Earnings: Blockbuster 1Q Net Losses Grow, Revenues Rise, Both Attributed To Its Total Access Program

Citing costs associated with its Total Access subscription rental program, Blockbuster (NYSE: BBI) experienced a growing 1Q net loss of $46.4 million as compared with the $1.9 million net loss for the prior year’s period. Nevertheless, that program also drove revenues 5.4 percent higher to $1.47 billion from $1.40 billion for same period the year before as the number of Total Access subs nearly doubled within the past five months to 3 million. In a pre-call statement, John Antioco, Blockbuster’s chairman and CEO, commented on the costs related with building its Total Access as it competes with rival DVD rental company Netflix, which said Blockbuster wouldn’t be able to sustain such hits during its earnings report last month: “While this aggressive growth requires investment this year, we believe it’s the right thing for the business and will contribute to our future profitability and to the long-term success of the company.” Some other highlights from its 1Q report:

— Rental revenues for the period were essentially flat at $1.05 billion despite growth in revenues from Total Access, which added approximately 800,000 subscribers during the quarter, which offset what Blockbuster called a larger than expected decline in the in-store rental business.
— Operating losses totaled $18.4 million, compared to operating income of $32.1 million for the same period last year. Gross profit decreased $27.7 million primarily as a result of the decrease in rental gross margin.
— Total selling, general and administrative expenses increased $24.3 million from 1Q06 to a higher level of promotional activities, including an incremental $35 million mass-media advertising campaign aimed at growing the Total Access subscriber base. The higher advertising costs were partially offset by an approximately $13 million decrease in general and administrative expenses driven by a smaller company-operated store base.
— Blockbuster sold its U.K.-based Gamestation chain to The Game Group for approximately $150 million, and plans to use most of the proceeds from the sale to pay down outstanding debt. More to come. Earnings release | Webcast

Update: According to the Seeking Alpha transcript, Antioco, who noted his departure by the end of the year, said that in a year-over-year comparison, Blockbuster’s online revenues increased 116 percent. Secondly, the company picked up 10 percentage points in market share, going from approximately 20 percent of the online market to 30 percent. As for Total Access the company plans to invest upwards of $170 million in the program this year and would add an online-only option for customers later this year. He and other Blockbuster execs decided to avoid mentioning competitor Netflix, which predicted during its call two weeks ago that Blockbuster’s aggressive pricing under Total Access could not be sustained and that Blockbuster would eventually have to pass on the cost to consumers.