Blockbuster Says the Future Will be Better

Blockbuster Inc. (Dallas), the embattled video rental retailer, acknowledged industry challenges but expressed optimism in a statement by chairman and ceo John Antioco. The statement came in response to questions following the release of its 2005 second quarter earnings.

“Blockbuster acknowledges the industry challenges we face, both short- and long-term,” Antioco said. “We have obviously made some major investments in initiatives designed to address these challenges. In the fourth quarter of 2004, the company spent more than $100 million that will not be repeated in the fourth quarter of 2005. This spend was primarily on the marketing and implementation of key initiatives. We also believe that positive trends in active membership, which we are already experiencing as a result of our initiatives, will help our revenue performance during this very important end-of-the-year period. For the balance of 2005 we are clearly focused on maximizing profitability and cash in a difficult industry environment, and as I have stated earlier, we expect to be profitable in the fourth quarter of this year and for the full-year 2006.”

Earlier this week, the $3 billion company confirmed that it’s no longer on track to meet profit forecasts for the year because of an increasingly lackluster movie rental business. It posted a bigger-than-expected loss of $57.2 million in its second quarter, compared with profit of $48.6 million a year earlier. Revenues slipped 1.6 percent, reduced in part by its much-heralded elimination of late fees.

Antioco defended the late-fee-elimination tactic, saying it will give Blockbuster an advantage over competitors in a shrinking industry. He estimated that over the next three years, about $1 billion in in-store movie rental revenue will go away. That translates into an over capacity in the industry of about 3000 to 4000 stores, he said. “We expect to be the beneficiaries of those stores’ customers because we don’t charge late fees and they do.”

Blockbuster, which once dominated the video rental business, has been buffeted by competition from in-home digital video recording equipment and by online video rental services. It was also embarrassed by a long, public and ultimately unsuccessful attempt to acquire smaller rival Hollywood Entertainment Corp. (Wilsonville, Ore.), which went instead to Movie Gallery Inc. (Dothan, Ala.). Antioco was ousted at the company’s annual meeting in May, following a public attack by stockholder Carl Icahn. Icahn, however, was then instrumental in reinstating the chairman two days later after a new board, which included Icahn, was put in place. Icahn has not yet made a public expression regarding Blockbuster’s fortunes or Antioco’s statement.