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Blockbuster Adding More 'Heaven'-ly Executives

13 Sep, 2007 By: Erik Gruenwedel

In the 1970s soulful TV jingle, “Oh Thank Heaven for 7-Eleven,” the ubiquitous food chain attempted to convey its one-stop-shop convenience. Today, Blockbuster Inc. appears to be learning the same tune.

New Blockbuster chairman and CEO Jim Keyes, a top executive at 7-Eleven for 21 years, said he will initiate structural and personnel changes during his first 100 days on the job aimed at transforming the company into an entertainment convenience store.He isn't letting the beer get warm.

The Dallas-based No. 1 video rental service said EVP and COO Nick Shepherd will leave the company at the end of the month — less than five months after being promoted to the position.

Blockbuster did not name a replacement for the 12-year veteran, once considered a possible successor to former chairman and CEO John Antioco. Prior to Shepherd's appointment, the COO position had been vacant since the end of 2004, following the departure of Nigel Travis.

Keyes then named Keith Morrow chief information officer and David Podeschi SVP, merchandising, distribution and logistics. Both held similar positions at 7-Eleven.

Shepherd, who earned a base salary of $700,000 plus incentives, joined Blockbuster in 1995 as managing director of the company's U.K. business and subsequently served in several executive positions, including SVP international, chief marketing and merchandising officer, and president of worldwide stores.

Although lauding Shepherd for his major role in helping to transform Blockbuster from a video retailer into a company that provides “completely convenient access” to media entertainment, Keyes' conciliatory gesture to the former COO in his new endeavors underscored the changes in store, analysts said.

“He is bringing in guys he is comfortable with,” said Michael Pachter, media analyst with Wedbush Morgan Securities in Los Angeles. “Is it unusual to work with people you are comfortable with? I don't think it is.”

Pachter said that according to talks with senior management, there is a desire to change the physical size of individual Blockbuster stores. He said the convenience store model affords them the opportunity to carry different video selections in each store.

He said Blockbuster has stated it was going to make changes in this direction two years ago, and nothing has happened.

“Maybe [Shepherd] wasn't on board with that,” Pachter said.

“The business has changed.”

The analyst said he knew Shepherd was on the outs after the executive jettisoned 38% of his common stock (284,320 shares) last month for more than $1.2 million.

In the continuing shakeup, Blockbuster said it has appointed Thomas Casey to the position of EVP and CFO, replacing seven-year CFO Larry Zine, who also is retiring at the end of the month.

Casey will oversee Blockbuster's financial, accounting and internal audits. He previously was managing director for Deutsche Bank Securities Inc., where he served as a strategic advisor to several national retail, food wholesale and convenience store chains.

“Throughout his more than 20-year career, Tom has been instrumental in helping some of the world's largest companies successfully formulate their financial and strategic business plans for the future,” Keyes said.

Former CFO Zine in June said he would leave Blockbuster at the end of the year, when former chairman and CEO John Antioco had scheduled his departure. Antioco ended up leaving early, in July.

At that time, it was disclosed Zine would receive a $200,000 retention bonus, his salary, a separate 2007 bonus and a previously announced lump sum payment of $1.2 million upon his departure, according to regulatory filings.

If dismissed prior to Dec. 31, Zine was slated also to receive fully vested shares of all outstanding restricted stock. The former executive sold 225,000 shares of common stock from Aug. 15-17, realizing a gross return of more than $1 million.

Pachter said it isn't rocket science to sell or rent someone a movie as opposed to selling beer. It is still retail. He said Keyes brought in retail guys who understand retail. On the flip side, Pachter said the new executives have no direct experience in the movie rental business.

“[It's unclear] how they respond to online competition, which Antioco and Co. lived through; Keyes and Co. have only read about it in the newspaper,” he said.

Independent media analyst Dennis McAlpine said Keyes believes his new hires are on the same page and understand better than the old guard the need for faster changes in running the business.

Whether they make the right decisions is another matter.

“Therein lies a conundrum that has bothered businesses for years,” McAlpine said. “Which is better: To have experience in the business or to have business experience? Obviously, [Keyes] believes in the latter.”

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