Blockbuster Ends Q4 With Profit; 3.1 Million Online & In-Store Subscribers

Blockbuster announced 2007 and Q4 2007 financial results, and online and same-store revenue was up 7.4%.

Blockbuster is internally viewing in-store and online subscribers as one service, so they are reporting that they have 3.1 million combined subscribers. They are not breaking out Total Access subscriber numbers for competitive reasons at this time.

Total Q4 revenue increase 3.6% to $1.57 billion (more than Netflix does in a year).

Q4 net income was $38.1 milion, up from $8.3 million in Q4 2006.

Adjusted net income, excluding severance costs, was $54.9 million.

Total revenue for 2007 was $5.54 billion, up 3% over 2006, with a net loss of $85.1 million.

Management expects cost cutting measures to save $100 million in 2008.

Blockbuster will restate 2005 and 2006 financial statements to "correct identified errors."

2008 capital expenditures will total more than $130 million.

Blockbuster has 40 distribution centers for Total Access.

Here are the highlights from the Blockbuster Q4 2007 webcast:

Blockbuster CEO Jim Keyes said that "pruning" the Total Access customer base made the system profitable.

Keyes believes that the core DVD business will "be a solid a profitable business for a number of years to come."

Blockbuster is competitive across the board with Netflix, starting with Blockbuster's $3.99 vs. Netflix's $4.99.

Blockbuster signed a media deal with Yahoo! to market Total Access and By Mail.

Blu-ray demo kiosks in 2,000 stores.

Working with studios to improve in-stock availability and make sure movies are available on Friday and Saturday nights.

Sold more than 11,000 $599 Blockbuster PS 3 bundles. Believes the Wii customer is the existing Blockbuster customer.

Blockbuster will be updating stores with modern fixtures.

Movielink integration is under way and will roll out to customers in Q2 (testing to begin in March).

Blockbuster will slow closings of stores, and try to turn around unprofitable stores.

International business accounts for more than 30% of revenue and profit.

Blockbuster paid down $79.2 million in debt during Q4.

Blockbuster made some hard decisions in 2007 to close stores and cut costs, and in 2008 we will see the results of the changes that Keyes and his team are implementing. It will be interesting to see how Blockbuster integrates and prices the Movielink service, which would give them retail, online rental, and download offerings. It looks like Blockbuster is going to do well in 2008, but will they be able to slow Netflix?

Comments

[Baff]

""pruning" the Total Access customer base"

Heh.

[mattd0g]

I'm not sure why wall street didn't react more favorably to this news. The stock went up and then returned to where it started.

I think if BB were smart, they would get people in every community to sign a petition to not allow R rated titles in the kiosks in stores. Some stores are already pulling the R titles because of community objections to access by children. The machine only asks you to input your age...that was the death knell for cigarette vending machines.

Tony Wible had this to say about the news (along with an $8 price target for the stock)
"relative to the competition, we continue to believe Blockbuster possesses an unmatched competitive advantage through its five-point distribution plan that will soon offer content... in-store, by mail, online download, DVD kiosks, and through flash [memory] cards."

[Jeff from Knowzy]

I'm trying to understand who they consider a "subscriber" in their new reporting.

The conference call was almost comical in how evasive management was when pressed by analysts for an accounting of their sub count.

When they reported online subs in November, they had 3.1 million subscribers. Today, their combined subsciber base is 3.1 million.

Clearly they lost some Total Access/By Mail customers after the X-Mas price hike.

What else could go into the Blockbuster subscriber count? How about:

* In-store subscriptions (confirmed)
* International customers - Online sub count was US only.
* ???

Can anyone else help complete this list?

[Old Timer Too]

Yeah, I think they are reporting total membership base as subscribers. That means that if you have a BB card, you are also counted as a subscriber.

Their on-line subscriber base has to be a fraction of what it once was for more than just price. I believe they also lose out on people like me who want to get more than three at a time plans. I've dropped total access as the increased price is not worth it (along with the cost of gas just to go to a store).

