BB Liquidating Inc. (BLIAQ)

[fredman]

Six Questions: Blockbuster CEO Jim Keyes

07 May 2010

Following the news that Movie Gallery would throw in the towel, ceasing operations at more than 2,000 Hollywood Video, in-store Game Crazy and Gallery locations over the next few months, Blockbuster became the last chain standing offering store-based DVD/Blu-ray Disc sales and rentals nationwide.

While synonymous with movie rentals, the venerable Dallas-based brand can little afford to celebrate the demise of a key rival as it too is beset with many of the problems (notably excessive debt) that ultimately did in Gallery.

A significant difference, however, was the appointment in 2007 of new CEO Jim Keyes, who headed 7-Eleven for 21 years. Recognizing that one-stop-shop convenience is key to generating repeat consumers, Keyes quickly redirected Blockbuster efforts toward a multichannel distribution platform using the stores as a central hub.

Keyes looked under the hood and kicked the tires on the company’s dormant by-mail operation, acquired and rebranded Movielink movie downloads into Blockbuster On Demand, partnered with NCR Corp. to roll out Blockbuster Express kiosks, and aggressively incorporated Blockbuster as a VOD choice for consumer electronics devices (TVs, DVRs and Blu-ray players), mobile phones and the cable industry.

Keyes is such a believer in Blockbuster, he bought 3 million shares of common stock with his own money after being hired.

Home Media Magazine caught up with the tireless executive the week before Blockbuster reports first-quarter results to ask about Gallery, the status of the multiplatform strategy and the public perception that Blockbuster has become irrelevant.

HM: Is the pending closure of Movie Gallery/Hollywood Video/Game Crazy retail locations more a boon to Blockbuster stores or to its other distribution channels, including by-mail, VOD and kiosks?

Keyes: While we never like to see our industry contract so severely, it allows us to highlight our benefits to another set of customers who might otherwise not have been looking to change. Given their customers’ interest in the store experience and our stores’ close proximity to many Hollywood/Movie Gallery locations, some customers will naturally migrate to us. We can introduce them to the many solutions we have for their entertainment needs.

HM: Blockbuster’s multiplatform distribution channel featuring in-store, by-mail, on demand and kiosk is unique to home entertainment. Yet, despite the Blockbuster brand, many consumers, analysts and media seem unfamiliar with or appreciate the strategy. How do you change this?

Keyes: We are working hard to communicate our transformation to a multichannel entertainment company. Blockbuster has been known for 25 years for our thousands of neighborhood stores, where millions of families each week find their entertainment, and we expect to continue that for many years to come. We have evolved into other channels, such as by-mail, vending and digital because they expand our ability to meet more customer use occasions in daily life.

You will see us continue to promote each channel through other channels and to improve the linkages between channels to enrich the convenience for our customers. Our multichannel offerings are a major differentiator, and 30 million U.S. customers a year tell us we are on the right path. As we continue to tell the story to our customers, analysts and media, we’re certain people will recognize us as the leading multichannel provider.

HM: Blockbuster by-mail is as efficient as Netflix, competitively priced and features new-release titles, unlike the market leader, which announced it has 14 million subscribers. Can the gap with Netflix be bridged or would you consider licensing/selling the channel to a third party?

Keyes: We believe that our by-mail and Total Access offerings are the best in the industry, and we will continue to add new features such as our a la carte offering, Direct Access. We know that customers want to get Blu-ray and the newest releases for no extra charge, and we try to deliver on that promise every day. Again, our multichannel offering is an advantage, and our studio partners agree. So you will continue to see us be aggressive on the new-release front.

HM: There has been much talk about Blockbuster’s significant debt, much of it unearned following the split from Viacom. How successful are you in convincing debt holders that without relaxing or forgiving much of the debt, Blockbuster cannot afford to properly market its multiplatform prowess?

Keyes: It is well known that Viacom saddled us with a heavy debt burden in our spin-off. Despite that, we have launched successful offerings for by-mail, vending and digital, and we will continue to innovate regardless of our capital structure. We are exploring options to recapitalize the company in the best interest of all our constituencies, and we continue to make progress in transforming the business, focusing on core assets and reducing operating costs. We regularly engage with our debt holders, and they understand and support our goals and direction. We hope that soon we can move beyond capital structure issues to further focus on our customer’s needs.

HM: NCR indicated that Blockbuster would become more involved in supplying Blockbuster Express kiosks with content. How successful can that be considering your new studio agreements and the 28-day delay for kiosks?

Keyes: Blockbuster’s strategy to be a multichannel entertainment solution is strongly supported by our studio partners, and we believe those strong relationships can translate to kiosks as well. We think the 28-day window for new releases that we enjoy reflects that studio perspective and is a huge competitive advantage for us. As customers expect to find a uniform experience wherever they see the Blockbuster logo, we are eager to work with the studios and NCR to negotiate for early release across all of our platforms — stores, digital, mail and kiosks.

We continue to experiment with various business models to deliver on our multichannel strategy. You will see us push the envelope in stores around the country, from micro-stores to super-stores and everything in between. We want not only to offer movies and games, but also consumer electronics, licensed merchandise and even services. Our goal is to continue to evolve the store experience to meet the needs of our customers.

HM: How do you deal with a growing segment of society that has become used to ubiquitous access to content online for free? Will there ever be ad-supported streaming at Blockbuster.com?

Keyes: High-quality content will always have a commercial value, whether it is a subscription, pay-for-use or advertising-supported. We find that there is a huge demand for top-quality movies and games for home entertainment. People still value commercial-free access without the distraction of pop-ups and banner ads. Convenience is something that busy families and individuals really value. Our business model and competitive advantage is quality and variety with great convenience and at a low price.

Source: http://www.homemediamagazine.com/blockbuster/six-questions-blockbuster-ceo-jim-keyes-19326

STRONG BUY