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Antioco: 4M Subs by End of 2007

9 Jan, 2007 By: Erik Gruenwedel

Calling its Total Access online rental, in-store return program the most successful product launch in its history, Blockbuster Inc. chairman and CEO John Antioco told an investor group Tuesday the company expects to double its online subscriber base from 2 million to 4 million by the end of 2007.

To achieve that, Dallas-based Big Blue is spending $35 million in the first quarter (in TV spots during college football bowl games) extolling the virtues of one-stop Total Access compared to online rival Netflix.

Online rental pioneer Netflix has 5.7 million subscribers.

Antioco said the company spent $20 million launching Total Access, which he said had directly contributed to Blockbuster Online generating 700,000 new members in the first 60 days.

The CEO said the online rental market would top 12 million subscribers by the end of the year and 20 million households by 2009.

Antioco said he expects 60% to 70% of Blockbuster Online subscribers to frequent Blockbuster stores.

The market continues to respond favorably, pushing Blockbuster's stock price at $5.90 per share, marking the fifth consecutive day share prices have reached a 52-week high.

The CEO said Blockbuster is updating its Web site to include movie reviews, customer comments and would soon offer online sales of previously viewed movies, third-party advertising, and, in the future, a download option.

Antioco said he expects Blockbuster to enter the digital-download business with a partner so as to avoid establishing a costly service from the ground up.

“We think we need to be in [the digital download] business,” said Antioco. “We think it makes sense. But we don't see electronic sellthrough becoming a huge business in the coming year. Clearly, it will be a $1 billion business five years out.”

The chain sold 60 million used DVDs at its retail stores in 2006, according to Antioco, who believes Total Access would create new retail opportunities.

“We expect to outperform the total rental market in 2007,” said Antioco. “Just the notion of entering 2008 with anything close to 4 million subscribers and a growing customer base makes the hairs on the back of my neck stand up a bit.”

Analyst Michael Pachter with Wedbush Morgan Securities in Los Angeles said he was surprised at the number of new subs. He said Blockbuster successfully attracted people who wanted the option value of being able to get a movie on the spur of the moment in the store with the convenience of getting movies by mail.

“Netflix wasn't really able to cater to those customers,” said Pachter. “I think it will be shocking if anybody leaves Blockbuster to join Netflix because Netflix can't compete with this offer.”

Pachter said Blockbuster Online's surge spelled bad news for Movie Gallery, which doesn't have an online rental program, and because of the increased consumer awareness of Blockbuster and Netflix.

“ A lot of those [new subscribers] have to be coming from Gallery,” Pachter said.

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