Blockbuster CEO Talks Competition

Should investors make it a Blockbuster(NYSE: BBI) night, a Netflix (Nasdaq: NFLX) evening, or a Wal-Mart(NYSE: WMT) afternoon? With competition heating up in the video- and DVD-rental market, David and Tom Gardner spoke with Blockbuster CEO John Antioco for The Motley Fool Radio Show.

TMF: Blockbuster is the world's largest renter of videos, DVDs, and video games. The company is valued at around $3 billion on Wall Street, where the stock has lagged the S&P 500 over the last 12 months but beaten the index over the last three- and five-years.

You recently announced your quarterly earnings: Revenues and same-store sales were both higher. But we know it's been a competitive climate out there. What's your take on the state of Blockbuster today?

Antioco: We believe we are in a great business -- home entertainment -- and that we offer a really good value to our customers. For somewhere around $4 an evening you can entertain yourself, your family, and all your friends, for that matter. Our revenues have doubled over the last five years and we believe we can keep growing our business.

TMF: John, briefly describe the move to revenue sharing. What exactly was that? And why did it increase distribution and make it easier for me to get the hot movie I want the day it came out?

Antioco: Well, as simply as I can say it, studios used to get their piece of the video-rental action by charging a very high price up front. In 1997 that was $65 a tape, which encouraged the video "rent-tailor" to buy very few copies to assure a return on that investment. With revenue sharing we asked, why not just agree on a percentage of the take for the studio? Then you can give me a lot more copies -- because cost of duplication isn't an issue -- and I can satisfy my customers. Revenues will go up and the pie will grow -- more dollars to you and to me. And most importantly the customer is going to be satisfied and likely to come back.

TMF: Looking at your stock and the business overall, the competitive landscape has been an issue. We're going to spot you up with a couple of potential or existing competitors and you tell us what you think of them. We'll start with TiVo(Nasdaq: TIVO). Is TiVo a direct threat to Blockbuster's business?

Antioco: Alternative forms of distribution give customers more options and TiVo is one of them. But I really see TiVo more as a dilemma for broadcasters. I have TiVo and I know what I use it for. I essentially record television programs and then I skip the commercials. I don't really use it as a substitute for movies because the movies I want, generally speaking, I want the first couple weeks they're out on video. And TiVo isn't a factor in that decision.

TMF: How about Netflix(Nasdaq: NFLX)? And in the spirit of full disclosure, we should point out that Netflix is one of David's top picks in our Motley Fool Stock Advisor newsletter.

Antioco: Netflix is certainly an alternative for people who want to go online and who like to plan their movie time ahead. They're also willing to wait to get the movies they want. Blockbuster is competing very well in that. Our own version, The Movie Freedom Pass, is in a thousand stores right now, up from a couple hundred at the beginning of the year, and we plan a full-scale rollout next year. We will also offer an online component, so you'll be able to do the entire transaction online, very similar to what Netflix and Wal-Mart's are doing now. But the difference is that you'll also be able to go into the store.

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