Theater owners' gain was Blockbuster's loss

Theater owners’ gain was Blockbuster’s loss in the first quarter.

First-quarter profit fell 39% as the largest U.S. movie-rental chain suffered from a “weaker” DVD release slate and lower in-store inventory stemming from cost-cutting efforts, combined with tough box office competition that drew people away from rental and into theaters.

In an effort to improve its fortunes, Blockbuster will roll more than 3,000 Blockbuster Express kiosks into stores by the end of the year and has introduced cheaper, single-day rental options in about 600 U.S. stores.

Blockbuster’s net income for the quarter ended April 5 was $27.7 million, or 12¢ a share, down from $45.4 million, or 20¢, a year earlier, as sales declined 19% to $1.12 billion. Blockbuster was expected to earn 15¢ a share on sales of $1.3 billion, the average analyst estimate in a Thomson Reuters survey.

U.S. same-store sales fell 10.9% from a year earlier as rental sales declined from the combination of lower inventory levels necessitated by the company’s refinancing efforts and a weak DVD release slate. Strong theatrical demand also hurt rental demand, Blockbuster chief exec Jim Keyes said Thursday on a conference call with analysts.

“Frankly, we’re very glad the first quarter and our refinancing are behind us,” Keyes said. “More people are going to the movies each week in 2009. The good news is these titles will be hitting our shelves.”

The company said in March that it would try to cut costs for at least the early part of this year on items such as retail inventory and capital expenditures. Such cost-cutting measures were to be part of its effort to cut debt by about $100 million to comply with the new $250 million refinancing agreement, which extends a line of credit more than a year past its previous due date of August and which was finalized earlier this week.

Between its positive cash flow, sales of some of its overseas assets, renegotiation of its store leases and closures of underperforming stores, the company will try to cut its debt by about $400 million within the next two years.

Still, while postponing planned store remodels, Blockbuster will continue to increase its investment in both its digital-delivery product and kiosk program. Last month, ATM-making giant NCR agreed to acquire the majority stake in movie-rental kiosk operator TNR Holdings in an agreement that would speed up the kiosk-making partnership NCR began with Blockbuster last year and help accelerate the process of developing as many as 10,000 Blockbuster Express machines by the end of 2010.

Keyes said Thursday that more than 3,000 machines, which have double the storage of kiosk-leader Redbox’s machines and may be set up to accommodate DVD sales, trade-ins and digital downloads, will be in place by the end of the year.

In addition, Blockbuster is planning to make its video-on-demand service available through a wider range of electronics components this year. Late last year, Blockbuster started selling a set-top box that plays digital downloads from Blockbuster.com directly on consumers’ TV sets. The retailer, which integrated its acquired Movielink digital download service into Blockbuster.com in July, said in March that it will make its digital titles downloadable through TiVo digital video recorders later this year.

The company has also rolled out its program allowing for single-day movie rentals to about 600 of its 4,500 U.S. stores, Keyes said. The program is expected to initially reduce revenue because of a lower average sale per rental but will eventually boost profit because of more foot traffic, Keyes said.

(Danny King is a reporter for Daily Variety sister publication Video Business.)

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