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Blockbuster Posts $3.3 Million Profit

7 Nov, 2011 By: Erik Gruenwedel

Rental icon restores luster to former bankrupt brand since acquisition by satellite TV operator Dish Network

Blockbuster LLC Nov. 7 reported net income of $3.3 million on revenue of $601 million since its acquisition out of bankruptcy by Dish Network Corp. on April 26 through Sept. 30.

For the third quarter (ended Sept. 30), Blockbuster posted a net loss of $177,000 on revenue of $347 million as it continues to integrate its store-based business model with Dish Network through subscription-based programs Blockbuster Movie Pass (which includes streaming) and Blockbuster Movie Combo (which includes Blockbuster by Mail), among other changes.

Indeed, Dish said the recent launch of the in-store Movie Combo has generated 600,000 subscribers, underscoring what it believes is a revived interest in consumers visiting Blockbuster stores.

"Consumers are looking at this as an attractive deal," Dish chairman Charlie Ergen said in a call with analysts to discuss the quarterly results.

Englewood, Colo.-based Dish said it entered into new lease agreements with landlords totaling more than $267 million through 2015, including $39 million this year and nearly $76 million in 2012. Blockbuster operates more than 1,500 stores nationwide. The company said that 900 of the aforementioned stores have so-called “flexible termination” provisions, should revenue growth not meet management’s expectations.

Dish said independent business unit EchoStar would provide $1 million per month in broadband (i.e. streaming, VOD) support and related technology to Blockbuster On Demand and Movie Pass through its recent acquisition of Hughes Communications Inc.

Dish CEO Joe Clayton said Blockbuster would contribute to a positive subscriber growth in the fourth quarter for Dish.

"We have seen good improvement, input traffic and transaction growth at most stores," Clayton said. "And we are encouraged with customer enrollments and new promotional offerings."

CFO Robert Olson said the company would continue to operate Blockbuster stores on a break-even status while it uses the brand to entice new and existing Dish subscribers. Indeed, revenue generated by Movie Pass will be reported as Dish revenue or income per subscriber (ARPU), and is considered a Dish promotion using Blockbuster assets,  according to management. 

Separately, Dish said it will be making annual payments of $190 million to TiVo from 2012 to 2017 as part of a litigation settlement concerning technology patents with the digital video recording pioneer’s set-top box.

The satellite TV operator said it lost 111,000 net subscribers in the third quarter amid economic issues and strong competitive challenges, including DirecTV, which gained net subscribers through its popular (discounted) NFL football package. Dish ended the quarter with more than 13.9 million subscribers, compared with 14.2 million last year.

Ergen said over-the-top providers such as Netflix remain the biggest challenge to multichannel video distributors, including Dish, which said that 20% of its subscribers also have Netflix memberships. He said younger viewers are more likely to search the Intenet for free content on Hulu than pay for a premium channel.

"It's long-term macro trend and threat to our industry," Ergen said.

Overall, Dish reported net income of $319 million, up 30% from net income of $245 million during the same period last year. Revenue, which includes Blockbuster LLC, totaled $3.6 billion, up 12.5% from revenue of $3.2 billion last year.

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