Blockbuster shifts Zelnick board duties

Retailer also adds "Friends and Family" section to Web site

By Cindy Spielvogel -- Video Business, 4/20/2007

APRIL 20 | Blockbuster has changed the duties of board member Strauss Zelnick due to a possible conflict of interest with his new position at Take-Two Interactive Software.

In the interest of full disclosure, Blockbuster disclosed the change in an amendment to its proxy statement for its annual stockholders meeting scheduled for May 9.

On March 29, Zelnick was appointed chairman of videogame company Take-Two Interactive Software, which does business with Blockbuster. Zelnick’s company, ZelnickMedia, also agreed to provide financial and management consulting services to the videogame company.

The Blockbuster board has determined that Zelnick’s new relationship with Take-Two constitutes “related-party transactions” under Securities and Exchange Commission rules, so the “disinterested” members of Blockbuster’s board needed to ratify and approve Blockbuster’s transactions with Take-Two, according to the proxy statement. Blockbuster paid Take-Two $30 million in videogame-related transactions in the first quarter of 2007, according to the statement.

Additionally, Blockbuster’s board determined that Zelnick is no longer an “independent” director and, as defined by New York Stock Exchange and SEC rules, is consequently no longer eligible to serve on the board’s audit committee. He has been replaced by another director, James Crystal.

On April 18, another member of Blockbuster’s board, Robert Bowman, was appointed to Take-Two’s board, but that “does not impair his independence under applicable NYSE standards,” according to the proxy statement.

Zelnick also is on the board of Reed Elsevier, the parent company of Video Business.

Zelnick’s term as a Blockbuster board member does not expire until 2008. He was one of the directors elected to the board along with dissident shareholder Carl Icahn in 2005.

Blockbuster will hold its conference call on first-quarter earnings May 2.

Rival Netflix, in its first-quarter earnings call, reported that the Blockbuster Total Access online/in-store rental service is having a negative effect on Netflix’s business.

But that news so far has not helped Blockbuster’s share price, which has been dropping since the announcement that chairman and CEO John Antioco will leave the company by year-end.

Blockbuster said it will pay its regular quarterly dividend of $18.75 per share on its preferred stock May 15 to holders of record at the close of business on May 1.

In other Blockbuster news, the company has added a Beta “Friends and Family” community area to its Web site, similar to the Netflix “Friends” concept. The Web section allows members to share movies in their queue along with favorite and recommended films. The area also includes a privacy feature, allowing members to decide which aspects of their movie choices they would like to share.

Movie Gallery has said its planned online rental service will include a “Friends and Family” element but hasn’t given specific details.