three additional stores. To
reflect the different nature of the company, Cook Data Services became Blockbuster
Entertainment Corporation in June 1986. In September, the company set out to raise money for
further expansion with an initial stock offering. However, days before the sale was to take place,
a financial columnist wrote a damaging article citing Cook's background in the oil industry and
questioning the company's know-how in the video field. The article caused the equity offering to
be canceled, and without this infusion of cash, Blockbuster began to run out of money. The
company finished 1986 with a loss of $3.2 million.

In February 1987, however, Cook sold one-third of Blockbuster to a group of three investors,
who were all former associates at another company, Waste Management, Inc. Wayne Huizenga
had in 1972 co-founded Waste Management, which grew to be the largest garbage disposal
business in the world, and served as its president and chief operating officer until 1984, when he
retired. John Melk, the president of Waste Management's international division, was first to
invest in a Blockbuster franchise. Joined by Donald Flynn, the chief financial officer of Waste
Management, the group invested $18.6 million in Blockbuster stock.

New Management and Aggressive Expansion in the Late 1980s

With this move, Cook surrendered future control of Blockbuster, and Huizenga became the
dominant voice in determining the company's future. Where Cook had envisioned growth
through franchising, selling Blockbuster's name and computer system to individual
entrepreneurs, Huizenga foresaw growth through company ownership of stores. In April 1987,
two months after the men from Waste Management bought into Blockbuster, Cook left the
company. Soon thereafter, the company's headquarters were moved to Fort Lauderdale, Florida.

By June 1987, Blockbuster owned 15 stores and franchised 20 others. With this base, Huizenga
set out to transform Blockbuster into the industry's dominant player. He kept most of Cook's
policies, such as store hours from ten a.m. to midnight every day; a three-day rental policy,
which encouraged customers to rent more than one tape at once; and a broad selection of titles.
Despite conventional wisdom that the video tape rental business was heavily dependent on hits,
70 percent of Blockbuster's rental revenues came from non-hit movies, which had the added
benefit of being less expensive to purchase from distributors. In addition, Blockbuster's
management decided to eschew revenue from X-rated adult films, opting instead for a family
With these policies in place, Blockbuster set out on a program of aggressive expansion. The
company began to buy back franchised operations with the goal of 60 percent company-owned
Blockbuster outlets. In addition, Wayne Huizenga began to buy up chains of video stores that
already dominated their local markets, using this as a shortcut to quick expansion. In March
1987, Blockbuster bought Southern Video Partnership as part of this policy. Two months later, it
purchased Movies To Go, Inc., of St. Louis, for $14.5 million.

To support its expansion, Blockbuster established six regional offices, including a distribution
center in Dallas that prepared tapes to be placed in stores. By the end of 1987, Blockbuster was
operating 133 stores, and had become the country's fifth-largest video chain in terms of revenue.
Sales rose from $7.4 million in 1986 to $43.2 million that year.

Blockbuster continued its ambitious expansion program in 1988. In March, the company
purchased Video Library, Inc., for $6.4 million plus stock. The following month, Blockbuster
made a deal with the United Cable Television Corporation (UCTC) to open 100 franchised stores
over the next two-and-a-half years. In addition, UCTC purchased five percent of Blockbuster's
stock for $12.25 million. By November, this stake had risen to 20 percent. With 200 stores,
Blockbuster had become the largest video rental chain in the country. At the end of the year, the
company's number of stores had risen to 415.

In January 1989, Blockbuster finalized its purchase of Las Vegas-based Major Video, Inc., the
country's fourth-largest video rental chain, for $92.5 million. It also purchased Oklahoma
Entertainment, Inc. The following month brought the purchase of Vector Video, Inc., and Video
Superstores Master Limited Partnership, which, with 106 stores, had been Blockbuster's largest
franchisee. By June 1989, two years after Huizenga's takeover, the company ran 700 stores.
Sales had tripled, profits nearly quadrupled, and the value of the company's stock had risen

Despite these gains, in April 1989, Blockbuster's efforts to buy up other chains with stock
suffered a setback when an analyst at a large stock brokerage issued a report condemning what
he considered to be the company's misleading accounting practices. In calculating its earnings,
Blockbuster spread out the costs of purchasing video store chains and building new stores over a
forty-year period, and also spread out the cost of buying large numbers of hit tapes over three
years, much longer than tapes retained their value. In addition, the company relied on one-time-
only franchise fees for 28 percent of its revenue. Despite this criticism, Blockbuster declined to
change its accounting practices, and the company's stock price eventually regained its former

In November 1989, Blockbuster's largest shareholder, the United Artists Entertainment
Company, announced that it would sell its 12 percent holding in the company, having previously
sold its 28 franchised Blockbuster stores, in an effort to streamline its own business holdings.
Worries that the video rental industry was reaching a saturation point cast doubts on
Blockbuster's ability to keep opening stores indefinitely.

