|
sponsored by
|
| Tuesday, December 26, 2006 |
|
SPONSORED LINKS |
Blockbuster struggles with changing marketVideo-rental giant loses some franchise outlets in the Las Vegas ValleyLas Vegans looking to rent movies during the holidays should find themselves with no shortage of deals. The line between online and in-store is blurring and the Blockbuster chain has thrown down the gauntlet to challengers such as online rentals and downloads, rental kiosks, and DVD sales, which have all eroded the profits of brick-and-mortar operations One sure sign of the change is the demise of some local Blockbuster franchises. The top movie renter has 27 corporate stores in the Las Vegas Valley, but has seen the last of its franchisees shut their doors this year. Las Vegas-based JAS Associates closed its four Henderson franchises and one in Mesquite at the end of April. JAS also shuttered its two Utah stores. One source familiar with the situation said Blockbuster's elimination of late fees made it impossible for JAS to keep newly released movies on the shelves, as people had no incentive to return games and movies on time. The franchisee couldn't survive in a "competitive market," Blockbuster spokesman Randy Hargrove said. JAS and its registered agent could not be reached for comment.
A SHRINKING PRESENCE The Blockbuster corporation plans to take over and reopen two of the Henderson stores -- one at Anthem Village and Eastern Avenue, the other at College and Horizon drives -- next year, Hargrove said. Another three corporate stores closed in the last year (one due to a fire), with just one new location added since 2005. Las Vegas was not alone in losing movie-rental stores. Nationwide, Blockbuster closed 301 stores and added only 57 in the first nine months of 2006. "With our business, there has been some consolidation," Hargrove conceded. Things could be looking up for Blockbuster, though. The movie-rental chain has become aggressive in marketing its online component after seeing Netflix snap up 10 percent of the rental market, according to analysts and industry observers. "They are really pushing for subscribers," noted HackingNetflix.com blogger Mike Kaltschnee. Bush Morgan analyst Michael Pactor likes Blockbuster's long-term earnings prospects. "They won't be great for a year or two, then they'll be good," he said. As the Total Access online program kicked off in November, Blockbuster reported a loss of $24.7 million, or 15 cents per share, for the third quarter. The movie rental chain did narrow its loss from the year before -- $491.4 million, or $2.67 a share -- and increased rental revenue. Blockbuster CEO John Antioco had attributed the loss to 80 store closings in the U.S. and a "terrible" third-quarter lineup of DVDs. Antioco showed confidence in his company's future by buying up 220,000 shares, which increased his stake to 1.1 million shares. A BUSINESS BUILT ON LATE FEES The Dallas-based rental giant has been willing to sacrifice some current revenue to grow sales in the long run, according to Hargrove. Gone are Blockbuster's notorious late fees. In 2004, they accounted for some $250 million to $350 million in operating income. The fines were eliminated in corporate stores and at more than 550 franchise locations at the beginning of 2005 (with the exception of a $1.25 restocking fee if customers kept the movie after the grace period expired). By December 2005, however, about 150 more Blockbuster franchisees had retracted their no-late-free promise. They reverted to charging late fees, albeit mostly at a lesser price than before. In-store sales have increased because late fees amounted to 14 percent of total rental revenue in 2004, but that revenue was only off 5 percent in 2005. The demise of late fees did eliminate some of customers' disdain for Blockbuster, noted Kaltschnee. "They don't hate Blockbuster as much," he said. But will less hate translate into more revenue? "My only concern is that it is costing them money," the blogger said of Total Access, unveiled in time for the holidays. Total Access is the program that allows online subscribers to redeem mail-in envelopes at Blockbuster stores for free movies. "If the (Blockbuster online) subscriber brings three movies (rented online) into the store, they get to take three more movies for free," Hargrove explained. Seizing on one of the busier rental periods for video stores, Blockbuster announced earlier this month that it would expand its program to Nextflix subscribers. SHOULD NETFLIX WORRY? Netflix is forging ahead with its own plans, according to Vice President of Corporate Communication Ken Ross. "We have a commanding presence in online movie rental, with a 75 percent share of the market, and in January we will detail our plans for electronic distribution," he said. "If we execute properly, we will continue to grow and grow quite profitably." At least one analyst says Netflix should be worried. "Blockbuster has a good deal because Netflix can't offer it and they don't have the impulse renters," offered analyst Pactor. Blockbuster has 30 distribution centers for its online subscribers but can use another 1,000 stores for that purpose as well, according to Hargrove. Nextflix has 41 centers. Financially troubled Hollywood Video could find it hard to compete, Pactor said, because it is "burdened with debt," dragging down parent Movie Gallery. NO MORE LATE FEES ... OR NOT One obstacle for the leading movie-rental chain is that its 1,000 franchise stores don't have to take part in the Total Access offer, Pactor said. That happened after Blockbuster eliminated late fees, almost two year ago. At that time, only a little more than half of the then-1,060 franchise stores opted into the program. By December 2005, however, about 150 more Blockbuster franchisees had dropped the no-late-free promise. Those stores returned to charging late fees, albeit mostly at a lesser cost than before. "Some franchisees will continue to offer the program, while others will not," Hargrove said. While late fees amounted to 14 percent of total rental revenue in 2004, revenue was only off 5 percent in 2005, after the elimination of late fees. Hargrove pointed to DVD sales as having a greater impact. "It has really changed the industry. There is no waiting period like there was for videos," which were rarely issued at a 'sell-through' price (usually $19.99 or lower) until their rental-shelf life was largely played out. "DVDs are out the same day," as rentals, Hargrove noted. And when they are, they're priced to move. Pactor thinks this is a bigger threat to the rental industry giant than Netflix or Hollywood. "You can buy every movie on DVD," he noted, "and people are buying movies on impulse." When new releases rent for as much as $4 but can be bought second-hand for $5 or even less, the future dynamics of the video-rental business could be very different indeed. vmiller@lvbusinesspress.com | 702-871-6780 x331 |
 | |||||
|
|
|
|||
| |||||
Copyright © 2009, Las Vegas Business Press | Privacy Policy