Blockbuster posts wider loss as it battles Netflix
Blockbuster Inc. has been bloodied in the online DVD rental battle with industry leader Netflix Inc.
The video store giant Wednesday disappointed Wall Street with a first-quarter loss of $46.4 million, or 26 cents a share, compared with a year-earlier loss of $1.9 million, or 3 cents. Analysts surveyed by Bloomberg News expected a loss of 16 cents a share. Sales rose 5.4% to $1.5 billion.
Blockbuster’s red ink came as the company doubled spending on its Internet site. In addition, the company saw a 9.6% drop in rentals at its stores.
After years of watching Netflix eat away its market share, Dallas-based Blockbuster has made a huge push to compete online. In November, Blockbuster launched its Total Access program that gives its online subscribers the option to return and check out DVDs at its stores for no additional cost.
Although the video store giant has slowed Netflix’s growth, Blockbuster’s earnings show it is paying a premium to do it.
The company estimated that advertising costs increased 95% to $76.6 million as it tried to bring in mail-order subscribers. Blockbuster expects to spend $100 million through the end of the year to increase its inventory.
The company added 800,000 customers in the quarter, giving it 3 million, compared with Netflix’s gain of 481,000 customers to 6.8 million.
Netflix founder Reed Hastings has maintained that Blockbuster cannot afford to keep its pricing down for much longer. On Wednesday, however, Blockbuster Chief Executive John Antioco suggested otherwise.
“Our competition has said that they will simply wait us out until we change our proposition,” he told analysts. “They may have a long wait.”
Antioco said spending on advertising and inventory was necessary to create growth. He also cautioned that the company’s second quarter could be “tough.”
“Investors are overreacting to the growth plans for one year,” said Michael Pachter, an analyst with Wedbush Morgan Securities. “I think Blockbuster is going to hurt Netflix badly with this. But neither company is going to go out of business. They will divide the market with Blockbuster taking greater share.”
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