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Blockbuster Online Speeds Up Return Options

1 Nov, 2006 By: Erik Gruenwedel

Seeking to reach 2 million online subscribers by the end of the year, Blockbuster Inc. Nov. 1 announced the creation of a new online rental program that gives Blockbuster Online consumers the option of returning rentals to Blockbuster-owned stores in exchange for new rentals at no additional charge.

Blockbuster Total Access, which will be implemented as an automatic free upgrade for all new and existing Blockbuster Online subscribers — regardless of rental plan — gives users one free rental for each title returned to a participating Blockbuster store.

The Dallas-based chain unveiled the rental program by presenting actress and Dallas native Jessica Simpson with a Total Access celebrity VIP membership during an event last week in West Hollywood, Calif.

In addition to the free in-store movie rental, online subscribers who return titles to a participating Blockbuster store are still automatically shipped rentals from their rental queue.

“Until today, no online rental service offered customers the option of returning their movies to the store and exchanging them for free movie rentals,” said Blockbuster chairman and CEO John Antioco.

At the end of September, Blockbuster had approximately 1.5 million online subscribers, a 50% year-over-year increase in its subscriber base, which included 100,000 trial subscribers at quarter-end who subsequently converted to paying members. During the third quarter, the company added approximately 150,000 net subscribers.

A two-week free trial membership to Blockbuster Total Access is available for a limited time, including to those customers who have previously tried Blockbuster's online rental service but are not currently subscribing to the service. Memberships are available at participating Blockbuster stores or at Blockbuster.com.

Blockbuster chairman and CEO John Antioco, in an investor call, said the company has “very high” expectations for the new program, which he said was implemented after “extensive” research indicated same-store rentals helped decrease quarterly revenue 2.9% to $1.33 billion, compared to $1.37 billion last year.

The company incurred $8.8 million in severance and related store-closure costs, excluding a $4 million guaranteed debt repayment for an unidentified store franchisee.

Domestic same-store movie rentals increased 3.2%, a figure that includes online rentals. Blockbuster Online, the company's subscription-based online rental service, contributed a $23.7 million increase in revenue due to a 50% year-over-year increase in the service's subscriber base.

Worldwide video game rental revenue dropped nearly 19% to $89.1 million from $111.4 million last year.

The company said comparable domestic movie rental revenue through the first half of the year was up 1.8%, compared to competitor Movie Gallery, which it said was down 6.6%.

Blockbuster believes the launch of the new rental program, Total Access, which lets online subscribers return movies for new rentals at Blockbuster stores, combined with $130 million in free cash flow and no outstanding borrowing from its revolver, would make the company “bullish” in 2007.

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