[Jeff from Knowzy]

That would be very deceptive indeed if they were counting members as subscribers. I don't think that's the case, though.

I don't have the number in front of me but I think US membership is in the 7 million range. In their 3Q earnings release, they stated they had 20 million customers worldwide.

FYI, here's one exchange from the Q4 conference call about online sub figures:

Barton Crockett - J.P. Morgan

...You guys have historically given us some sense of online subscribers. I know you’ve said you want to get away from that, but as kind of a bridge, can you just give us some sense -- I mean, did they trend up or down? The verbiage was a little bit unclear to me there. So that’s kind of the first question.

James W. Keyes

Good morning. As it relates to our subscribers, we have a unique advantage here. We can pick up subscribers now in three different ways -- online, in both digital form, online via by mail, or in-store. And we can take our subscribers across channel, so we are by design trying to meld our subscription business into one because the unique advantage of our subscription is to be able to offer, as you saw with total access, true total access across all channels.

So increasingly, we are looking at our subscription business internally as one as well as externally, so that’s why we are putting it all together. And candidly, we would prefer, since our competition is mostly in one channel today, which is the by-mail, we prefer to keep our segment information somewhat to ourselves for a while going forward.

Barton Crockett - J.P. Morgan

Okay. All right, so I guess that answers that...

If we can at least identify what components make up their subscriber count, we would have a sense of just how many online customers they lost.

3 months ago, Citigroup's Tony Wible predicted they would lose half of their online subs as a result of their December price hike. That would bring Blockbuster down to 1.55 million subscribers.

It seems to me his prediction was reasonably accurate. But I can't be sure without knowing what goes in to their new count.

"3 months ago, Citigroup's Tony Wible predicted they would lose half of their online subs as a result of their December price hike. That would bring Blockbuster down to 1.55 million subscribers.

It seems to me his prediction was reasonably accurate. But I can't be sure without knowing what goes in to their new count."

I don't think that prediction (of 1.55 million subscribers) is even close to accurate. But that is just my opinion.

I don't think there are a lot of people that use Blockbuster's Movie Pass (well, at least not anywhere close to 1.5 Million).

Blockbuster and Netflix aren't directly comparable, and both companies choose to keep some information close to the vest.

Most people IMHO are on the "new" Total Access plan. So, a price hike of about $2 isn't so significant that half of Blockbuster's Online subscribers would have instantly defected (I don't think half of Blockbuster's customers were abusing the TA plans).

I do see that Blockbuster is starting to do more online advertisements again the lack of which probably did have some effect on the number of online customers Blockbuster lost in the 4th Quarter.

[Edward R Murrow]

"The company paid down 5% of its outstanding debt during the quarter (and 23% since last year) and generated positive free cash flow after posting negative cash flow last quarter"

Looks like a pretty good quarter. One of the main reasons could be that the unprofitable customers shifted from Blockbuster to Netflix.

[Old Timer Too]

Jeff - thanks for posting that bit from the call. I appears (to me, at least), that BB is not counting general card holders. Instead, it appears they are counting:
1. Total Access (by-mail with exchange)
2. Mail only (like me), which is equivalent to NF, but without the range of plans.
3. Store only plans (no mail).

So, at 3.1 mil, they are holding and that's it. The first two categories have lost subscriber base, and possibly as much as half, if the store only plans account for half the total figure.

Since they have alienated a lot of former customers, I'm not sure that any increase in advertising is going to do any good to increase traffic.

Store makeovers may generate revenue in the form of merchandise sales, but I have to wonder how many boxed sets (at full retail) they actually sell.

BB isn't out of the picture, but their significance in keeping NF in check is much lower than it was last year.

[new balance]

If you wish to succeed , you should use persistence as your good friend , experience as your reference , prudence as your brother and hope as your sentry.

[new balance]

Only those who have the patience to do simple things perfectly ever acquire the skill to do difficult things easily .