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Blockbuster Issues Q2 Warning

2 Aug, 2005 By: Erik Gruenwedel

John Antioco

As expected, Blockbuster Inc. chairman and CEO John Antioco today told a meeting of the No. 1 video rental company's debt holders that maturation of the DVD market and an ongoing weak theatrical box office numbers had a negative impact on the company's fiscal second quarter (ended June 30) and has created uncertainty for the rest of the year.

The company will announce its second-quarter results Aug. 9.

With video rental on a precipitous downward spiral for some time and DVD sellthrough reaching saturation levels that have prompted retailers to increase their rates of unit returns to the studios, analyst Dennis McAlpine with McAlpine Associates contends there isn't much Blockbuster can do.

He said the influx of new DVD players has traditionally driven the market, with first-time consumers renting or buying up to 25 titles in the first year and 15 in the second year. That consumption rate has slowed considerably as the number of DVD players sold wanes.

“That's something [Blockbuster is] going to have to live with,” McAlpine said. “You are going to have to hang on and wait for high-definition DVD.”

Increasing Blockbuster Online's monthly subscription rate from $14.99 to $19.99 would not appear to be an option, despite scuttlebutt to the contrary.

“Raising the subscription price has absolutely zero to do with what is happening in the rental business,” McAlpine said. “That's a competitive thing of what to do with [online rental pioneer] Netflix.”

McAlpine said Blockbuster has a very public commitment not to raise prices this year, a pledge he expects Big Blue to alter beginning next year. In reducing its online monthly rental fee $2.50 to $14.99 last December, Blockbuster said it would guarantee the rate through January 2006.

A Blockbuster spokesperson characterized the notion of a subscription-fee increase as a rumor and declined further comment.

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