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Blockbuster revenue plummets 22%, shares fall 16%

Blockbuster Consumers love renting DVDs. Just not from Blockbuster.

Despite an industry-wide 8.3% rise in rental revenue during the first half of the year, Blockbuster Inc. reported its revenue fell 22% in the second quarter because of a pullback at the company to pay off debt and because of declining consumer interest.

The DVD rental chain's revenue was $1.02 billion in the quarter that ended June 30, while its net loss declined 11% to $39.7 million.

Same-store rental revenue revenue fell 13.3%. Blockbuster said the drop was partly due to reduced inventory as it tries to generate more cash to handle its debt load. Although CEO Jim Keyes said in a call with analysts after the company's last earnings report that a renegotiation of a revolving line of credit meant stores would be fully stocked and more aggressively marketed, he admitted today that didn't happen.

"Temporarily during the first and second quarter, we put our plans for increased availability on hold," he said on today's call. "We made this change with the recognition that we were also facing new and very aggressive competition who are better capitalized and would likely take share from us as we pulled back."

The company also blamed the rental decline on "the challenging macroeconomic environment and the increasingly competitive landscape." Redbox and Netflix saw their revenue last quarter grow 110% and 20%, respectively.

Same-store sales, meanwhile, plunged 37.9%, a drop Blockbuster blamed on poor performance for video games. Video game industry sales have been falling consistently for the last five months, dropping 29% in July.

Blockbuster has a DVD-by-mail service that is much smaller than Netflix's, but Keyes said it is popular. It is also working with NCR to deploy DVD renting kiosks. Keyes said there would be 2,500 in the market by the end of the year. Redbox plans to have between 21,000 and 22,000.

Unlike Redbox, which is suing Universal and Fox and, quite possibly soon, Warner Bros., for attempting to prevent it from offering DVDs until about a month after they are released, Keyes said Blockbuster would prefer to have a window in which its kiosks don't offer new discs in order to protect its store rental business.

"A vending rental window would enhance the complementary relationship between Blockbuster stores and Blockbuster kiosks," he stated.

Though there was plenty of bad news from Blockbuster today, investors might have been most upset that the company had reduced its expectations for earnings before certain costs for 2009 from between $305 million and $325 million to between $270 million and $290 million.

In after-hours trading, Blockbuster stock was down 16%. Since the beginning of the year, Blockbuster shares have fallen 32% to just 86 cents.

--Ben Fritz

Photo: A Blockbuster Video store in Huntington Beach, Calif. Credit: Don Kelsen, Los Angeles Times.

Comments () | Archives (3)

This company has never been customer oriented, always thought they were the only game in town; if your 5 mins late returning a movie, sorry we have to charge you a late fee, payback for all the years of unforgiving late fees. They enjoyed the juicy income from late fees, but in return created alot of bad blood. Netflix with no late fees ever, what a business model.

The Blockbuster model is dying. DVD rentals are going the way of VHS rentals. If I want to pay more than a dollar to watch a movie, I'll get it ON DEMAND. If I don't, I'll wait for RED BOX. And since there is so much to watch on HULU, I would be very wary of hoping that the brick and mortar rental shops will recover...frankly, I'm wondering if NBC, CBS, and ABC, will survive either. For example NBC pulled 5 hours off of primetime and gave it to Leno because it can't sustain awesome shows like Kings. We're in the middle of another transition. As radio is to TV, DVD rentals are to Internet delivery. There is blu-ray, but that's more for the collectors who want to keep archival copies of their favorite movies (those movies they're rabidly emotionally attached to, see Firefly/Serenity).

But Blu-ray/DVD isn't a monopoly format as VHS was. Rentals in the blockbuster video format are not as relevant anymore. Broadcast TV still exists, but isn't relevant either...and I believe that rentals are headed for that fate.

Blockbuster is failing because of extremely poor service.
We quit Blockbuster's online program because they repeatedly failed to mail queued DVDs for weeks, and made lame excuses. NetFlix has been wonderful, and puts Blockbuster to shame.


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