Blockbuster Loss Widens; Next 18 Months Remain ‘Challenging’

As if Blockbuster (NYSE: BBI) didn’t have enough competition, this week’s news that Wal-Mart (NYSE: WMT) is buying digital home video service Vudu comes just as the Dallas-based movie renter is taking a cautious approach to build its vending and on-demand. Blockbuster’s net loss widened to $434.9 million in Q4 from $359.8 million last year. During the earnings call, Jim Keyes, Blockbuster’s chairman and CEO, said that the company will proceed cautiously as to how aggressive the company should be on store closing and pursuing its streaming and vending services. Keyes said he was encouraged by Netflix’s and Redbox’s agreements with Warner Bros. (NYSE: TWX) on holding new releases for a 28-day window.

Blockbuster has already closed several hundred retails outlets, while at the same time, it’s added 2,000 new Blockbuster Express kiosks. The company plans to rapidly expand that kiosk business to 7,000. The Blockbuster On-Demand service remains small, with MSO partners including Mediacom and Suddenlink. Keyes: “If the other studios follow suit on the 28-day window agreement with Redbox and Netflix (NSDQ: NFLX), that would make sense to keep stores open. We’re not just about rentals, we have a strong retail sales business. So if everyone has to keep to that 28-day window, we would be in a good position.

Asked if Blockbuster a being a bit too conservative in its approach to the digital VOD business, Keyes responded, “This is an industry that is going to experience more dynamic change over the next six months. These times demand a conservative approach.”

On the digital and international end, executives said that Blockbuster is looking for strategic partners in other companies to digital and retail stores. CFO Tom Casey said, “You wouldn’t want to see 10 different Blockbuster digital solutions worldwide. We want one bridge to digital. If someone wanted the digital assets and not the stores, we could do a straight sale. But mostly, we’re looking at this as a shared partnership. But it will depend on the buyer and on the price.”

Asked about Wal-Mart’s purchase of Vudu, Keyes said that all the activity in the VOD space will work in our favor. “We think the Wal-Mart deal is ultimately a good thing. Best Buy has declared as well. You have to understand, they’re not just going to stock their own brand. They’re going to have to stock the leading brands, and that will include Netflix and perhaps Amazon (NSDQ: AMZN) as well. And Wal-Mart is in a perfect position to work with consumer electronics companies to press them on VOD streaming capabilities. As for the competition, we’re not worried. The Blockbuster brand is so well-known. Netflix is much more longtail. We’re known for hit movies. So this is all very good to us.”

While Blockbuster might be moving too slowly on its overall digital business, Keyes said he believes that mobile is a space it can take the lead on. He expressed disappointment that the company didn’t get much traction for its announcement this month it would provide on-demand video services to the HTC HD2 smartphone. “Netflix has said that it is not interested in going into mobile. So we think we’ve got a nice head start in mobile.”