By
Anders Bylund
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August 7, 2008
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Blockbuster (NYSE: BBI ) just reported markedly improved sales but also a deeper loss for the second quarter, compared with last year. Is this the spoonful of sugar that makes the medicine go down -- or just bad medicine?
Board member Carl Icahn thought there was plenty of sugar to go around: "There was little question that Blockbuster was sick and needed the new medicine that has been administered by [CEO] Jim Keyes and his team. They are to be highly congratulated." He's talking about last year's shift from taking on DVD-by-mail rental pioneer Netflix (Nasdaq: NFLX ) head-on to a more sane three-front strategy.
Keyes has brought Blockbuster back to occasional profits and renewed sales growth by ditching an avalanche of free in-store rentals for online customers and turning once-bland stores into a more vibrant mix of movie and video game rentals, retail sales of the same, and a smattering of fresh merchandise like movie posters and some electronics. The company's 54% higher domestic merchandise revenue year over year wasn't enough to cross the break-even line this time, and the net loss was $0.23 per share. But I'd have to agree with Icahn that there is something tasty brewing in this business nowadays.
Movielink has become the beta version of Blockbuster's download service, with pay-per-file rental and purchase options on mostly newer films. It is a more direct competitor to Amazon.com's (Nasdaq: AMZN ) Unbox or Apple's (Nasdaq: AAPL ) iTunes movies than to Netflix Watch It Now, which is a subscription service included for free in your regular rental plan. The Blockbuster Online DVD mailing service remains a Netflix rival, and those revitalized strip-mall stores face mostly mom 'n' pop shops and a crumbling Movie Gallery. And even without incorporating CircuitCity (NYSE: CC ) into the store network, Keyes' 7-Eleven background has already given a healthy retail flavor to the stores.
All three of those strategies won't work, of course. But it is a smart move to at least give them all a college try before pursuing the winning options with greater vigor. If you're going to copy someone else's recipe for success, you can do a lot worse than ripping pages from Google's (Nasdaq: GOOG ) cookbook.
Pour some sugar on me, Blockbuster.
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