Blockbuster reports narrowed Q3 loss
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Retailer expects improved future with online/in-store model
By Cindy Spielvogel -- Video Business, 11/2/2006
NOV. 2 | Blockbuster reported a narrowed loss for the third quarter as it looked toward further improvement based on its new Total Access program. The company’s stock price rose from $4 to $4.50 in morning trading.
Blockbuster’s net loss fell to $24.7 million from $491.4 million for the third quarter of 2005.
Revenue dropped 2.9% to $1.33 billion from $1.37 billion in last year’s third quarter as the company reported more store closings worldwide.
Blockbuster locations were down by a net 80 company-owned stores in the quarter domestically and another 39 in its international company-owned store base.
Chairman and CEO John Antioco confirmed that he continues to believe the overall video market is “over-stored” by about 10% to 15%. He said he hasn’t yet seen competitors close stores at a rate consistent with that but said that could be because Blockbuster store leases are generally five years and competitors may have longer leases.
Competitor store closings “could happen quickly,” he added.
Based partly on information in financial reports, Antioco said he expects publicly traded Movie Gallery and its Hollywood Video stores to close more locations, especially in markets where they compete with Blockbuster. He believes Blockbuster is picking up share from them.
Blockbuster continued to report positive domestic same-store movie rentals, which rose 3.2% in the third quarter despite what the company called a weak slate of new releases in terms of box-office grosses.
Worldwide same-store revenue, including rentals and purchases, was down 1.4%.
Same-store revenue includes Blockbuster Online, which represented $64.7 million in the quarter, up from $41 million in the third quarter of 2005. Subscribers increased 50% year-over-year to reach 1.5 million.
Antioco said he believes Total Access will help Blockbuster reach its goal of 2 million subscribers by year-end, based on consumer research the company did before rolling out the program.
He said Total Access evoked an “extremely positive reaction” from both customers and employees in the test markets. The program has resulted in improved revenue and subscriber activation as well as a reduction in online churn, he said.
Incentives are in place for employees, who will have wireless laptops in-store to sign up customers.
Antioco said the Total Access program, which allows online customers the option to return their movies in prepaid envelopes to stores in exchange for free rentals, addresses problems in online rental, most notably the lack of immediate access to a new movie.
He also said the new system is an improvement over the previous online rental system that allowed customers to use more coupons online. Many customers didn’t like printing out the coupons, he said, and by returning a movie to the store, the customer’s request queue is immediately freed to send the next movie. (If a customer rents a movie in-store that’s already on their queue, they must delete it from their queue to avoid getting the same movie.)
Antioco said Total Access will allow Blockbuster to increase its online subscriber base at a faster rate as well as gain market share both in stores and online. In-store revenue will rise based on more store visits, and Blockbuster will gain share from online and store competitors, he said.
Subscriber acquisition costs will be positively impacted by Total Access, he added, because the rate of customer sign-ups will grow with about the same amount of marketing dollars being spent as already planned.
Antioco said it’s possible that Blockbuster could further differentiate its pricing structure by offering a different price for different options, including Total Access, online-only and in-store rentals.
Antioco stressed that for many years to come, the vast majority of transactions will remain in stores. “If anything, Total Access underscores the importance of store-based renting,” he said.
Hinting at further changes to delivery methods to come, Antioco said Blockbuster will continue to be the brand that gives people a choice in how they want their movies delivered in the future and helps them navigate those choices, from packaged media to digital to stores to mail, “whatever form they desire.”