Blockbuster cuts Q3 loss by almost half
Set-top box for digital downloads released in time for holidays
By Danny King -- Video Business, 11/6/2008
NOV. 6 | Blockbuster in the third quarter continued to turn around its financial fortunes by increasing its focus on videogames, consumer electronics and rental profitability, while making plans to deepen its commitment to digital delivery.
During the holiday shopping season, the retailer will start selling a set-top box that will play digital downloads from Blockbuster.com directly on consumers’ TV sets, chain executives told analysts during a discussion of third-quarter earnings.
Blockbuster narrowed its third-quarter loss by 48%, as the company slightly boosted rental revenue and capitalized on the booming videogame market.
Blockbuster’s same-store revenue rose 5.1%, CEO Jim Keyes told analysts, despite what he termed “an extraordinarily weak slate of movie titles.” The company said improved in-stock rental inventory levels coupled with about 300 store remodels increased both revenue per customer visit and net rental rates by at least 15%.
By raising rates, Blockbuster withstood a U.S. home entertainment market in which growing Blu-ray Disc sales couldn’t offset a decline in consumer spending. DVD rentals and purchases for the first three quarters declined 2.4% to $14.25 billion, according to data compiled by Video Business and Rentrak. Blockbuster is testing daily, weekly and monthly pricing rates in order to appeal to the broadest range of customers, Keyes said.
“We weathered the third-quarter storm that, in hindsight, proved to be a little more challenging than we anticipated,” Keyes said on a conference call with analysts today.
Keyes, who said all Blockbuster stores now have both Blu-ray discs and DVD players for sale, as well as expanded consumer electronics inventory at many of its stores, estimated that Blu-ray accounted for “more than 2%” of U.S. movie rentals.
Consumer electronics offerings will be expanded with the set-top download box, which is similar to the Roku box and other devices that allow video streams from Blockbuster rival Netflix to be streamed to TV sets.
Blockbuster also will open its first four “Rock the Block” concept stores in New York City over the next few months. The concept stores are technology-heavy and integrate kiosks and interactive displays.
Additionally, Blockbuster capitalized on a videogames market in which year-to-date hardware and software sales through Sept. 30 jumped 26% from a year earlier to $11.82 billion, according to NPD Group.
Keyes said that although Blockbuster’s share of the videogames market is small, growth at the company, which has tripled its inventory of Nintendo Wii consoles, is outpacing the industry. The chain will have demonstrations of Rock Band 2, developed by Viacom’s MTV unit and Electronic Arts, at 500 stores, Keyes said.
Blockbuster’s third-quarter net loss narrowed to $17.8 million, or 11¢ a share, from $34.4 million, or 20¢, a year earlier. Sales fell 2.7% to $1.2 billion primarily because its 7,500-unit store base is about 300 less than it was a year ago. The company was expected to lose 16¢ a share on $1.27 billion in sales, the average analyst estimate in a Thomson Financial survey.
The company also said that if it can’t get outside funding to replace debt that’s due next August, it might consider cost-cutting measures, such as inventory cutbacks and more store closures, in order to free up cash flow and “self-fund” the debt, Blockbuster chief financial officer Thomas Casey told analysts.
Blockbuster last week said it cut its debt owed to former parent Viacom by $75 million by changing provisions related to Viacom’s responsibility for some of Blockbuster’s store leases.
