DALLAS - Blockbuster Inc. will begin overhauling its more than 4,400 U.S. stores this month as the world's largest video-rental chain tries to grab a bigger share of the $8.4 billion retail market for digital video discs.
Blockbuster is counting on new layouts with color-coded DVD retail sections to generate more movie purchases by people who typically rent from the stores. About 70 percent of Blockbuster customers now buy films from competitors, Chief Executive Officer John Antioco reports.
The sales would contribute to Antioco's goal of doubling profit in five years. Blockbuster has a 40 percent share of the movie-rental business, though it faces increased competition. Cable-TV providers are offering more home-entertainment choices, and big retailers such as Wal-Mart Stores Inc. are selling DVDs, the fastest-growing consumer electronics product in history.
"The mass merchants can hurt them to some extent," says Frank Husic, managing partner of Husic Capital Management.
Blockbuster, 81 percent-owned by media company Viacom Inc., says it has an advantage over the mass retailers when it comes to selling DVDs.
"We don't hide our product between the diapers and the ketchup," says Nick Shepherd, executive vice president of Blockbuster merchandising.
Blockbuster aims to lift its share of the DVD retail market to about 10 percent by 2006, when DVD sales will be an annual U.S. business of about $20 billion, from 3 percent now, Antioco says.
The plan to sell DVDs won't supplant video rentals as its main business, according to Blockbuster. The company aims to boost its share of the rental market to 50 percent or more in the next five years, Antioco says. Husic thinks any competitive threat to Blockbuster is minimal for the next 12 to 18 months. "DVDs are incredibly profitable, whether for sale or rental," he says.
The DVD retail market today is $8.4 billion, while videocassette sales total $5.2 billion, Blockbuster says.
Selling DVDs isn't as lucrative as renting them, though, and may crimp Blockbuster's profit margins, Salomon Smith Barney analyst Margaret Blaydes wrote in an Oct. 22 report to clients.
The company forecasts per-share profit of $1.31 this year, up from $1.01 in 2001.