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Blockbuster CFO: DVD to Drive Business

By Erik Gruenwedel | Posted: 23 Sep 2008

Despite analysts continued heralding of an electronic future, Blockbuster is banking that rental and sellthrough of physical DVDs will fatten the bottom line in the near term.

Speaking Sept. 23 at an investor conference in New York, Thomas Casey, CFO of Dallas-based Blockbuster, said the company wants to extend its dominance of in-store movie rentals into store-based sellthrough and branded vending kiosks.

“While we think the digital side of the business is very important, for branding and for the future of the business in terms of how we’re going to make money … it is really more in the physical space,” Casey said.

The executive said increasing the availability of new releases in stores during the first week to 54% from 17% is a cornerstone to Blockbuster’s fiscal year 2008 guidance of $1.8 billion foreign rental (30%), $3.1 billion domestic rental (60%) and $630 million domestic retail (10%).

Blockbuster claims to have 25 million active customers monthly who visit Blockbuster stores a total of 45 million times a month, including 35 million monthly rental visits.

Casey said customers spent $7.38 per visit in the second quarter, up 21% from $6.09 during the previous-year period. They generated $3.29 in net rental spending (rental revenue minus free in-store exchanges and other costs), up nearly 16% from $2.84 last year.

Total net revenue in-store per square foot increased 13.8% to $34.97 from $30.72 last year.

Domestic store first half fiscal 2008 gross profit grew 5%, from $931 million to $981 million.

“In-stock availability is absolutely critical to driving customer satisfaction all the while watching what it costs us,” Casey said. “When you compare the cost of renting a DVD for a family for a weekend versus going to the movies, [rental] is clearly a compelling alternative from a dollar point of view.”

Casey said consumer adoption of Blu-ray required patience as it represented less than 5% market penetration but was noticeably a superior format for many movies.

“We don’t think it is going to be nearly like DVD replacing VHS, and in this economy people will be slow to change out their libraries,” he said. “It will get better. There are different Blu-ray deals with studios. The wholesale and retail prices are higher. You have to figure out new ways to be fully in stock with Blu-ray.”

The CFO said video games and rental kiosks represent mainstream big opportunities. He said Blockbuster generated 4.5% market share of the most recent Grand Theft Auto release.

He believed there to be “tens of thousands” of site locations for a Blockbuster branded kiosk.

“It is a nice complement to store locations, in terms of a customer interface,” Casey said.


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