November 1, 2007, 12:00 AM

Blockbuster turns in a weaker third quarter performance

Looking to cut costs and improve profitability, Blockbuster is cutting back on advertising for Total Access. In Q3 Blockbuster’s online movie rental business grew by 122%, but overall sales dropped by 5% while the net loss rose by 42%.

Don Davis

Editor in Chief

Blockbuster Inc. continues to grow the top line of its online movie rental business. But the company is cutting back on promoting Total Access, the expensive marketing and customer service program that gives subscribers the option of returning their online rental DVDs by mail or exchanging them at participating Blockbuster stores.

In the third quarter Blockbuster’s online movie rentals grew by 122% to $143.9 million from $64.7 million in the prior year. But overall Blockbuster, No. 51 in the Internet Retailer Top 500 Guide, reported a net loss of $35 million on revenue of $1.24 billion, compared with a net loss of $24.7 million on sales of $1.31 billion in the prior year. For the quarter Blockbuster’s net loss grew by 41.7% while sales dropped by 5.34%.

In the wake of a weaker quarter, Blockbuster will reduce its marketing expenditures related to Total Access and take other measures to control costs. Though it isn’t releasing any specifics, Blockbuster will reduce its advertising spending on Total Access and minimize the promotion of Total Access in its network of 7,800 stores worldwide. The company is also consolidating its online operations into the parent company and reducing overhead in other areas to achieve annualized savings of about $45 million.

“We believe the actions we have taken over the last quarter have better positioned Blockbuster for the future," says Blockbuster CEO Jim Keyes. "Going forward, we are focused on protecting our core rental business, developing new retail opportunities, and becoming the preferred provider of digital entertainment.”

In the third quarter Blockbuster reduced its spending on advertising by 16.7% to $27.5 million from $33 million. For the first nine months of the year, advertising spending rose by 49% year over year to $158.9 million from $106.7 million. “Through its stores, through the mail and eventually through the digital delivery of content going forward, the company will no longer be narrowly focused on its online subscriber count but instead will concentrate on the growth of, and report on, its total membership,” says Keyes.

Through the third quarter, Blockbuster has accumulated about 3.1 million online subscribers, the company says. For the first nine months of the year, online movie rentals grew by 121.3% to $385.5 million from $174.2 million in the prior year.


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