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Dish CEO Bullish on Blockbuster

6 Nov, 2012 By: Erik Gruenwedel

Joe Clayton expects strong fourth quarter for rental chain despite it posting a $11.9 million third-quarter loss

Dish Network CEO Joe Clayton said a series of new marketing initiatives and better distribution agreements with studios portend a robust fourth quarter for Blockbuster LLC.

The satellite operator bought Blockbuster out of bankruptcy on April 26, 2011.

During a Nov. 6 fiscal call with analysts, Clayton said merchandising strategy changes, including upping title selections to the Latino community, and improved in-store displays should propel the venerable rental chain through the end of the year.

“I believe that we are properly positioned to capitalize on a seasonably stronger fourth quarter,” Clayton said. “We'll also have a deeper inventory and high-impact titles that will be released during the fall selling season. This has been accomplished by negotiating improved trading terms with most of our studio partners.”

Meanwhile, Blockbuster reported a third-quarter (ended Sept. 30) operating loss of $11.9 million compared with operating income of $3.6 million during the previous-year period. Denver-based Blockbuster generated revenue of $231 million compared to $347 million in revenue last year.

The rental chain attributed the operating loss primarily to lower monthly revenue and higher inventory costs per rental disc relative to the fair value of the inventory costs per rental disc acquired in the Blockbuster acquisition.

In other words, when Dish acquired Blockbuster out of bankruptcy, it paid $238 million for the brand, all inventory and related assets. The cost of replacing the inventory (i.e. new releases, etc.) has risen resulting in higher inventory costs combined with lower revenue generated as consumers rent movies from alternative sources — notably Redbox kiosks.

Blockbuster operated 850 stores nationwide at the end of the quarter after shuttering 700 stores through the first three months of the year. Dish said it could close additional underperforming stores going forward.

For the first three quarters, Blockbuster operations contributed $818 million in revenue with an $11 million operating loss compared with $601 million in revenue and $14 million in operating income during the same period last year.

Dish said about a third of Blockbuster @Home subscribers use the by-mail rental component. CFO Robert Olson Thomas Cullen said consumer adoption of Blockbuster @Home mirrors the retention rates for premium TV.

“So we offer it for a few months to new customers. Some decide to continue, some don't, but the performance of those customers and the performance of that product is very similar to what we see on premium channels,” Olson said.

Meanwhile, Dish narrowed net subscribers losses in quarter to 19,000 compared with 111,000 net losses during the same period last year. The decline was primarily due to the popularity of Dish’s controversial Hopper set-top box and digital video recorder. The latter features the ad-skipping feature for recorded network programming, which is at the center of separate litigation between Dish and broadcast networks.

The satellite TV operated reported a net loss of $158 million compared with income of $319 million last year. The loss was primarily due to $730 million in litigation expenses related to the Voom case with AMC Networks and higher subscriber-related expenses from higher programming costs and increased advertising associated with Hopper.


About the Author: Erik Gruenwedel

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