May 31, 2006, 12:00 AM Fastest growing Top 500 retailer

How the web is shoring up Blockbuster`s fading fortunes.

>“Wow! What a difference!” Indeed, Blockbuster Inc.’s old marketing slogan well describes its e-commerce activity last year. Blockbuster Online (No. 70) was the fastest growing e-commerce site in 2005 of all the companies in the Internet Retailer Top 500 Guide to Retail Web Sites. But that milestone is among the few bright spots last year at the movie rental kingpin.

Blockbuster has struggled financially for several years as it copes with changing consumer entertainment demand and an overall industry decline in movie-related sales. In 2005 Blockbuster’s total revenue slipped 3.1% to $5.86 billion from $6.05 billion in 2004. Revenue from its start-up online movie rental business, however, grew 1,605.8% in 2005 to $146.7 million from $8.6 million in 2004. Blockbuster Online, which has 1.2 million subscribers, now represents 3.5% of the company’s total movie rental revenue vs. just 0.2% in 2004.

In the midst of its bricks-and-mortar blues, Blockbuster is committed to e-commerce and expects Blockbuster Online will achieve its goal of 2 million subscribers by the end of the year and become profitable in 2007, the company says.

Plans for continued growth

Blockbuster will achieve e-commerce profitability through a mixture of multi-channel retailing, offering online customers more options to rent and own games and DVDs, and other measures, says John Antioco, chairman and CEO.

One measure the company has taken was hiring Chris Terrill in April to serve as vice president of product and marketing for Blockbuster Online. Terrill in his previous position at helped grow the business, direct the re-launch of core web services and introduce several online sites under the umbrella. Today he is in charge of growing the Blockbuster Online subscriber base and leading the development of the e-commerce site through new features, functionality, testing and design. He also is focusing on search engine management and optimization and integration with Blockbuster stores to help boost web sales.

“Our goal is to continue to grow our share of the online rental market,” says Shane Evangelist, senior vice president and general manager at Blockbuster Online. “With Chris we have a strong marketer with extensive experience in the online world who should be able to do just that.”

One possible impediment to Blockbuster’s growth is a lawsuit filed earlier this year by rival Netflix Inc. (No. 21) asking a federal court to shut down Blockbuster’s online rental service. Netflix claims Blockbuster Online violates two Netflix patents: one covering the Netflix business method of allowing consumers paying a monthly fee to select and rent DVDs from the company’s site and maintain a list of titles telling Netflix in which order to ship the DVDs; the other, the Netflix policy allowing subscribers to keep the DVDs for as long as they want without incurring late fees.

Patent attorney Bruce D. Sunstein of Bromberg and Sunstein, a Boston-based intellectual property law firm, says Netflix’s technology claims are short and broadly written, a factor that typically runs in favor of the patent holder. Also, Netflix listed several pages of patent documents it reviewed before submitting its patents, decreasing chances a similar system exists, Sunstein says.

More mega growth?

Boosting sales another 1,600% or so this year could be quite a challenge because of the decline in movie sales and the stiff competition from Netflix, which hit sales of $688 million in 2005 compared with Blockbuster Online’s $146.7 million. Still, Blockbuster is steadfast in its confidence in e-commerce.

“We will continue to pursue growth opportunities offered by online rentals,” CEO Antioco says, “and establish Blockbuster Online as a profitable business.”


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