WASHINGTON — In a dramatic shift in strategy, video rental king Blockbuster is going after the lunches of Wal-Mart, Best Buy and other retailers who dominate the video sales market.
Blockbuster chairman-CEO John Antioco said Wednesday the chain aims to triple its share of the video sell-through market over the next four years from 3% to 9%.
Company’s decision to increase emphasis on homevid sales is apparently spurred by an accelerating consumer trend to purchase rather than rent movies, especially on DVD.
“Our goal is to break out of the $9 billion rental category and take our share of the $30 billion home movie and game business,” Antioco said during a conference call with analysts to discuss the company’s second quarter earnings.
Blockbuster previously has been reluctant to jump headlong into video sales for fear of cannibalizing its higher-margin rental business. However, consumers’ preference to own DVDs and the lack of a protected DVD rental window, has convinced the company that it can compensate for lower profit margins with higher sales. Based on projected growth in the total movie sell-through biz, Antioco said Blockbuster’s revenue from the category could grow from $400 million this year to $1.8 billion by 2006.
For the second quarter, Blockbuster’s net income leapt 59% to $41.7 million, driven primarily by increased DVD and game rentals.
Revenue for the quarter grew 3.3% to $1.27 billion, driven by a 3.9% increase in worldwide same-store sales.
Planned push into the sell-through biz is not without risk. It would put the chain more squarely into competition with large mass-merchant chains that pursue video sales aggressively, even using video as a loss leader to drive traffic into stores to buy other, more profitable products.
But Antioco noted Blockbuster has more total locations than Wal-Mart, Target, Best Buy and Circuit City combined and has other advantages over retailers that sell but do not rent videos, such as the ability to bundle purchases with free rentals. Later this year, in fact, Blockbuster will introduce a program offering one free rental with every purchase of a new movie or game.
Blockbuster also plans to capture some of the retail market by emphasizing sales of previously viewed DVDs. Next month, it will roll out its Rent It, Like It, Buy It program nationally, allowing customers who rent a movie to qualify for an additional discount if they purchase the same movie used.
The retailer is also focusing on ways to increase its rental business. The chain recently introduced weeklong rentals for both movies and games, which it hopes will increase the number of titles rented in each transaction. The chain will also kick off a test of a subscription rental model in the first of four cities next month.
The program, similar to that of the online service Netflix, will differ in each market, but generally would allow customers to keep between two and four titles out at a time for a price ranging from $19.95 to $24.95 per month.
“We know our average customer spends about $14 a month with us,” Antioco said. “If we can get them to trade up even to the low end of $19.95, it’s a good move for us.”
(Paul Sweeting is a reporter for Daily Variety sister publication Video Business.)