Blockbuster Plans Expansion To Counter Raft Of Competition

Blockbuster Inc. (BBI) is moving from hunker-down mode to plans for new growth, but the video-rental chain's challenges - put in movie parlance - are akin to facing a Towering Inferno.

The Dallas company is positioning to put out fires through moves that include opening as many as 10,000 video rental kiosks by the middle of next year and working with studios to show not-yet-released, lower-budget movies. Blockbuster also plans to offer on-demand services through cable companies and certain Motorola Inc. (MOT) mobile devices, and to supply movies to TiVo Inc. (TIVO) for digital recording and on television remote controls through an agreement with Samsung Electronics Co. (SSNHY).

Blockbuster Chief Executive James Keyes discussed the company's growth plans at a consumer conference sponsored by Argyle Executive Forum on Wednesday. He said Blockbuster, which has been struggling as new viewing technologies found favor with its customers, is well positioned because of much improved financial footing, mostly from a $675 million five-year debt offering it expects to complete soon. The video-rental chain is also looking to save $26 million in working capital by closing as many as 810 to 960 of its 3,750 U.S. retail stores.

Blockbuster's multiple moves are meant to better compete with the explosion of video services including Coinstar Inc.'s (CSTR) redbox DVD kiosks, Netflix Inc.'s (NFLX) rentals, cable and satellite TV operators and digital movie services such as Apple Inc.'s (AAPL) iTunes.

"We're going to have to change," Keyes, said. "It can't just be about the stores anymore."

It apparently isn't all about videos or DVDs, either, indicated Keyes, who was CEO at convenience-store chain 7-Eleven before coming to Blockbuster about three years ago. "It's about convenience," he said.

Blockbuster wants to be as accessible as possible and to have a leading position in the niches in which it operates. All of this "is not an easy task," but the new financing "gives us a lot more relief from the [debt] cliff," Keyes said. "Now it comes down to execution, getting customers back quickly and keeping them with us."

Last quarter, Blockbuster lost $39.7 million on $1.02 billion in revenue as customers chose their movies from the many venues that have grown out of upgraded technologies, continuing to prefer them to the store approach that had been Blockbuster's bread and butter.

Blockbuster shares have spent much of this year below $1. In recent trading, the stock was at $1.02, down 5 cents from Wednesday's close.

Now Blockbuster has many balls in the air, and analysts and investors are mostly taking a wait-and-see approach as the company tries to achieve all of its goals.

"We have been negative on the shrinking in-store business, but recognize that Blockbuster could stabilize cash flow by growing its subscriber business that competes with Netflix and its kiosk business that competes with redbox," said Kimberly Noland, analyst at Gimme Credit. "While we don't think the company is out of the woods longer term, it now has some breathing room."

-By Karen Talley, Dow Jones Newswires; 212-416-2196; [e-mail]