Blockbuster Ups Total 'Madness' Access31 Mar, 2008 By: Erik Gruenwedel
Blockbuster Inc. released a slate of Total Access ads during last weekend's CBS telecasts of the NCAA men's basketball championships — incidentally, the first time in history all No. 1 seeds advanced to the final four.
More ads are expected April 5 when North Carolina faces Kansas and UCLA takes on Memphis in San Antonio, with the winners facing each other in the championship game April 7 in Atlanta.
The Total Access TV spots would appear a contradiction of Blockbuster's recent corporate strategy aimed at promoting retail-based commerce versus online.
Blockbuster got itself into trouble last year when aggressive spending on the Web-based DVD rental, in-store return program substantially increased subscribers while at the same time hemorrhaging gross profits.
Rival Netflix Inc., which saw a first-ever decline in subscriber growth due to the meteoric rise of Total Access, characterized Blockbuster's ad-spend on Total Access at the time as irrational.
Last November, CEO Jim Keyes admitted Total Access had cost Blockbuster $114 million in gross profits during the first three quarters of fiscal 2007. He vowed a renewed emphasis on the storefront and a return to fiscal normalcy.
“The video store still represents the majority of our business,” Keyes said.
Then Blockbuster quadrupled its profit in the last quarter and attention reverted back to online, according to Arvind Bhatia, media analyst with Sterne Agee & Leach in Dallas.
He said the ads represented Blockbuster's desire to remain in the online rental business without mortaging its future to do so.
“Blockbuster views online as one part of their strategy as opposed to all of their strategy,” Bhatia said. “They want to maintain a certain subscriber base due to the investment they already put in.”
He said Blockbuster has about 3.1 million subscribers, including 2.7 million online. Bhatia said the rental giant needs 2 million subs to break even, which he said necessitated continued investment in online.
The analyst said Blockbuster had also promised to revisit Total Access once it adjusted the monthly pricing levels.
“And considering Netflix has had off-the-chart success lately, Blockbuster had to do something,” Bhatia said.
A Blockbuster representative was not immediately available for comment.