Davis Freeberg

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    • Blockbuster Should Jump on Positive Citi Call
      In 2005, Blockbuster Video saved themselves from bankruptcy when their ill advised bid on Hollywood Video was blocked by the FTC. Ironically, by failing to approve Blockbuster's bid, the FTC managed to kill Movie Gallery in the process. Now BV wants to bite off more than they can chew again, this time to buy CC. Wattles has suggested that they lever the company up in order to pay for the transaction, but taking on additional debt will only create more problems for both struggling retailers. With the movie industry in such a great state of flux, I just don't see the logic of reducing your flexibility especially in the middle of a recession. If Blockbuster does manage to pull this rabbit out of their hat, I think that it will kill them just like the debt needed to finance Hollywood Video, ended up killing Movie Gallery. I can understand why Blockbuster would want access to CC's discounts on inventory, but I think that Jim Keyes must have been drinking straight out of the slurpee machine when he came up with this one because I can't figure out a better explanation for the brain freeze that's going at Blockbuster headquarters.
      May 12 11:22 am |Rating: 0 0 |Link to Comment |View article
    • Blockbuster's New Paradigm and Its Impact On Competitors
      I don't doubt that Blockbuster has a tough road ahead, but Keyes' message was right on track. It surprised me to see the market price so much downside, into what I felt were significant improvements. There are no guarantees that Keyes will execute on his vision, but given his track record and a more reasonable business plan, I could see why you would be willing to give it a shot.

      As a Netflix shareholder, I'm happy to see the price wars easing and think that the market has misunderstood Netflix's digital ambitions. Whether Netflix raises prices or sees more growth, I see them also benefiting from Keyes new focus. It will take time before we'll know if Keyes has the right solution, but he seems to be addressing all of the right issues.
      Nov 20 01:16 am |Rating: 0 0 |Link to Comment |View article
    • Blockbuster Poised for a Turnaround
      Thanks for the link Asif - The argument makes a little more sense with the additional commentary and I would agree that Keyes has been important improvement over their current management, however, I would still question how much of an impact he will have on the company. It was one thing to turn 7-11 around, but their problems were very different than BBI. 7-11 got caught in a credit squeeze, BBI is seeing their core business die. How you react to both threats is very different. While it makes sense for BBI to hire a retail oriented CEO, given that the future appears to be digitization, I don't see Keyes being all that different than Antioco, in the skills that he brings.

      As far as activist shareholders go, it's hard for me to understand why you think Icahn would be a catalyst. People talk a lot about Icahn's BBI holdings, but he's had his shares for two years already and still isn't profitable. While he was integral in getting rid of Antioco, I don't know that there is a lot more he can do, in order to turn Blockbuster around. While, I'm all for seeing investors come in and clean out bad management, Antioco was actually a pretty good retail CEO, he just didn't react to the changing video store environment fast enough. In the long run though, he's done more to help, than hurt BBI. His biggest downside was that he made too much money and while Icahn was able to put a stop to that, it wasn't without a pretty nice golden parachute that BBI has to pay. While the new management will bring in a breath of fresh air for investors, I still don't see what Keyes can do, in order to solve the problems that Antioco couldn't deal with.

      As far as the online growth, I'm not sure that BBI investors should be getting excited about that. They've clearly priced the service aggressively and while it's been good for consumers, it's been terrible for BBI shareholders. As the service gets bigger, the losses will intensify. At some point something will have to give. It would be one thing, if the growth of TA was adding to the bottom line, when I see that BBI is asking for another break on the covenants, it makes me think that things get worse, before they improve.

      A lot has been made about the success of the online program, but what has been the cost. Even at 3 million customers, it's chicken feed compared to the number of customers Blockbuster serves at their retail stores. While I don't have the numbers in front of me, I'm fairly certain that BBI has lost a lot more retail customers than they've gained online customers, since launching their own online program. BBI management has said that approximately 50% of their subscribers are coming from in-store channels. While seeing subscriber growth for their online program is important, if you are giving up higher profitable fixed margin customers to do it, than I'm not sure that I see the logic in the move. It's great to start to see some life out of them, but how many millions of retail customers did they lose, before they could get to the 3 million online subs?

      Blockbuster has to do something to compete, but when I look at the future of the video store, I see it continuing to move online and towards digital. While BBI's fixed cost structure gives them great leverage when they are profitable, it also makes things hurt even more when they start to see lose money. Considering that online rentals and downloads are likely to be a variable cost business, I question what happens to that leverage, as they move away from their retail business.

      It may be that BBI is a screaming buy and could even go high as one times sales, but until the company can figure out a solution to their struggles, that actually makes them money, I can't help, but be a little pessimistic about a turnaround happening.
      Jul 16 16:50 pm |Rating: 0 0 |Link to Comment |View article
    • Blockbuster Poised for a Turnaround
      This is a very well written overview on some of the issues facing Blockbuster, but I'm not sure that I see the logic for a "turnaround" here. A lot of what you mentioned in the piece, has been out there for sometime and I wonder what is different about right now, than six months ago?

      I also don't know that it's fair to compare the company to Wild Oats. Wild Oats was forced to close underperforming stores, but Wild Oat's didn't face the obsolence of their business model. Blockbuster on the other hand, faces an industry that will see even more competition over the next 5 years, than they've faced from Netflix for the last 5.
      Jul 16 14:33 pm |Rating: 0 0 |Link to Comment |View article
    • NetFlix's Double Dose of Good News Boosts Stock Twice
      I've seen the analysts cite this "diminishing returns" argument several times and I've got to say that I don't fully understand their logic. The $5.99 plan is for 2 DVDs per month which means that Netflix is making about $3 per dvd rented. If you compare that to the 3 out at a time plan where usuage varies but where consumers can rent as many as 12 - 16 DVDs a month, you not only get lower profits, but also higher costs because of the increased mailing costs.

      The reason why $5.99 doesn't work for Blockbuster is because they also give away free coupons. This means that consumers are averaging $1.50 per rental due if they fully utilize the plan. The analysts may not like $5.99 and it may contribute less to revenue, but it contributes directly to profits and boosts Netflix gross margins. It's also gives Netflix an important last weapon for customers who would rather quit then stay at the 3 at a time DVD plan.

      While it's always possible that customer usuage on the 3 on the time plans can drop and produce higher average revenue per rental then $3.00, it's unlikely for the majority of consumers who clearly watch their DVDs on the weekends and ship them back on Mondays. If analysts better undersood Netflix pricing they might understand this, but I'd love to see them explain how exactly the $5.99 plan hurts profits.
      Oct 24 08:17 am |Rating: 0 0 |Link to Comment |View article

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