Blockbuster To Take $450M Charge

AP | 9/10/01 | DAVID KOENIG

[My Favorite Headache]

Blockbuster to Take $450M Charge

By DAVID KOENIG

AP Business Writer

DALLAS (AP) — Blockbuster said Monday it would take a $450 million charge against earnings to cover the cost of removing about one-fourth of its rental videos and replacing them with DVDs.

The Dallas-based video store chain said digital video discs are much more profitable.

In trading on the New York Stock Exchange, shares of Blockbuster shares fell $1.64, or 8.2 percent, to close at $18.35.

Barry Sosnick, an analyst with Fahnestock & Co., applauded Blockbuster's move, saying the chain was replacing its slowest-renting videotapes with more popular DVD titles.

``It was an inevitable move, but they made it proactively,'' Sosnick said. ``They're a little bit ahead of the DVD growth curve.''

Sosnick, who met with Blockbuster executives Monday in Boston, estimated the heavier emphasis on DVD rentals will add $150 million to Blockbuster's annual cash flow while costing only about $15 million in cash.

Chairman and chief executive John Antioco said the company believed the timing was right to switch more inventory to DVDs.

``The format has clearly gone mainstream, and consumers are demonstrating that they prefer to rent, rather than buy their movies, a trend we predict will continue, especially when consumers are focusing on value for their dollar,'' Antioco said in a statement issued by the company.

Antioco said because the thinner DVDs take up less space than VHS tapes, Blockbuster stores will have more room to display new game formats, DirecTV satellite-reception systems and RadioShack counters.

Blockbuster said it would expand its DVD selections and sell DVD players in its stores before the holiday season.

The company also will reduce the residual value of its VHS tapes to about $2 and games to about $5 and reduce the time it amortizes tapes from three years to nine months.

The changes will cause the company to record about a $400 million charge in the third quarter and another $50 million charge in the fourth quarter, it said. Blockbuster said the charges would be ``primarily'' non-cash.

Antioco also said the company will offer DVD promotions, including a rent-before-buying concept and free DVD players for buying prepaid rental cards.

Blockbuster is 82 percent owned by Viacom Inc., the media giant that also owns CBS television and Paramount Pictures. ———

[pubmom]

How many Freepers consider this a wise business decision?

[DooDahhhh]

I have a feeling it ain't!

[pubmom]

Okay, how many freepers own a DVD player?

[My Favorite Headache]

I own a dvd player and 3 vcr's. Wait..make that 2 dvd players if you count the one that is built in with my computer. But discounting vhs is too soon.

[RJayneJ]

Essay Of The Week

[pubmom]

I prefer DVD, the picture and sound quality is much better. The extra's they offer can't be beat.

[ftimmerman]

How do you get past that 4" high picture. Most do not seem to be formatted for average TV. I feel like I am that guy in Star Trek with the vision visor.

[pubmom]

I have a 51 inch TV.( not bragging, just stating a fact:^)

[kaylar]

A Toshiba DVD player has a feature which allows you to remove the letterboxing and revert to fullscreen scan and pan.

[marajade]

"A Toshiba DVD player has a feature which allows you to remove the letterboxing and revert to fullscreen scan and pan."

Why would you want to do that? You realize that you are reducing the film by about 50% don't you?

[marajade]

Did you realize that revenue from DVD sales and rentals increased by some 600% last year while revenue from VHS sales and rentals decreased?

[marajade]

A couple of great sites for DVD would be thedigitalbits.com and dvdfile.com.

[SamAdams76]

I've been wondering when they would do this. I haven't gone to Blockbuster's recently because their DVD selection up to this point is pitiful.

I still have my VCR player but I only use it to record or to view previously recorded videotapes. Once you start seeing movies on DVD, there is no going back.

DVD players are now dirt cheap. Pretty much anybody can afford one that doesn't have one already.

[sinkspur]

It's real smart. DVD players are common on computers, and are getting cheaper all the time.

Sony just introduced an all-in-one home theatre system for $499 (though you can get it through CDNet for $449). It's a fantastic little system; 240 watts.

Lots of folks don't know how to handle DVD's however. I have to wipe my wife's with a treated cloth to cover some of the scratches before she plays them.

[cmsgop]

I Love my DVD! My VHS is collecting dust.

[kevkrom]

How do you get past that 4" high picture. Most do not seem to be formatted for average TV. I feel like I am that guy in Star Trek with the vision visor.

It's not that bad, and I for one prefer to actually see the whole movie and not some jerky pan-and-scan rendition that cuts out the edges of the screen. Besides, many DVDs come with both "widescreen" (original aspect ration) and "fullscreen" (pan-and-scan cropped for a 4:3 TV screen).

Then there are "anamorphic" DVDs that actually try and make the best of both situations -- they "stretch" a 16:9 (typically) shot vertically so that it fills a 4:3 picture. The downside to this is a somewhat distorted effect that is most noticable at the start of the film.

[kaylar]

Not everyone wants the letterbox feature, and for those who do not (or don't want them for a specific case) it's a useful feature. And one can switch back to letterbox format with hitting a button. Basically, it's zoom one, which enlarges the image significantly, zoom two, which removes the letterboxing entirely, and zoom three, which enlarges the image so much that even big screens have difficulty not cutting off parts of the image.

[marajade]

"Not everyone wants the letterbox feature ..."

But most do. Why do you think Warner bowed to pressure to release a 16x9 of Willy Wonka and the Chocolate Factory?

[conservative cat]

We have 2 DVD players (3 with my husband's PS2) and 3 VCRs. We sometimes record stuff and have a couple of kids' movies on video, still, but I have had a hard time watching videos since the purchase of our first DVD player. DVDs are great for kids' movies- they can be watched over and over again with no wear and tear. (As long as the kids don't get ahold of them and scratch them up too badly!) The picture and sound are wonderful. I used to hate the widescreen/letterbox, but we also have a 51" (HD)TV. When we sit back on a weekend to watch a movie- with the lights out and the surround sound going- it's like being at the theater- but better! No idiots commenting loudly on the movie, no sticky floors, no filthy seats, no blocked views, no expensive food, no expensive tickets, and no lines. Even my technologically cautious father has a DVD player and is hooked.