Blockbuster F4. Q0. Qtr End 1/6/0. 7) Earnings Call Transcript. Blockbuster Inc. Keyes - Chairman of the Board, Chief Executive Officer. Thomas M. Casey - Chief Financial Officer, Executive Vice President. Analysts. Tony Wible - Citigroup. Barton Crockett - J.

P. Morgan. Arvind Bhatia - Sterne Agee. Carla Casella - J. P. Morgan. Jeffrey Logsdon - BMO Capital Markets Matt Aronsky - Citigroup. Operator. Good morning and welcome to the Blockbuster Inc. Angelika Torres, Blockbuster's Director of Investor Relations.

Torres, you may begin. Angelika Torres. Good morning and welcome to Blockbuster's fourth quarter earnings call.

Today’s earnings call may include forward- looking statements relating to our operations and business outlook, financial and operational strategies and goals, including our expectations about our financial performance in 2. Actual results may differ materially from those projected in the forward- looking statements. For additional information regarding the forward- looking statements and factors that could cause actual results to differ materially, please refer to the cautionary statements in today’s earnings release and in our public Securities and Exchange Commission filings, including our upcoming Form 1. K. Today’s earnings call may also include a discussion of certain non- GAAP financial measures.

Please refer to today’s earnings release for the required reconciliation to the most directly comparable GAAP financial measures and other related disclosures. Our earnings release is available on our website at Blockbuster.

In a settlement, Blockbuster agreed.

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With that, I will now turn the call over to Jim Keyes, our Chairman and Chief Executive Officer. Keyes. Good morning, everyone. I’m sure you’ll agree this is a very exciting time for the entertainment industry and certainly for Blockbuster as well. What we are seeing in the marketplace is a lot of change - - transformational change and that change we see as a convergence between technology, media, and retail, and it plays to the many strengths of Blockbuster. Blockbuster is uniquely positioned to be a provider of convenient access to media entertainment across all platforms in store, by mail, and online, so as new entertainment technologies emerge, consumer options multiply, and customer use occasions increase, all of this means new opportunities for Blockbuster. Today, it’s all about access and convenience in media entertainment. A company whose only business is DVD rental would have some reason for concern.

A company whose core offering is convenient access to media entertainment, like Blockbuster, has virtually unlimited avenues for growth. To position the new Blockbuster for these opportunities, we had some work to do and I am pleased to report on some outstanding progress to date. Last quarter we referenced a reduction of nearly $5. G& A expense but I also said we were not finished. We’ve since found further reductions that will bring our total annualized savings to nearly $1. We stabled the total access subscription program, changes in pricing, terms - - changes in pricing and terms caused some additional churn, yes, but this pruning process allowed us to build what is a now profitable model that’s well- positioned for growth. We significantly improved our in- stock availability, merchandising, leading to same- store sales increases for the first time in a long time.

We achieved worldwide revenue increase of 3. In fact, November we think was the first month in over five years, just barely missing the second month in December by a very small amount, which led to domestic same- store sales for the fourth quarter of a decline of only 0. So I would like to clarify also that from now on when we refer to same- store sales, it represents a true store comp without the impact of by- mail subscription as reported in the past, so you’ll clearly be able to see our comp numbers, both in- store and by- mail. We continue to make progress in a number of other areas. We are building a world- class team, recently adding Kim . I hope you’ll share my enthusiasm for these measures of favorable progress and agree that our strategic focus is slowly beginning to translate into promising improvements in both sales and profits.

I am pleased to share some of the profits along those strategic fronts since the last quarter in three areas of focus. First, we talked about restoring and growing our DVD rental business, both in- store and by mail.

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We are more than ever convinced that the core DVD rental business can and will continue to be a solid profitable business for a number of years to come, both in- store and by mail. With the recent changes in our by- mail subscription offerings, we are now competitive across the board versus Netflix, giving our customers better value and more options, whether it’s our $3. And finally, our $3. We are finding innovative and cost effective ways to grow our subscription channel profitably. First, as I said, we had to fix the business, stabilize the business, and now plan to grow the business. For example, our relationship with Facebook leverages their social networking for viral marketing.

The emergence of Blu- ray as a format of choice during the quarter represents a big upside for Blockbuster. As customers adopt the new format, it will provide an extended life cycle for DVD rental and will stimulate new retail opportunities as well.

We were the first national retailer over six months ago to accurately predict the winner of the high definition format war by simply following our consumer demand and we are now very well- positioned to be upper most in the minds of consumers when they make the decision to adopt this new format. With the help of Sony and our studio partners, we’ve installed Blu- ray demonstration kiosks and sales kiosks in about 2,0. Blockbuster. Turning back to in- store, we have many more opportunities for growth in our core business. The biggest opportunity in- store is to leverage our competitive advantage, a 3. Friday and Saturday nights. We’re working with each studio on new collaborative approaches to improve selection and in- stock for both rental and retail titles. We also continue to make progress on exclusive content.

For example, the recent announcement of our exclusive video rental relationship with IFC. This two- year agreement gives us a true 6. IFC entertainment titles, which means that customers won’t find these titles for sale anywhere and they will only find them available for rent at Blockbuster - - only at our stores, through our by- mail programs, and digitally on Movielink. In- store pricing is another opportunity we’ve discussed and we’ve already made a number of changes in locations where we were somewhat more aggressively priced in the past. Our test of various rental pricing terms and - - pricing and terms combinations continues and we recently launched another round of tests to validate those results and to fine- tune some of the alternatives. I can assure you though there is no urgency to make a nationwide price change because the near- term pricing moves that we’ve made have mitigated any gross profit concerns and will allow us to take the time necessary to develop the optimal consumer value proposition. And finally, new management field structures, new communications processes, new training processes, and the new approach to merchandising at each store is helping our store employees to transform their stores from the inside out, serving us well as more store- based competitors continue to close their doors.

The second leg of our strategy, transitioning from rental to retail, is also showing promise. Beginning the expansion of retail opportunities with hot new DVD releases, our strong presence on the new release wall, which has previously been utilized for rental product only, is bringing strong results. This approach has been instrumental in increasing our retail market share and especially on tent- pole titles.

Blockbuster to Test Prices, Store Formats. New York City, Blockbuster Inc. He expects the new emphasis on stores to turn around falling same- store sales and rental revenues. But he said that change would not come in the fourth quarter, nor would the initiatives be . Tightening the number of days that customers can keep films also will help boost in- store inventory and mend Blockbuster's reputation for being out of stock on first- run titles.

It has since focused on boosting sales at its remaining stores and keeping away from its online battle with Netflix Inc. Another option was to place kiosks in high- traffic areas such as airports or shopping malls, Keyes said.