Blockbuster adds branded VOD channels
DIGITAL: Retailer partners with Suddenlink, Mediacom
By Danny King -- Video Business, 9/21/2009
SEPT. 21 | DIGITAL: Blockbuster reached agreements with two cable-TV operators to launch Blockbuster-branded video-on-demand channels in Iowa and West Virginia in exchange for in-store promotions for the multichannel service operators, marking the largest U.S. movie-rental chain’s continued efforts to boost demand outside of its core bricks-and-mortar stores.
Blockbuster’s branded VOD channels this week will go into effect for Suddenlink customers in Charleston, W. Va., and for Mediacom’s subscribers in Des Moines, Iowa, which will serve as test markets for broader expansion. The agreement will expand to cover other Suddenlink and Mediacom markets, Blockbuster said in a statement today.
Suddenlink has 1.3 million U.S. subscribers. Mediacom has about 1.3 million basic-video subscribers and about 600,000 digital-video customers.
Blockbuster entered into the agreement largely because the rental chain and cable companies complement each other, according to Kevin Lewis, Blockbuster’s senior VP of digital entertainment. Blockbuster customers are about 25% more likely than the general population to be subscribers to pay-cable channels such as HBO and Showtime, while Netflix subscribers are less likely to be premium-cable subscribers, according to Lewis.
“We’re much better off collaborating,” said Lewis.
Because Avail-TVN, the MSOs’ VOD provider, will continue to supply the Blockbuster-branded VOD programming, no new studio agreements for title distribution will be necessary. Blockbuster and the cable companies will eventually work with Avail-TVN to broaden the relationship with such services as giving customers information on title availability across Blockbuster’s digital, in-store, by-mail and kiosk channels.
Blockbuster said last week that it will close as many as 960 stores by the end of next year and will convert as many as another 300 to outlet-type stores as it refinances its debt and invests more in its digital-delivery offerings and Blockbuster Express kiosks.
During the early part of the decade, Blockbuster had a cross-promotional agreement with DirecTV that also involved in-store promotions for the satellite-TV service.
Blockbuster’s earnings during the next couple of years will fall from the combination of a proposed new refinancing agreement and its planned store closures as well as increased competition from Netflix and Redbox, one analyst said late last week.
Though Blockbuster’s announcement last week that it will sell as much as $675 million in debt to replace current debt indicates that the largest U.S. movie-rental chain will have more cash to invest in its Blockbuster Express kiosks and digital offerings, the higher interest expenses and lower sales from fewer stores will hurt profit in the short term, Wedbush Morgan analyst Michael Pachter wrote in a Sept. 18 note. Pachter said the company would take a slight loss in fiscal 2009, compared to his prior estimate of a slight gain, and cut his fiscal 2010 profit estimate by 25% to 15¢ a share.
“Despite the much improved liquidity, the company continues to be presently buffeted by a confluence of negative forces—slowing customer traffic, increasing competition and costlier debt,” Pachter wrote. “As pressure from Coinstar’s Redbox DVD rental kiosks and from Netflix intensifies, Blockbuster’s profitability is also eroding.”
Blockbuster’s stock rose 13% last week after the company announced its refinancing efforts and said it would close as many as 960 stores by the end of next year to cut debt to comply with a refinancing agreement finalized in May. That agreement extended a line of credit more than a year past its previous due date of August 2009 but was for about $100 million less than the previous agreement, forcing the company to cut costs this year.
