May 2, 2007, 12:00 AM

Blockbuster reports bigger loss, but strong growth in new online service

Blockbuster is paying the price for its head-to-head battle with Netflix Inc., reporting a larger-than-expected loss for the first quarter. The good news: online subscribers have doubled since the movie rental company introduced its Total Access service.

Blockbuster Inc. is paying the price for its head-to-head battle with Netflix Inc., but may yet reap the rewards.

The company reported a larger-than-expected loss in the first three months of 2007, which it attributed to disappointing in-store movie rentals and to the heavy investment it is making in its Netflix-like Total Access online service. However, there are signs the investment in Total Access is paying off, as the company reported it now has three million subscribers to the service, double the number of online subscribers it had when it introduced Total Access in November.

“Our results were impacted by our investment in the growth of Blockbuster Total Access and by an extremely tough in-store rental market,” said John Antioco, chairman and CEO. However, he said the strong Total Access subscriber growth in the first quarter attests “to the consumer appeal of our integrated online and in-store offering, which we believe will allow us to achieve our year-end goal of well over 4 million subscribers.” Blockbuster says it spent $35 million in mass-media advertising for Total Access in the first quarter.

Blockbuster, No. 70 in the Internet Retailer Top 500 Guide, put itself in direct competition with online movie rental pioneer Netflix, No. 21 in the Internet Retailer Top 500 Guide, when it launched its Total Access service that allows consumers to order movies online and receive them in the mail-just like Netflix-but added the additional inducement that consumers can exchange their movies for new ones at nearly 5,000 Blockbuster stores. Subscribers pay $17.99 if they want to hold three movies at a time, the typical Netflix offering; both companies also offer less expensive options.

The growth in Total Access subscribers helped boost online movie rental revenue to $108.9 million in the first quarter, more than double the $51.2 million of the same quarter in 2006. Online rental revenue represented 10.4% of company revenue in the 2007 quarter, compared with 4.9% a year ago.

Total revenue increased 5.4% to $1.47 billion in the first quarter. But the company reported a net loss of $46.4 million, or 26 cents a share, in the quarter, compared with a loss of $1.9 million, or 3 cents a share, in the year-ago quarter.

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