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2004 a 'Breakout' Year for Blockbuster

8 Nov, 2004 By: Holly J. Wagner

DVD sellthrough has reduced the average video renter's activity from seven or eight movies rented for every one purchased to about a 2:1 ratio, but the trend should level off soon, Blockbuster EVP, CFO and CAO Larry Zine, told analysts at a Harris-Nesbitt presentation.

“We look at this year as the breakout. As we go through the holiday season, this will be the last big year of DVD players sold,” he said, adding that the late adopters buying DVD players for $40 or less this year should be more inclined to rent than buy most titles. “Their propensity to rent will be a lot higher than their propensity to buy,” he said. “We don't look at that group as one that will want to spend $15 or $20 to buy when they can rent four or five for the same amount.”

At the same time, subscription programs have raised the average customer's value from $15 a month as an a la carte rental customer to $20 a month as a subscriber, he said.

“Average activity goes up quite a bit. They go from renting four movies a month to renting 10 or 12 movies a month,” Zine said, “but they would not have spent as much time or money with us if they were not on the subscription program.”

Blockbuster Online customers rent fewer movies — between six and eight a month — than in-store subscribers, and titles stocked for online rental are purchased outright, not on rev-share programs, because the cost works out about the same, he said. Blockbuster is not buying any additional product to satisfy online customers, he said.

Zine hinted that the chain might start to sell PVT online, and said that online game rental does not appear to be a profitable direction now because of the higher cost of goods and the longer use cycle.

The online business has a longer ramp-up cycle than initiatives in physical stores like used trading and Game Rush. For those initiatives, he said, “We'll be able to see how well they do as we roll them out” and put on the brakes if results are not as expected.

As for integrating the online and in-store rental business, Zine seemed to echo Blockbuster CEO John Antioco's recent remarks that in-store coupons may be as far as integration has to go.

“What we think we have satisfaction of 80 to 90 percent of those needs just with the in-store coupons. We don't think the consumer necessarily wants to mix and match their consumption,” Zine said. “We are ambivalent today about whether you bring the product back to the store or mail it, as long as you bring in the mailer.”

As for a model that lets consumers rent and return interchangeably online or from any store, he said, “We prefer to do the mix-and-match approach where we do the online couponing…” but, “We are looking at and working on [a fully integrated system] now, because if the consumer ultimately says that is what they want, that is probably what they will get.”

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