Blockbuster Closing 282 Stores; Netflix Cuts Price of 2-DVD Plan

Movie-rental chain Blockbuster Inc. said Thursday it will shutter 282 stores, reflecting a worse-than-expected decline in rentals this year. The company, which closed about the same number of stores last year, has over 8,000 stores around the world. Revenue from in-store rentals dropped 13% across the industry from last year, well beyond the 7.5% the company had forecast. "[In-store] traffic is just not what it used to be when Blockbuster was the big rooster in the hen house," said the Motley Fool's Andy Cross. Online rentals, however, will amount to $1.9 billion this year, 46% more than in 2006. On Wednesday, Blockbuster settled a suit brought by Netflix that alleged Blockbuster had violated Netflix's online service patent. Terms were not disclosed, but Blockbuster said the settlement will have no material effect on the company. In related news, Netflix lowered the price of its two-at-a-time rental plan to $13.99 per month to match a similar Blockbuster plan. On Thursday, Blockbuster hinted it might raise prices on its Total Access program. Shares of Netflix declined 4.5% to $19.85; Blockbuster shares were off .95% to $4.16 before declining a further 1.4% to $4.10 after hours.

Sources: AP I, II, MarketWatch, Bloomberg I, II
Commentary: Blockbuster and Netflix Settle Patent Infringement Suit; Terms 'Not Material' • Blockbuster Hints At Price Rise For Total Access Program; Netflix Rises • Will 'Burn On Demand' Eventually Save Blockbuster?
Stocks/ETFs to watch: Blockbuster Inc. (BBI), Netflix, Inc. (NFLX). Competitors: Amazon.com (AMZN), Apple (AAPL), Movie Gallery Inc. (MOVI), Hastings Entertainment Inc. (HAST). ETFs: PowerShares Dynamic Leisure & Entertainment ETF (PEJ)
Conference call transcripts: Blockbuster Q1 2007, Netflix Q1 2007

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Comments

[Lisa:]

This is exactly the sort of price war you don't want to be caught in as an investor. There's no way these two stocks are longs; the only question is whether the price war will be so bad that you want to short them both.

It will be interesting to hear what Netflix has to say on its conference call.

2007 Jul 23 11:49 AM

[Long-Short Guy:]

Well, someone's already making a lot of money off this:
<blockquote>
<b>Blockbuster, Netflix Duel for Customers; Short Sellers Profit</b>

...About a third of Blockbuster's float, or shares available for trading, was borrowed and sold to profit from falling prices. Traders sold short 20 percent of Netflix...

``You're not going to have a winner and a loser -- you're going to have two subpar performers,'' said Alan Lancz, who helps manage about $100 million as president of Alan B. Lancz & Associates in Toledo, Ohio. Lancz has had a short position in Netflix since April 2006. ``It's harder and harder to maintain a customer base, let alone grow it at a reasonable level. I don't see that changing soon.''...
</blockquote>

Source:
www.bloomberg.com/apps...;sid=arKUh3RuTKvM

2007 Jul 23 11:56 AM