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Blockbuster CFO: 35% of Stores Generate Most of Its Earnings

By : Erik Gruenwedel | Posted: 12 Jan 2010

Blockbuster CFO Thomas Casey said closures of underperforming stores is supported by the fact that just 35% of Blockbuster stores generate about 80% of pre-tax earnings.

Speaking Jan. 12 at an investor event in New York, Casey said about 25% of a closed store’s revenue is transferred to other area Blockbuster locations. Blockbuster currently operates about 3,600 stores, with plans to shrink that number to 3,200 stores this year, while expanding Blockbuster Express kiosk operations.

“We’re pleased with the performance of our store-closing program,” Casey said.

Blockbuster’s ongoing development of a multichannel distribution strategy featuring in-store, by-mail, kiosk and streaming, remains predicated on new release movies, Casey said. He said 80% of the company’s revenue revolves around new releases, which Casey added underscored the importance of making available as many copies as possible during the first 14 days after street date.

Blockbuster categorizes its top 20 movies on wall displays in stores — a strategy it is replicating with video games, according to Casey. In addition, in-store availability has increased from 10% to 80%, based on 150 copies of a new release per store.

Meanwhile, the studios are getting a cut under revised revenue-sharing programs on new releases that increased studio margins to 40% for physical distribution and 60% for electronic.

The CFO said last week’s announced distribution deal between Netflix and Warner Home Video that delays shipment of new-release titles for 28 days affords Blockbuster additional revenue potential.

“It clearly is good news for us, in a sense, we now have product that Netflix won’t have for that 28-day period,” Casey said.

He said Total Access, the subscription-based online rental, in-store return program launched Nov. 1, 2006, has become “very profitable” based on 1.6 million subscribers opting for the $19.99 monthly plan for three titles out at a time and five, free in-store exchanges.

The CFO said the nascent Blockbuster app is now among Apple’s Top 20 entertainment apps and Top 100 free apps.

“It’s logical that we would have agreements with other CE providers in the months ahead,” Casey said.


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