Blockbuster’s (BBI) earnings call last week was a list of triumphs. To recap:
- Total revenues for the quarter increased 5.4% to $1.47 billion
- Worldwide same-store rental revenues increased 1.3%
- Met aggressive online subscriber growth objective for the quarter and have added approximately 800,000 Blockbuster Total Access subscribers; our highest subscriber growth quarter thus far
- Worldwide same-store retail revenues increased 14.3% during the quarter,
- Our year-over-year comparison, our online revenues increased 116%, and we picked up 10 percentage points in market share going from approximately 20% of the online market to 30%. On the store side, despite the store-based industry's first quarter decline, our customer visits and new membership sign-ups were both at the highest levels we've experienced in two years
CEO John Antioco
"We're also attracting customers from outside the video rental category, customers who have been getting their movies from other sources,like satellite or cable pay per view services. Simply put, consumers are discovering or rediscovering Blockbuster in increasing numbers because of the flexibility, the convenience, and the value Total Access offers. As a result, we believe we will continue to pick up share in the overall rental market by attracting business from both our traditional and non-traditional competitors".
"We also believe it will be very difficult for our major online competition to impact our growth since we don't think they have an answer to what we believe is a superior integrated service. Our competition has said they will simply wait us out until we change our proposition. They may have a long wait. We have no intention of making any changes to our Blockbuster Total Access proposition any time soon, unless we feel these changes will fuel our growth even faster or improve our cost efficiencies and service metrics".
Antioco was referring to NetFlix (NFLX) CEO Reed Hasting's who said it's "not a question if, but when Blockbuster will reset prices," and that Blockbuster's low prices weren't "economically feasible."
Here is the issue, is everything is working as planned, why did Blockbuster's operating loss for the first quarter totaled $18.4 million as compared to operating income of $32.1 million during the first quarter of 2006 and cash flow was also a negative $144 million, down from a positive $41 million in 2006.
Unfortunately for Blockbuster, Hasting is right. They cannot add and subscribers and revenue and then increase losses and say "everything is working". Blockbuster has two choices. They need to either rapidly accelerate the rate of store closings or raise prices because what they are doing now is just not getting it done. They were late to and continue to realize the stand alone video store concept is dead (or on its last breath). Technology is taking care of it. The race here is not to the mail, but to the download. When people are able to downloads movies to their TIVO's (TIVO) or TV's are internet enabled and they can do it that way, mail and store video rentals cease to exist. This technology does exist and will be more prevalent in the next 2-3 years. Click here for an article on it. The early bird price here ironically goes to neither of these companies but to Amazon. (AMZN)