Blockbuster Shifts Strategies To Improve Its Video Rental Business

Blockbuster stepped up its campaign Tuesday, February 15, 2000, to convince investors that a re-invigorated Web presence, a series of new alliances and general market trends this year will help overcome the anemia in its core video rental business.Thereís still tremendous growth potential for Blockbuster, CEO John Antioco says. The retailer intends to exploit its brand name, its 7,153 stores worldwide and a global database of 65 million customers so that wherever the consumer goes, Blockbuster will be there waiting.He told analysts, in a conference call, that beginning this summer, consumers will be able to visit Blockbuster.com to check their local storesí inventory and rent tapes or DVDs for pickup later that day.Also, Antioco says Blockbuster will announce important strategic partnerships in the very, very near future to expand its ability to offer films and games directly to consumersí TV sets. Over the past few months, the chain has said it would work with MCI WorldCom, TiVo and AtomFilms on digital delivery plans.As it aspires to offer its version of video-on-demand, the company probably will be seeking digital rights to movies when it negotiates new deals with studios, Antioco says.Thatís a shift in strategy for the chain, which once dismissed the notion that consumers might abandon their VCRs for cable or satellite video-on-demand.What theyíre telling you, in essence, is that theyíre going to get killed, so theyíre going to go in and do it, too, says Dennis McAlpine of Ryan Beck & Co.Meanwhile, Blockbuster says DVDs, another technology once seen as a threat, are now a plus. Disc rentals should account for 7 percent of domestic revenue in 2000, Antioco says.He adds that this business could improve late this year if, as he expects, studios significantly raise DVD prices to encourage rentals rather than purchase. Blockbuster would share rental revenue with the studios.The upbeat outlook came as Blockbuster reported a dramatic slowdown in domestic same-store sales. They rose 1.9 percent in the last three months of 1999 vs. the same period in 1998. Thatís down from the 20.5 percent growth Blockbuster saw between the fourth quarters of 1997 and 1998.Figures like these and fears about the future of video rentals have made investors wary of Blockbuster since it went public in August.The stock has been under pressure and depressed, says Edward Hatch of SG Cowen Securities. Blockbuster is a value stock trying to become a growth stock.