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Vid chains pinched by B.O. pains

B'buster warns video market in decline

WASHINGTON — Blockbuster on Tuesday became the second major rental chain to warn investors of disappointing quarterly results, saying that the box office slump is extending into the vidtailer market as well.

Dispelling the theory that moviegoers are opting to stay at home and rent movies on DVD, the home video rental market was down 2.3% in the first half of the year. That decline is even larger when online rental services like Netflix are taken out of the equation, meaning traditional stores like Blockbuster are suffering even more. And VHS spending is — relatively — a non-factor; total spending on the rental and purchase of videocassettes now represents less than $900 million of the overall $11.4 billion home video market.

Industry observers have expressed concern that the lackluster performance of theatrical releases in the first half of the year will translate into an ongoing malaise on DVD in the second half of the year.

“Overall industry decline and continued poor theatrical performance had a negative impact on the second quarter and has created uncertainty about the balance of the year,” Blockbuster chair-CEO John Antioco said in a statement issued after a presentation to bankers.

Blockbuster’s stock plunged 6.15% upon the news. Shares fell 53¢ to close at $8.09.

Last month, No. 2 rental chain Movie Gallery also warned investors that a weak video release slate would undercut second-quarter earnings and could negatively affect results in the second half of the year.

If the downturn continues, it could prove another troubling spot for the entertainment biz, which already is grappling with the fact that DVD sales have flattened out after eye-popping growth.

At the same time, however, Internet vidtailer Netflix is showing no signs of financial wear. Last month, the company reported that its second quarter profit nearly doubled to $5.7 million, and that revenue also grew by a healthy measure compared to the same quarter a year ago.

Antioco said Blockbuster is “taking aggressive actions in the back half of the year to address continued weakness in the rental industry.”

On July 19, Movie Gallery announced that same-store sales for the second quarter fell 5.5%. The company also trimmed its planned new store openings for the year from 400 to 300.

Blockbuster will announce full second-quarter results Aug. 9; Movie Gallery will report Aug. 12.  

(Paul Sweeting is a reporter for Variety sister publication DVD Exclusive.)