Blockbuster to offer online video rental

Summary:Video giant lays out future strategy to counteract City fears

In a move to jump on the e-commerce bandwagon, Blockbuster will offer video rentals over the Internet next year and is considering investing in home-entertainment technologies for the eventual transmission of movies over the Internet, Blockbuster Chief Executive John Antioco said.

Blockbuster, a separate publicly traded unit of Viacom, is also contemplating partnerships with Internet companies to raise "a significant amount of capital" for its Web site, which will be relaunched next month offering sales of new and used tapes and DVDs, Antioco said.

In the second quarter of next year, the Website will add video rentals to its offerings and as part of this, Blockbuster is considering ways to deliver videos to consumers' homes -- a market that smaller competitors such as start-up Kozmo.com have already jumped into. Antioco also said Blockbuster may ultimately spin off its Internet business into a separate company, although no decision had been made to do so.

While Blockbuster isn't backing away from its brick-and-mortar video-rental outlets, the latest announcements indicate the company is preparing for a future dominated by electronic delivery of entertainment -- a scenario that has worried Wall Street regarding Blockbuster and damped its stock price.

"As we continue to grow our core business and our market share in the physical distribution of movies, at the same time we are moving on parallel paths to occupy a significant market share in the electronic delivery of movies," Antioco said. He wouldn't specify the technologies Blockbuster is considering investing in, although he hinted that in addition to Internet transmission, they included video-on-demand or pay-per-view technologies, which are now being offered by cable systems.

After more than two years at the helm of the company working to turn around the stores, Antioco now appears to be shifting his attention to using Blockbuster's brand name and customer base to prepare it for the looming electronic competition. But some are skeptical of the strategy. Tom Wolzien, an analyst at Sanford C. Bernstein, questioned how much money Blockbuster could make by attaching its brand name to these distribution technologies.

Antioco's comments came as Blockbuster, reporting results for the first time since an initial public offering in August, said its net loss dipped slightly in the third quarter on higher revenue, boosted both by new store openings and stronger consumer traffic. Blockbuster posted a loss of $19.1m in the quarter, down from a loss of $21.5m last year -- a loss of 12 cents a diluted share compared with 15 cents a year earlier. Revenue rose 13 percent to $1.11bn.

The results were slightly better than analysts -- who focus on cash earnings or net income before goodwill -- had expected. Cash earnings per share were 14 cents, level with a year ago, and a penny higher than the consensus estimates. In New York, Blockbuster shares fell $1.0625, or 7.3 percent, to $13.5625.

Blockbuster's stock has been hurt by doubts on Wall Street about how the company's video-rental business will survive once video-on-demand services from cable operators become widely available. The stock went public at $15 a share and, despite hitting a high of $16.875 shortly after the offering, has mostly traded below the offering price.

As previously reported, Viacom is considering delaying the split-off of its 82.3 percent stake in Blockbuster as it prepares to merge with CBS. Antioco said he hopes the market "will begin to fully recognize the value of Blockbuster and this split-off will take place on track." That decision, however, isn't up to Antioco but to Viacom Chairman Sumner Redstone and CBS Chief Executive Mel Karmazin.

Take me to the e-commerce special.

Topics: Tech Industry

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