Blockbuster on Monday tapped 7-Eleven vet Jim Keyes to take the reins from embattled chairman-CEO John Antioco, who agreed to step down earlier this year.
Blockbuster’s new CEO comes aboard at a perilous time for the vidtailer: It’s bleeding money on its Total Access “bricks and clicks” strategy and closing stores by the hundreds in a bid for greater profitability.
The Dallas-based chain, still a force to be reckoned with but nowhere near as powerful in Hollywood as it once was, is struggling to reposition itself online and fight the perception on Wall Street that it is, in the words of one analyst, “a dinosaur.”
The chain’s board of directors determined that Keyes, who has deep bricks-and-mortar ties, was just the man to help Blockbuster make the transition. Antioco, who had been embroiled in a nasty compensation battle with shareholder Carl Icahn, is expected to assist Keyes in an orderly transition.
Keyes, 52, was prexy-CEO of 7-Eleven from 2000-05, exiting the chain upon its sale. He first joined the company in 1985, working for Citgo Petroleum, then a subsidiary. After ankling 7-Eleven, he busied himself with philanthropic affairs and real estate investments.
The new topper said he plans to use technology to boost Blockbuster’s perf in both the physical and virtual realms, declaring that there are myriad ways to improve the in-store and online.
“I’ve done it before,” Keyes said, alluding to the ways in which he broadened 7-Eleven’s product mix and electronic services during his stint there.
Keyes will need all his technological know-how to reinvigorate Blockbuster, which last week announced it would shutter 282 more stores this year on top of the 290 locations closed in 2006. It also indicated last week that it expects to have lower earnings than is required by a consortium of its lenders due to heavy investment in the Total Access online program. The chain said it was seeking to amend those requirements by this month.
Blockbuster now projects profitability for its Total Access program next year. It has some 4 million subscribers in its “bricks and clicks” program.
The chain posted a $46.4 million loss in the quarter ended April 1 on declines in in-store rentals and costs associated with store closures.
The chain still commands around 40% of the slowly eroding $7.67 billion vid rental biz. (By comparison, the sell-through portion of the biz inched up slightly to $15.91 billion last year.)
Keyes, who has yet to meet studio execs, acknowledges the challenges of integrating physical stores with online activity as the industry moves toward electronic distribution.
“I see a huge opportunity in this transformative process,” Keyes said.
Last year, in-store rentals declined to $7.1 billion vs. $1.3 billion in online rentals; this year Adams Media Research estimates that in-store rentals will slip to $6.5 billion and online rentals will climb to $1.9 billion. Digital download business is even smaller but expected to rise.
Other rental outfits are struggling with the same concerns. On Monday, Movie Gallery, the nation’s second biggest chain, said it would not meet the terms of its credit facility for the quarter ended July 1 due to soft rental demand. And online rival Netflix, long a Wall Street darling, has taken heat for its struggles to move into the digital download arena.
Keyes will receive a smaller salary than Antioco — $750,000 vs. $1.25 million — but will be eligible for bonuses no smaller than $500,000 under his three-year contract. Antioco’s hefty compensation became a battleground with shareholders led by Icahn after he received a pay package exceeding $50 million in 2004. His conflict with shareholders over this 2006 bonus ultimately led to his departure from the chain after a 10-year run as CEO.
Keyes doesn’t seem that cowed by Blockbuster’s challenges, noting he turned around 10 years of flat or declining sales at 7-Eleven. “We had almost 10 years of improvement by using technology to improve the customer experience,” he said. “As simple as that sounds, it’s not that easy to do.”
Nor, he says, is he overly concerned about the perception that the chain’s on the road to extinction.
“Blockbuster is a race horse in dinosaur’s clothing,” Keyes said, before recounting the ways the brand could be leveraged through new technology. “We truly could be a thoroughbred in an emerging industry.”