Analyst: Blockbuster Q3 Subs Will Drop3 Oct, 2007 By: Erik Gruenwedel
Blockbuster Inc.'s burgeoning Total Access subscriber base is expected to have cooled. An analyst said as many as 100,000 members were lost in the third quarter, which ended Sept. 30.
Michael Pachter, analyst with Wedbush Morgan Securities in Los Angeles, said new Blockbuster CEO Jim Keyes has vowed to reduce ad spending on Total Access, which he said amounted to a catalyst for stalled growth.
Keyes made the announcement in July after Dallas-based Blockbuster posted losses exceeding $35 million.
In an attempt to wrest business from online rental pioneer Netflix, Blockbuster has spent more than $300 million marketing Total Access, which has allowed members to rent DVDs online and return them in-store since its launch last November.
The strategy apparently worked, as Netflix posted its first-ever subscriber decline (by 55,000) in the second quarter.
Pachter said that a constant subscriber churn rate (the proportion of subscribers who cancel during a given time period), coupled with a reduced number of new subscribers, will result in a negative subscriber growth rate.
He said the company's sustainable marketing spend rate was about $35 million a quarter, which meant Blockbuster could slash as much as $25 million in marketing per quarter. The company also capped the number of free in-store rentals (to five) on its most popular $17.99 per month plan.
“The key is that they have spent less and have limited in-store rental swaps,” he said.
Karen Raskoff said the company hadn't reported its third quarter earnings so wouldn't be able to comment on analyst projection.“We remain very focused on subscribers both online and in our stores,” Raskoff said. “We are looking at what types of subscription programs we can offer in-store customers. We remain very focused on subscribers across our whole enterprise.”