Online Rental Outlays Well Worth the Payoff, Blockbuster Says
Blockbuster’s Q1 bottom line took a heavy hit from its investments in Total Access, its hybrid store and Internet rental program -- but as its payoff, Blockbuster has grabbed significant market share from Netflix in online DVD rentals, CEO John Antioco told analysts Wed. in a quarterly earnings call. Investments in Total Access hit Blockbuster’s bottom line, as did the “extremely tough” market in brick & mortar DVD rentals, he said.
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But in Q1 Blockbuster “significantly outperformed the competition,” Antioco said, not citing Netflix by name. In the quarter, Blockbuster captured over 60% of “subscriber growth in the online space,” he said, adding that: (1) Online subs grew 35%. (2) Online revenue jumped 116% from Q1 a year earlier. (3) Online market share rose 10 points to 20%.
In the 5 months since launching Total Access, Blockbuster nearly has doubled its online subscriber base to 3 million, Antioco said. Blockbuster spent about $70 million Q1, mainly buying more DVDs needed to support in-store exchanges from the traffic that Total Access produced, he said. Blockbuster will invest $100 million more on Total Access the rest of 2007, he said. Blockbuster’s expected payoff: Doubling the number of subs to “well in excess” of 4 million this year, Antioco said.
With Netflix downgrading projected subscriber growth, Blockbuster thinks it may capture “all of the total net growth” in online rentals in Q2 and nearly 70% for the year, Antioco said. That compares with Blockbuster’s 20% capture rate before Total Access, he said.
Blockbuster thinks it will be very difficult for “our major online competition” to stop the growth of Total Access, Antioco said: “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.” Netflix CEO Barry McCarthy, in the company’s latest quarterly earnings call, said Netflix is “content to grow more slowly, but profitably, while we wait for Blockbuster to rationalize their pricing, at which point we expect our growth to accelerate.”
Blockbuster also is investing in Total Access as “our gateway to digital delivery,” Antioco said: “We want to establish an online relationship with customers today through online movie rentals and sales, so when it comes to renting and selling downloadable movies, Blockbuster is the first brand they turn to.” -- Paul Gluckman
Clarification: Samsung Electro-Mechanics Co., a Korea- based part of the Samsung group of companies with no subsidiaries or operations in the U.S., is a member of the White Spaces Coalition. Samsung Electronics and its U.S. subsidiaries are not (WID May 3 p7).