Blockbuster, Trans World Restructure, Seek New Revenue Streams

Blockbuster and Trans World Entertainment are closing stores and trimming categories as they defend their turf against Netflix, Redbox and video download services. In addition to shutting 273 stores in January and February, Blockbuster will close another 150 U.S. locations in April, the company said in a 10-K filed Tuesday. Blockbuster, which expects to close 500 to 545 stores this year (CED Feb 26 p3), also is weighing outsourcing its main 850,000-square-foot distribution center in McKinney, Texas, that employs 910, the company said. Blockbuster has 38 smaller distribution facilities spread across the U.S. for its by-mail subscription service. If Blockbuster can’t meet its capital needs with cash on hand, it will consider other options including restructuring debt and filing for bankruptcy, the 10-K said.

Trans World shut 133 For Your Entertainment (f.y.e.) locations in Q4 and eliminated videogames from 100 stores in January, company officials said. Games were in 124 f.y.e. stores as of Jan. 31, down from 346 a year earlier, CEO Robert Higgins said. The pullback came less than a year after Trans World expanded use of a merchandise display that made videogames central to 347 f.y.e. locations (CED March 6/09 p1). A year before that, the chain slashed the number of stores carrying the category to 347 from 600 after it was unable to get enough hardware/software to stock all locations (CED Aug 22/08 p5). Trans World’s videogames fiscal 2009 same-store sales declined 17 percent, including a 45 percent drop in hardware and nine percent decrease in software, Higgins said.

To offset flagging sales at its bricks and mortar sales, Blockbuster wants to expand its movie download service and use of kiosks, company officials have said. Blockbuster On Demand is available with Samsung LCD TVs and TiVo DVRs, and the chain is working with partner NCR to expand the number of Blockbuster Express rental kiosks. As of Jan. 3, NCR had deployed 2,225 Blockbuster Express kiosks with a goal of installing 10,000 by mid-year, Blockbuster officials have said. Blockbuster supplies the kiosks with “catalog” consignment titles - those 26 weeks past their release date - and gets 50 percent of those movies’ net revenue, Blockbuster said. NCR supplies newer titles with Blockbuster receiving a one percent to 10 percent license fee of net revenue, depending on a kiosk’s monthly revenue and how many are deployed, Blockbuster said. Blockbuster also launched an Apple iPhone application in December to allow users to browse for titles, locate stores and check inventories. It also has a mobile site for Research in Motion’s BlackBerry and Windows Mobile and Google Android-based cellphones, the company said.

The new services came as Blockbuster struggled with its bricks and mortar locations. Blockbuster had 3,745 U.S. stores as of late February, down from 4,585 on Jan. 4, 2009. That includes 3,252 company-owned and 493 franchised locations. In international markets, Blockbuster ended the year with 2,502 stores, down from 2,820 a year earlier. Blockbuster reached agreement in August 2009 to sell its Xtra-vision subsidiary and 184 stores in Ireland to Birchhall Investments. The store closing and sales are part of Blockbuster’s effort to cut general and administrative expenses by more than $200 million this year and keeping capital expenses at “maintenance” levels of $30 million, the company said. Blockbuster gained “significant reductions” in store costs in 2009 in renegotiating leases on 1,500 locations, the company said. Blockbuster also is considering selling off its international operations that include 1,695 company-owned and 807 franchised locations.

Blockbuster’s annual U.S. rental revenue dropped to $2.41 billion from $2.98 billion as those of movies fell to $1.76 billion from $2.27 billion. Videogames rentals declined to $200.2 million from $219.9 million, while those of previously rented product fell to $455 million from $492.7 million. Sales of movies dropped to $174.2 million from $227.4 million, while games revenue declined to $60.2 million from $155 million. As of Jan. 4, Blockbuster rental library held 101.5 million DVDs, 6.9 million Blu-ray and five million videogames units, the company said.

The number of Blockbuster Total Access subscribers declined to 1.4 million as of Jan. 4, down from 2.1 million a year earlier. Total Access allows subscribers to reserve titles through Blockbuster.com and have them delivered by mail. It had 2.8 million subscribers in 2007, the chain said.