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Two-Minute Warning

10 May, 2005 By: Holly J. Wagner

Well, here we are, down to the wire on an acknowledged mandate for Blockbuster Inc.'s board of directors and the company's direction. It's a cliffhanger.

To be fair, the company has been at a disadvantage since Viacom gutted it with a $5-per-share payout before the spinoff, which added $15 million to first-quarter interest costs. But that doesn't answer for all of the lost stock value of recent years. Carl Icahn figured that out. I'm not sure he has any better idea of what to do than the current management, but at least he's kicking the tires — and the hornet's nest.

Icahn and other voting shareholders must be asking the same questions I am: Why did it take so long for Blockbuster to start turning its battleship with the industry tide? A company with a POS system that spews on-demand reports down to the store level should have been able to figure this out sooner.

Blockbuster gave Netflix a free pass to eat its lunch for four years. Blockbuster's 2003 annual financial summary notes a nearly 30 percent increase in PVT sales in 2002 that was shoring up revenue as rentals slid into the tank. What the hell were they waiting for?

Then we got “the end of late fees,” a $50 million (advertising and promotion, check the Securities and Exchange Commission (SEC) filings) boondoggle to drive consumers to subscriptions. But apparently the fine print was a little too fine for some state attorneys general. So let's tack on the $630,000 settlement with 38 states and the still unknown (or undisclosed) cost of unsettled cases and revising promotional materials to comply with the existing settlement. That story goes something like this:

• The “end of late fees” campaign: $50 million

• The end of late fees: $400 million-$450 million in revenue a year (see the March 29 SEC filing)

• Settlement with attorneys general: $630,000 (to date)

• Customers hating you because they feel tricked or saw through this in the first place: Priceless.

On the day of one of Blockbuster's recent big, new initiative announcements — in fact I think it was the end of late fees — they had an external PR firm shopping interviews with (still) chairman and CEO John Antioco. I snapped up a time slot but, alas, instead at the appointed 2 p.m. PST, SVP of public relations Karen Raskopf called and explained that Antioco would not be able to talk because he was “too tired.”

I know her job is to run interference for her bosses, but what may have seemed like an artful, if obvious, dodge at the time looks more and more like the truth now.

So, I have two things to say.

To the Blockbuster shareholders, Antioco's own PR front person told me he's “too tired” — at 2 in the afternoon. You figure it out and vote accordingly. And just in case you need a successor, I'm making a standing offer to tank the company for half of what you're paying John Antioco to do it. Start with “I won't expect you to pay me bonuses unless the company makes gains.”

To Mr. Antioco, you can call me any time to talk on or off the record. Karen has the number. Or reach me at hwagner@advanstar.com

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