Foreign Expansion and Diversification in the Early 1990s
One response to this concern was to look to markets outside the United States for growth.
Accordingly, original investor John Melk was dispatched to start up a British subsidiary, with the
company's first foreign store to be opened in South London called the Ritz. Blockbuster's
management continued to maintain that since the video 'superstore' concept was open for anyone
to copy, it needed to grab market share as fast as possible in order to exploit its ground-breaking
concept. Carrying out this philosophy, the company opened its 1,000th store before the end of

To increase business, Blockbuster embarked on a $25 million ad campaign, and also undertook
joint promotions with such fast food outlets as Domino's Pizza and McDonald's. In addition, the
company accelerated foreign expansion, augmenting its operations in Britain and planning for
operations in Australia and the rest of Western Europe. In the United States, the chain had
opened its 1,200th store by June 1990; new outlets opened at a rate of one a day.

In October 1990, Blockbuster announced plans to cooperate with Den Fujita, the company that
ran McDonald's franchises in Japan, in the development and franchising of video rental stores in
that country. The following month, Blockbuster made its largest acquisition to date, when it
acquired Erol's, a video store chain with 200 outlets on the East Coast and in the Midwest, for
$30 million, including cash, notes, and debt assumption.

Although Blockbuster continued its strong pace of new store openings in 1990, the slowing
growth of the video rental industry was becoming evident. Though the company's earnings grew
an astronomical 114 percent in 1988, they contracted to a still-impressive 93 percent rate of
growth in 1989, followed by a rate of 48 percent in 1990. In keeping with this trend, first quarter
financial results for 1991 were disappointing. Huizenga blamed the Gulf War for keeping people
interested in television news instead of rented videos. In early May, Cox Communications, one
of the company's franchisers, announced that it would sell all 82 of its Blockbuster stores.

Faced with a rapidly maturing industry, Blockbuster began to expand its offerings to maintain
profitability. The company began to offer video game equipment and Sega Genesis video games
at some of its stores. The company considered selling audio cassettes and compact disks.
Blockbuster also acquired the right to market tapes of the 1992 Olympic games.

In a further effort to encourage rentals, the company launched an advertising campaign themed
'Win in a Flash,' and made an agreement with the Showtime cable network for a joint promotion.
In August 1991, Blockbuster dropped its rental price for hit movies for the first three months
after their release and shortened the time they were taken out, as a further step to raise earnings.
In an effort to ensure that the company would be just as good at running video stores over the
long haul as it was at opening them, Blockbuster hired more senior executives with long-term
experience in the retail field.

In addition to these efforts to increase earnings in the United States, Blockbuster increased its
foreign efforts. Along with its operations in the United Kingdom and Japan, the company found
markets in Europe, Australia, and Latin America. With 30 stores already established in Britain,
Blockbuster announced in November 1991 a large expansion in that country, designed to make it
the nation's number one video rental chain. Further foreign involvement came later that month,
when Philips Electronics N.V., a Dutch firm, agreed to invest $66 million in the company. As a
result of this partnership, Blockbuster said that it would market Philips's newly introduced
interactive compact disk systems and software in its stores. Five months later, Philips purchased
an additional six million shares to raise its investment to $149 million.

To streamline its corporate management, Blockbuster bought a large office building in Florida
and consolidated the company's five regional offices. As Wall Street pundits continued to predict
that Blockbuster's success was short-lived, and that the video rental industry would be made
obsolete by new technologies, Blockbuster's systemwide sales of $1.5 billion in 1991 earned $89
million. By the end of the year, the company had opened stores in Japan, Chile, Venezuela,
Puerto Rico, Spain, Australia, New Zealand, and Guam.

In further overseas expansion, Blockbuster bought Citivision plc, the largest video rental chain in
Britain, for $135 million in January 1992, anticipating that this property would provide valuable
exposure in the United Kingdom, and a jumping-off point for further European growth. The
company hoped that, through joint ventures, international operations would contribute a quarter
of revenues by 1995. With 952 stores in nine foreign countries, Blockbuster began to intensify its
efforts to expand both in products and geographically.

