Blockbuster (BBI) Q3: Underperforming Low Expectations

Wall Street didn’t expect much out of Blockbuster’s (BBI) 3Q this morning, and the company delivered even less: Revenues of $1.24 billion (down 2% from Q2, down 5.7% y/y) and a 20 cent-per share loss (same as Q2, 5 cents worse than last year’s loss) were both worse than the consensus.

Blockbuster’s play is to hunker down and hope that it can figure out a digital business before its brick-and-mortar operations become obsolete. It shuttered 526 stores in the last year, and the remaining ones have at least held their own in a declining market: Same store sales were up 1.1%.

Meanwhile digital revenue has more than doubled, to $144 million, now makes up 15% of BBI’s revenue. But BBI is no longer excited about BlockBuster Total Access, the would-be Netflix (NFLX) killer once championed by TechCrunch’s Mike Arrington. It has 3.1 million subs, but the company has throttled back advertising and promotion of the rent-online, exhange-in-store program, a move it says is meant to thin the ranks of “unprofitable subscribers.”

Update: Pali Research’s Stacey Widlitz (subscription required) notes that online subs have actually decreased in last quarter by 500k. “That means the industry actually lost 214,000 subscribers this quarter. In other words, the exclusive online business is now shrinking. That does not bode well for Netflix.”

Conference Call: In progress, Q&A

Games business: What’s Q4 look like, without Halo3 bump or new console releases? We’re trying to figure it out.  Q4 will have “different opportunities” than the past, but this is going to be a transitional quarter while we test out programs. Translation: Ooof.

Online sub business: Your subs shrunk — is industry already mature? (see above) We’re trying to figure it out. Too early too tell. Next couple of quarters very important. Focusing on store, looking ahead to digital opportunities. Translation: Yeah, our attempt to match Netflix model hasn’t panned out.

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