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The Blockbuster Road Show

13 Jan, 2003 By: Stephanie Prange

Blockbuster Inc. chairman and CEO John Antioco tried to allay analysts' fears about the chain's recent stock slump in a presentation last week during the Salomon Smith Barney Entertainment, Media and Telecommunications conference in La Quinta, Calif.

Addressing the stock-punishing cut in Blockbuster's 2002 profit estimate, Antioco blamed a unique business environment in the fourth quarter for the unexpected slowdown in the chain's business. Among the unique circumstances he listed were the release of a large number of highly collectible titles in the fourth quarter, below-cost DVD pricing, a shorter shopping season and new DVD adopters building their libraries. The shorter season and new DVD adopters may be unique, short-term problems, but the other circumstances could prove longer-term dilemmas.

Looking ahead, Antioco said the first quarter includes more releases with rental, rather than sellthrough appeal and that, nevertheless, Blockbuster can make its way in the sellthrough arena with higher margins by offering selection and convenience. “We have no intention of competing on price,” Antioco told analysts.

How the tables have turned. I don't remember how many independent retailers I've talked to who declared they would compete with Blockbuster on selection and service. Many of them went out of business trying. Also, many retailers have had a hard time selling at a higher profit margin and competing with Wal-Mart. High-margin music retailers have taken it on the chin as discounters such as Wal-Mart drew away customers with lower pricing.

Antioco may have a point on convenience. Finding the video section among the apparel, food items and car tires can be a definite inconvenience at the nation's discount king.

But Big Blue's crystal ball seems murky.

At the same conference, Antioco's boss, Viacom chief Sumner Redstone, voiced support for the Blockbuster chief, telling analysts the chain had the strongest rental day in its history on New Year's day, suggesting the fourth quarter revenue shortfall was a blip. "Business has been strong since and John ... says we are going to have a great 2003," Redstone said. "We changed an industry with revenue-sharing, so don't blame me for having confidence in this man."

The road show appears to have had some effect. Blockbuster stock has edged a bit higher, but Wall Street seems in a wait-and-see mode. Despite executive assurances that things are back on track, all eyes are on those post-holiday numbers, which should tell us much about the future of the chain and of the business.

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