In October 1992, Blockbuster embarked on a series of agreements that were designed to expand
the company's operations beyond its core movie rental business. Blockbuster bought Music Plus
and Sound Warehouse from Shamrock Holdings, a California company, for $185 million. One
month later, Blockbuster entered into an agreement with the British conglomerate Virgin Group
plc to set up 'megastores' in the United States, Europe, and Australia. In December 1992, the first
such store in the United States opened in Los Angeles, the precursor to a network of stores which
Huizenga envisioned not only renting videos, but also selling and renting music, computer
programs, and games, and containing high-tech 'virtual reality' entertainment arcades. The
company also hoped to improve on the traditionally low profits of music retailing by adding
other, more profitable products.

By 1993, the distinctive bright blue and yellow Blockbuster logo adorned more than 3,400 video
stores worldwide, about one-third of them overseas. Late in January of that year, Blockbuster
branched out further, paying $25 million for a one-third, controlling share in Republic Pictures, a
movie and television production and distribution company based in Hollywood. Republic's most
valuable asset was its film library of television shows and films, including several John Wayne
movies and the hit television series 'Bonanza.' In March 1993, Blockbuster also purchased 48.2
percent of Spelling Entertainment, a producer of popular television shows with a large library of
past programs. Moreover, Blockbuster began construction of a prototype family entertainment
center in Florida.

The Controversial Viacom Merger: 1994

With its ever-growing number of corporate activities, Blockbuster was committed to
diversification as a means of ensuring its future in the entertainment industry in the face of the
potential onslaught of new formats--video-on-demand and satellite TV--and the shift from
rentals to lower-priced tapes. In September 1993, Huizenga's Blockbuster makeover hit full
stride when the company proposed a $4.7 billion merger with media giant Viacom Inc..

Toward that end, Blockbuster invested heavily in Viacom, reportedly to help strengthen
Viacom's bid to purchase Paramount Communications against rival QVC Network Inc. Viacom
did win the war for Paramount, but the merger talks with Blockbuster stalled, and the move cost
Blockbuster a great deal as Blockbuster shareholders lost confidence in the company and
wondered if its investment in Viacom would pay off. By April 1994, Blockbuster's and Viacom's
stock had tumbled dramatically.

Blockbuster's glory days appeared to be over. Insiders assessed that the company was suffering
from dramatic changes in the industry. Specifically, with competition stiffening due to newly
emerging formats, the video industry's meteoric growth began to level off. Moreover, there was
trouble internally. The merger between Blockbuster and Viacom, though eventually effected, had
been rough, and Viacom was reportedly depending heavily upon Blockbuster's cash to help pay
its debts and have money for future investments.

In addition, leadership at Blockbuster seemed unstable. Wayne Huizenga ceded his leadership
role in the company in September 1994 and was replaced as president by Steven Berrard, who
focused on rapidly expanding the company during his year-and-a-half on the job. Amid legal
enablements involving earlier business dealings, however, Berrard left to be succeeded by Bill
Fields in March 1996. Soon thereafter, Fields was named CEO as well and during his brief
tenure attempted to revitalize the company's image. Specifically, he set about transforming
Blockbuster's video rental stores into whole entertainment centers, selling t-shirts, toys, snacks,
books, magazines, and CDs as well as selling and renting videos. Fields also oversaw the
company's move from Fort Lauderdale to Dallas to be closer to its new, centralized distribution
center. He also downsized the company's workforce, paring back about one-third of its senior
staff and two-thirds of its overall staff before he left for a position at Wal-Mart. In 1996, in the
wake of slipping sales, Blockbuster's worth was estimated at $4.6 billion with its stock worth
only 50 percent of its 1993 price. Parent Viacom's stock price was 60 percent off its former high.

New Leadership and Independence in the Late 1990s

By the time John Antioco took over in the summer of 1997, Blockbuster was floundering. New
releases weren't making it to stores by their 'street date,' and the loss of so many key people with
the company's move left it stumbling in basic store operations. Cash flow for the second quarter
of 1997 at Blockbuster dropped a precipitous 70 percent. As a result, the chain scaled back on
expansion and moved to refocus on its core business, video rentals. In late 1997, it exited the
computer business, closing its PC Upgrades stores only months after acquiring the business.

