According to The Hollywood Reporter, blaming stiff competition, weak product and its own ambitious strategies, Blockbuster Inc. said Tuesday that it swung to a quarterly loss and reported revenue below Wall Street expectations, prompting an 11.7% skid in shares.

The nation's leading movie-rental company also said it was raising the price of the most popular version of its subscription DVD-by-mail service by $3 to $17.99, putting it at parity with Netflix, the company that invented the business model. Netflix recently reported having 3.2 million subscribers, while Blockbuster CEO John Antioco said Blockbuster Online has 1 million subs and will have 2 million by the end of first-quarter 2006.

Blockbuster also said it amended a financial facility in order to avoid defaulting and, because of a waiver, will continue to have access to the revolving credit.

Additionally, the company said it no longer is on track to achieve its forward financial guidance and is unable to forecast full-year results "with reasonable certainty."

Shares of Blockbuster fell 94 cents to $7.07 on Tuesday's news, well off their 52-week high of $13.95.

Blockbuster reported a loss of $57.2 million in the second quarter compared with earnings in the year-ago frame of $48.6 million. Excluding various write-downs and charges, the company lost $40.2 million, or 22 cents per share, while analysts expected a loss on that basis of just 10 cents a share.

Revenue of $1.4 billion in the quarter was short of analysts' expectations and 1.6% lower than a year ago. While Antioco blamed the drop on the company's decision to stop charging late fees at its owned-and-operated stores, he also defended the practice.

"This program is working," he told analysts Tuesday, noting that traffic patterns among its best customers are improving where the no-late-fees policy exists, while they are deteriorating at the 500 franchise stores that continue to charge late fees.

Antioco said that by firstquarter 2006, revenue for the company will be higher with the no-late-fees policy still in place than it would be if the plan was abandoned.

In the quarter just ended, base rental fees rose from $917 million a year ago to $999.5 million, but that wasn't enough to offset the $138.1 million loss from the elimination of late fees.

Merchandise sales in the quarter rose from $323.2 million a year ago to $360.4 million because of strong video game sales.

Same-store sales fell 4.7%, which was better than the 5.5% drop that rival Movie Gallery reported last month, and Antioco said the downward trend is because of "substantially weaker" movies this year and from consumers opting to purchase DVDs at stores like Wal-Mart rather than rent them.

Antioco -- who lost a bid to acquire Hollywood Entertainment, which since has merged with Movie Gallery -- also predicted that the industry is headed for more consolidation, including the closing of stores.

"We want Blockbuster to be the biggest beneficiary of this consolidation," he said.

Evan Jacobs at Movieweb
Evan Jacobs