Tag: BBI

Here are the calls

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Well, it seems Blockbuster (BBI) finally acknowledged the future. In a rumored $20 million deal, they are to acquire Movielink which is currently owned by several Hollywood studios.

Although one might ask Blockbuster, “what took so long?” Blockbusters is clearly the last one to this party. Cable companies like Cablevison (CVC) and Time Warner (TWC) have spent the last 3 years buiding video-on-demand services and signing up millions of customers. Apple (AAPL) has added movies to their iTunes service, Wal-Mart (WMT) opened a movies over the internet service, Amazon (AMZN) and Tivo (TIVO) launched the unBox and arch rival Netflix (NFLX) got into the download game in January.

Rather than hemorrhaging shareholder cash for the last two years, why wasn’t this deal done then? It has been rumored forever it seems. How much of a lead could Blockbuster have over it’s rivals had it not spent all this time trying to convince people they still want to go to the video store?

Will Blockbuster finally abandon the store model? They clearly do not have enough cash to continue on the current path and go in every direction. With almost 1,000 stores still around, there is still a ton of work to be done and as long as they have the stores cost around their neck, they can never truly compete with Netflix.

So, it would finally appear that the “lower prices” plan at Blockbuster (BBI) is only “lowering profits”?

This one is really bad. Despite a GAIN of $77 million on the sales of Gamestation Stores, the company still managed to lose $35 million. Lest one think this is “not that bad”, last year at the same time they had a $68 million profit. Blockbuster currently has a “get more subscribers that Netflix (NFLX)” at all cost mentality and it is coming at, unfortunately, too great a cost. Far too great…

I am just waiting for the next earnings call when they announce that “in an effort to gain more subscribers, we will now pay them $2.99 per rental. If we have to pay every person in America to rent from us in order to be the number one video rental chain we will do it.”

At least they will have more subscribers than Netflix…. fools..

Finally, Blockbuster (BBI) gives investors a reason to smile. In a Carl Icahn lead revolt, John Antioco was finally fired as chief executive officer and chairman of Blockbuster on Monday, ending a tenure that was highly criticized from the billionaire investor who owns 9.6% of the outstanding shares. Antioco’s leadership was marked by company shares plummeting 82.9% over the past five years.

James Keyes, who will replace Antioco previously served as president and chief executive of 7-Eleven. Shares of the Blockbuster jumped 3.5%, or 15 cents, to close at $4.46 on the news. Said Icahn, “Jim is results-oriented, strategic and able to identify practical, yet highly creative solutions to complicated business problems,”

In an apparent change to Antioco’s reluctance to close stores, Keyes said “as the technology continues to evolve it will be my job to have Blockbuster front and center as a player in those areas of technology”.

Under Keyes’ leadership as president and CEO of 7-Eleven from 2000 to 2005, the company experienced record sales and profits and implemented new retail systems technology that improved product assortment decisions in every store. He also ushered in a new era for 7-Eleven through the introduction of a host of new electronic services, which helped the convenience-store chain become as well known for its cutting-edge use of technology as for Slurpees®. Additionally, he collaborated with manufacturers across all merchandise categories to develop new products, enabling the company to introduce as many as 50 new items each week in advance of the competition. When Keyes retired upon the sale of the company in 2005, 7-Eleven had produced 36 consecutive quarters of same-store sales increases and had some 6,000 franchised and company-owned stores in the U.S. and Canada with 30,000 stores worldwide.

This is a move that could really pay off for shareholders. If nothing else, he cannot screw things up there any more than they are now. For under $5 a share, it just might be worth taking a gander. I want to see what Keyes will do, I want to see more that 290 stores closed this year. Double it and I become a buyer.

On June 13th I wrote in response Blockbuster’s (BBI) announcement they were cutting rental fees, “What happens if today Netflix (NFLX)comes out today and matches these new prices? It did not take very long as Netflix announced yesterday they lowering their prices to match those at Blockbuster.

Netflix is now charging $13.99 a month to rent up to two DVDs at a time, down from $14.99 previously. The service mails another DVD after subscribers return one of their other discs in postage-paid envelopes. This matches the plan Blockbuster announced three months ago. Blockbuster did say it plans to close 282 stores in the U.S. this year to improve operating margins and expand domestic share, according to a SEC filing.

So were are right where we were 3 weeks ago at Blockbuster except they have now voluntarily decreased their revenue. Revenue is not the main problem at Blockbuster, costs are. What would have made more sense was to leave the pricing where it was and accelerate the store closings. 282 stores, while a good start is just a drop in the bucket. They cannot compete with Netflix on price because their cost structure is just too high, reduce it, and they may have a chance. They are going about this backwards.

What is Blockbuster going to do now? Pay us to rent DVD’s from them?

Just when you thought the analyst calls could not get any odder, here we go.

Citigroup upgraded Blockbuster (BBI) today to “buy” from “hold”, saying the high cost of its combined online and store movie rental scheme is now reflected in the share price. It added the firm’s announcement of a lower-priced online-only rental product could help improve costs by eliminating in-store costs and could help it gain market share in rural areas.