Under Antioco, the company revived its old tag line 'Make it a Blockbuster Night,' and sought to
smooth out the problems with its state-of-the-art distribution system, which allowed it to use a
customer database to determine store sites and inventory based on consumer preferences.
Although the company had fallen on hard times, it still controlled 25 percent of the $16 billion a
year home video market. Under Antioco, the company signed 'revenue sharing' agreements with
the major Hollywood studios, making them financial partners. Now instead of paying $65 for
new tapes, Blockbuster paid $4 and turned over 30 to 40 percent of the rental income to the
studio. In 1998, the company boasted that it had served nearly 60 million people who rented
more than 970 million movies and video games. In early 1999, it continued to expand overseas,
purchasing a Hong Kong video chain, and at home with the acquisition of Denver-based Video
Visions and Videoland in Oregon and Washington. The chain was making money again, and its
share of the home video retail market increased to 31 percent. Still the video market was
shrinking, dropping 2.6 percent in 1998 and 8.4 percent in the first half of 1999. While revenues
at Blockbuster were increasing, the company was still reporting losses, of $336.6 million in
1998, for example, compared with a $318.2 million loss in 1997.

Nevertheless, Blockbuster seemed to be effecting a turnaround, when in August 1999 Viacom
made an initial public offering of around 18 percent of its stock in Blockbuster, with intentions
of divesting it completely. The offering raised only $465 million; clearly, investors did not take
the future of Blockbuster for granted and the company needed to search for a viable business
model. Toward that end, management worked on increasing Blockbuster's market share in the
growing VHA/DVD tape and disk rental category. Moreover, it also made a commitment to
exploring new distribution channels, such as those offered by e-commerce.

Principal Competitors: Hollywood Entertainment Corporation; Movie Gallery Inc.

Further Reading:

Chakravarty, Subrata N., 'Give 'Em Variety,' Forbes, May 2, 1988, pp. 54--56.
Calonius, Erik, 'Meet the King of Video,' Fortune, June 4, 1990, p. 208.
Castle, Steven, 'Wayne's World,' Robb Report, February 1993.
Carlson, Gus, 'The Next Disney,' Miami Herald, March 14, 1993, p. 1K.
DeGeorge, Gail, 'Blockbuster's Grainy Picture,' Business Week, May 20, 1991, pp. 40--41.
------, 'Call It Blockbummer,' Business Week, May 9, 1994, p. 31.
------, 'The Video King Who Won't Hit Pause,' Business Week, January 22, 1990, pp. 47--48.
------, 'They Don't Call It Blockbuster for Nothing,' Business Week, October 19, 1992.
Engardio, Pete, and Antonio N. Fine, 'Will This Video Chain Stay on Fast Forward?' Business
Week, June 12, 1989, pp. 72--74.
Feare, Tom, 'High-Tech DC; Just the Right Ticket for Blockbuster Video,' Modern Materials
Handling, October 31, 1998, p. 34.
Forest, Stephanie Anderson, 'The Script Doctor Is in at Blockbuster--Again,' Business Week, July
28, 1997, p. 101.
Govoni, Stephen J., 'Blockbuster Battles the Shorts,' CFO, December 1991.
------, 'Hot Ticket,' Information Week, August 30, 1993, p. 28.
Katel, Peter, 'New Kid on the Block, Buster,' Newsweek, January 11, 1993.
Kirchdoerffer, Ed, 'Blockbuster Set to Rebuild,' Kidscreen, October 1, 1997, p. R7.
Miller, Michael, 'Coming Soon to Your Local Video Store: Big Brother,' Wall Street Journal,
December 26, 1990, p. 9.
'Not a Blockbuster Debut,' Ottawa Citizen, August 12, 1999, p. F3.
Roberts, Johnnie L., 'Chips Off the Block,' Newsweek, February 20, 1995, p. 42.
------, 'Hit the Eject Button,' Newsweek, August 18, 1997, p. 50.
Savitz, Eric J., 'An End to Fast Forward?,' Barron's, December 11, 1989, pp. 13, 43--46.
Siklos, Richard, 'Blockbuster Finally Gets It Right,' Business Week, March 8, 1999, p. 64.
Silverman, Edward R., 'Global Go-Getters,' International Business, October 1992.
'USA/UK Blockbuster Strikes from Home Base,' Sunday Times, November 10, 1991.
Walsh, Matt, 'Rent Things,' Florida Trend, March 1993.
Whitford, David, 'The Predator's Ball Club,' M, June 1992, pp. 80--85.

Source: International Directory of Company Histories, Vol. 31. St. James Press, 2000.

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