Blockbuster vows to go after Netflix
NEW YORK (Hollywood Reporter) -- Blockbuster Inc. chairman and CEO John Antioco promised shareholders Tuesday that the video rental giant will take the fight to online rental rival Netflix Inc. when it launches its own Internet-based rental service this year.
While Blockbuster executives have in the past often shrugged off the competitive threat from Netflix and the significance of the online rental market in general, Antioco openly acknowledged its strategic importance at his company's annual shareholder meeting.
"Two million (customers) have spoken," he said, referring to Netflix's subscriber base. "We can't continue to allow our customers to erode away from us. We are not going to ignore these folks."
Antioco said current online renters tend to be affluent and technology-savvy, just like many of Blockbuster's customers, meaning that his company has likely been losing a sizable share of consumers to Netflix. Assuming that about 30 percent of Netflix users may have been Blockbuster customers, Antioco said fighting for online renters is "a significant opportunity" for his firm.
The CEO gave few further specifics on Blockbuster's online rental site, for which the company has been running a beta test with a monthly subscription price undercutting Netflix.
Antioco didn't say when the site will go live but hinted it will be sooner rather than later. "We will be launching when we're ready to launch," he said. "I'm comfortable that it will be long before" the previous guidance time frame, which had called for a launch by the fourth quarter.
While subscriber acquisition costs will be high over the first year, the online rental service will bring "significant profit beyond that," Antioco predicted, adding he expects Blockbuster's profit per subscriber to be above Netflix's.
Sources expect Blockbuster will not immediately be able to replicate Netflix's overnight delivery but will focus on getting DVDs to online renters within two days.
Among the matters approved at Tuesday's shareholder meeting was a proposal to adopt an amended and restated certificate of incorporation, which will facilitate a proposed split-off of Blockbuster from Viacom, which currently controls the company.
Details of an exchange offer that will help affect the split-off have not yet been decided, but Antioco suggested that the offer will happen around September. He said the goal will be to structure the offer in a way that is attractive to both Blockbuster and Viacom shareholders.
Antioco also said Blockbuster's board will explore how to create value for shareholders after the split-off with options including stock buybacks, dividend payments and investments in developing businesses.
Besides the online rental service launch, Antioco in a presentation outlined online and in-store subscriptions as a key focus for management. "There could be some upside to the whole rental market" because of subscriptions, he said, predicting that about 10 percent of Blockbuster's customer base and 20 percent of the firm's revenue could come from monthly subscriptions by the end of next year.
Asked whether Blockbuster's $24.95 a month in-store subscription pass compares well with Netflix's slightly cheaper online offer, Antioco said it is "a hell of a better deal," because his company offers unlimited numbers of rentals under the pass. While Netflix users rent seven to eight DVDs a month, Blockbuster's Movie Pass owners rent more than 10 a month.
Antioco said his management team also will focus on expanding its video game rental operation and building a DVD and video games trading business, as previously announced with customers getting store credit for selling Blockbuster a film title. Margins on this trading business could reach up to 40 percent, making it the highest dollar-margin transactions the company has.
Blockbuster stock ended unchanged at $14.30 on the New York Stock Exchange Tuesday.
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