How is voluntarily reducing revenues for a company losing money going to help? They are just sticking their finger in a leaking dam. As long as they are store heavy and not offering online downloads, not only are they not a “buy”, they are a screaming “sell”.

What happens if today Netflix (NFLX)comes out today and matches these new prices? Is Blockbuster going to get downgraded? They simply cannot compete on price with NetFlix as their cost structure is just too high. A Netflix price match will only exacerbate already increasing losses at Blockbuster. They could really boost subscribers by just offering free rentals. Maybe that would get a “strong buy” rating?

Pricing is not Blockbuster’s problem. Too many stores and being one of the last to offer downloads is. Until these change, avoid shares at all cost.

In an analyst conference call Friday Lionsgate CEO Jon Feltheimer told industry analysts during a conference call, “We have nearly a dozen active agreements in place for digital delivery of our content with such major players as Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Blockbuster, Best Buy (BBY), and Wal-Mart (WMT), with more to follow.

Now, it is great that Blockbuster (BBI) is finally getting into the digital game, a sentiment I pleaded for after their latest earning announcement but there is just one problem. Industry leader Netflix (NFLX) has been doing it since January. So now Blockbuster, who has failed in it’s rumored attempt to acquire Movielink, not only must start a service from scratch, it must do so half a year behind it’s chief competitor. Now, under normal conditions, this may not be such a daunting task but when you are hemorrhaging cash like Blockbuster is in it’s quest to build subscribers, it then become daunting.

What is Blockbuster take? A Blockbuster spokesperson declined to comment on Feltheimer’s statement. “We intend to offer a movie download service, but we have not provided any details on timing or anything else,” spokesperson Randy Hargrove told Ars Technica. “It makes sense for us to participate in the download space, but we don’t see it becoming a huge business in the next year or two. That said, it’s something we think is important.”

I got news for him, it is important now. The dvd is going away faster than the video cassette did. Has he noticed what the iPod did to CD sales? When is the last time anyone bought a CD? Of course one has to consider that this is a company that has yet to realize the stand alone video store is also a dying concept.

Now, he may be playing possum but based on the chain recent history he isn’t and that is very bad news for the few folks who still hold shares.

• Total revenues for the quarter increased 5.4% to $1.47 billion
• Worldwide same-store rental revenues increased 1.3%
• Met aggressive online subscriber growth objective for the quarter and have added approximately 800,000 Blockbuster Total Access subscribers; our highest subscriber growth quarter thus far
• Worldwide same-store retail revenues increased 14.3% during the quarter,
• Our year-over-year comparison, our online revenues increased 116%, and we picked up 10 percentage points in market share going from approximately 20% of the online market to 30%. On the store side, despite the store-based industry’s first quarter decline, our customer visits and new membership sign-ups were both at the highest levels we’ve experienced in two years
  
  CEO John Antioco
  “We’re also attracting customers from outside the video rental category, customers who have been getting their movies from other sources,like satellite or cable pay per view services. Simply put, consumers are discovering or rediscovering Blockbuster in increasing numbers because of the flexibility, the convenience, and the value Total Access offers. As a result, we believe we will continue to pick up share in the overall rental market by attracting business from both our traditional and non-traditional competitors”.

  “We also believe it will be very difficult for our major online competition to impact our growth since we don’t think they have an answer to what we believe is a superior integrated service. Our competition has said they will simply wait us out until we change our proposition. They may have a long wait. We have no intention of making any changes to our Blockbuster Total Access proposition any time soon, unless we feel these changes will fuel our growth even faster or improve our cost efficiencies and service metrics”.

  Antioco was referring to NetFlix (NFLX) CEO Reed Hasting’s who said it’s “not a question if, but when Blockbuster will reset prices,” and that Blockbuster’s low prices weren’t “economically feasible.”

  Here is the issue, is everything is working as planned, why did Blockbuster’s operating loss for the first quarter totaled $18.4 million as compared to operating income of $32.1 million during the first quarter of 2006 and cash flow was also a negative $144 million, down from a positive $41 million in 2006.

  Unfortunately for Blockbuster, Hasting is right. They cannot add and subscribers and revenue and then increase losses and say “everything is working”. Blockbuster has two choices. They need to either rapidly accelerate the rate of store closings or raise prices because what they are doing now is just not getting it done. They were late to and continue to realize the stand alone video store concept is dead (or on its last breath). Technology is taking care of it. The race here is not to the mail, but to the download. When people are able to downloads movies to their TIVO’s (TIVO) or TV’s are internet enabled and they can do it that way, mail and store video rentals cease to exist. This technology does exist and will be more prevalent in the next 2-3 years. Click here for an article on it. The early bird price here ironically goes to neither of these companies but to Amazon. (AMZN)

Until Blockbuster acknowledges the realities of it’s business, I will avoid shares.