The following factors are contributing to money troubles for Netflix nemesis Blockbuster:
resignation of its president and chief operating officer, Nigel Travis.
Rental revenue declined 3.8% to $1.1 billion, as solid growth in DVD and game rentals failed to offset a sharp drop-off in videotape rentals.The good news: "Merchandise sales rose 26% to $333 million."
Blockbuster is facing a shrinking video-rental business amid growing competition from mass retailers such as Wal-Mart Stores Inc. (WMT) and Best Buy Co. (BBY) selling low-price DVDs.[don't forget Netflix]
The company also said its profitability for 2004 will "decline significantly" because of the goodwill impairment charge and increased investments in key initiatives, among other things. The company's full-year investment in new initiatives will increase to about $120 million, in part because of early launch of online rental.
Blockbuster expects the rental industry will continue to decline in 2005, but said it believes the sector will stabilize by the end of 2005 as DVD penetration is projected to reach 70% of U.S. households.
The company also said it expects to continue to invest heavily in the business next year, which combined with projected softness in rental revenue, will hurt profitability in 2005."Investment in key initiatives" might mean VOD, and we all know what the "early launch of online rental" means. They started that business too soon. Between the decline of in-store rentals, and trying to build an online rental business, they're not going to make any money this year or next. That gives Netflix, who says they'll break even next year, the advantage.
Here's a link to a press release that you can view without registering or being a subscriber.
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