Blockbuster to shutter 282 stores this year

By Paul Bond

June 29, 2007, ET

Blockbuster, which closed 290 stores in the U.S. last year, said Thursday that it will shutter another 282 this year.

The news comes in the same week that Blockbuster ended its legal dispute with Netflix, settling their lawsuit without going to trial and without disclosing any details.

Blockbuster has been waging a successful war against Netflix, recently growing its online service faster than Netflix has been able to grow, though the latter still is the larger with 6.8 million subscribers, more than twice Blockbuster's count.

The latest battle had Blockbuster cutting the price of its two-at-a-time DVD service to $13.99 three weeks ago; Netflix mirrored that move Thursday.

Blockbuster also said this week that it plans to better balance subscriber growth with profitability, which analysts take to mean that a price increase for its flagship three-at-a-time Total Access DVD service is on the way, which could boost Netflix as well. For its comparable service, Netflix charges $17.99, a buck more than Blockbuster, though Blockbuster subscribers may exchange DVDs at stores, an option Netflix cannot match on its own because it owns no stores.



"While Netflix still lacks short-term catalysts, given the lack of visibility into the timing and magnitude of a price hike for Total Access, we expect the competitive environment to improve by year end, which should allow subscriber growth to reaccelerate," Jefferies & Co. analyst Youssef Squali said.

The flurry of activity at the companies this week has so far been interpreted as a small plus for Netflix and a negative for Blockbuster. Netflix shares are up fractionally on the week, while Blockbuster has fallen 6.1%. But shares of Movie Gallery -- second to Blockbuster in the number of stores it operates but with no online service -- have so far fallen 10.2% this week.

Blockbuster has about 5,000 stores in the U.S. and 3,000 outside of the country. Spokesman Randy Hargrove said that when 290 stores closed last year, 25% of the revenue from those was transferred to nearby Blockbuster stores, and he expects similar numbers this time.

"We've always closed and opened stores, we're just closing more and not opening new ones," he said. "We have always predicted consolidation in the industry."

Hargrove said that even while stepping up store closures, 70% of the nation is no more than a 10-minute drive from a Blockbuster. He also said the company expects not to lose many of its 47,000 U.S. employees because of the closures.

Hargrove said the company is shooting for profitability with its online service sometime next year, and soon-to-come moderations to Total Access "won't just focus on price."

Blockbuster and Netflix did not disclose the terms of their legal settlement this week, except for Blockbuster saying that it would not impact its financial performance. Netflix sued Blockbuster 14 months ago for patent infringement, and Blockbuster had countersued claiming that Netflix was trying to stifle competition.

Blockbuster to shutter 282 stores this year

By Paul Bond

June 29, 2007, ET