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Blockbuster's 'Total' Stock Resurgence

5 Jan, 2007 By: Erik Gruenwedel

Befuddling naysayers and critics who thought Blockbuster Inc. was giving away the farm with its Total Access online rental, in-store return program, shares of Big Blue ended the week up more than 50% to $5.85 in after-market trading.

The market was responding to the Dallas-based rental chain's announcement that Blockbuster Online had added more than 500,000 paying members in the fourth quarter to surpass the company's end-of-the-year goal of 2 million subscribers.

During mid-day trading Friday, Jan. 5, Dallas-based Blockbuster stock surpassed $5.90, marking the third consecutive day its stock reached a 52-week high.

Analyst Michael Pachter with Wedbush Morgan Securities in Los Angeles said he was surprised at the disclosed number of new subs. He said Blockbuster successfully attracted people who wanted the option value of being able to get a movie on the spur of the moment in the store with the convenience of getting movies by mail.

“Netflix wasn't really able to cater to those customers,” said Pachter. “I think it will be shocking if anybody leaves Blockbuster to join Netflix because Netflix can't compete with this offer.”

Pachter said Blockbuster Online's surge spelled bad news for Movie Gallery, which doesn't have an online program, and because of the increased consumer awareness of Blockbuster and Netflix.

Blockbuster has heavily marketed Total Access with television ads during the college football bowl season.

“ A lot of those [new subscribers] have to be coming from Gallery,” Pachter said.

Separately, Blockbuster announced it had reached a definitive agreement for the sale of its 72-store Rhino Video Games chain to GameStop Corp. for an undisclosed price.

Rhino stores are primarily located in the Southeastern United States, including Florida, Alabama, Tennessee, Georgia, North Carolina and South Carolina.

Blockbuster in the third quarter (ended Sept. 30) generated $89.1 million in overall video game rental revenue and $145.1 million in game sales.

The sale is expected to close by the end of January.

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