Blockbuster Posts $57.2 Million Second-Quarter Loss
Aug. 10–Blockbuster said it will increase prices for its online subscription service as the Dallas-based retailer reported a second-quarter loss of $57.2 million. Blamed were changes in its late-fees policy, investments in a DVD subscription program and a weak season for new video releases.
The company also withdrew its earnings estimate for the remainder of the year, saying that a steeper-than-expected decline in the rental industry has made it impossible to forecast 2005 results ” with reasonable certainty. “
The bleak numbers concealed signs of progress in the company’s efforts to expand its business beyond the confines of its traditional rental business, executives said. But investors remained skeptical, pushing down the shares of the Dallas-based chain by more than 11 percent in Tuesday’s session.
After feeling the pinch from discount DVD retailers and Netflix, the pioneering DVD “subscription service, Blockbuster stopped charging most fees on overdue rentals — sacrificing a revenue source that accounted for 15 percent of sales in last year’s second quarter — and developed a subscription offering of its own.
Blockbuster Online has attracted more than 1 million subscribers since its debut last year, and the company will raise prices for the service later this month. The subscription plan and the new late- fee structure have helped generate more rental activity but at a heavy cost to the company.
“We know we have some work to do on the bottom line, but that’s going to take time, which we said it would take when we started these investments,” Chief Financial Officer Larry Zine said.
The second-quarter loss of 31 cents a share compared with net income of $48.6 million, or 27 cents a share, in the same period last year. Total sales decreased 1.6 percent to $1.4 billion, as the drop in rental revenue more than offset an increase in merchandise sales.
Blockbuster shares fell 92 cents to $7.09, their lowest closing price in nine months.
Separately, the company announced that beginning Aug. 19, Blockbuster Online will charge $17.99 a month for subscribers who check out as many as three movies at a time. Customers who signed up before March 1 will continue to pay the current rate of $14.99, because that price was guaranteed to them through the end of January 2006.
Even with the price increase, which will bring Blockbuster’s rates in line with Netflix’s, Blockbuster Online expects to attract an additional 1 million subscribers by the end of next year’s first quarter.
“Obviously there are going to be a few customers that don’t want us to increase the price, but we feel confident that we can grow the business at $17.99,” said Shane Evangelist, general manager of Blockbuster Online.
Blockbuster Online also will raise its rates for customers who rent up to five movies at a time, from $27.49 to $29.99, and for customers who rent up to eight movies at a time, from $37.49 to $47.99.
Rates for Movie Pass, Blockbuster’s in-store subscription program, are unaffected.
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