[an error occurred while processing this directive]
BBC News
watch One-Minute World News
Last Updated: Wednesday, 10 August 2005, 09:32 GMT 10:32 UK
Blockbuster hurt by online rivals
Blockbuster video store
The end of late fees was a popular move but has hit revenues
Video rental chain Blockbuster has suffered a slump in profits after it scrapped charges for US customers returning films late.

The retailer dropped so-called 'late fees' in January to try and win customers back from fast-growing online rental specialists such as Netflix.

However, the move has hit its revenues and contributed to the firm making a $57m (31m) loss in the second quarter.

Blockbuster's shares fell 11% after it revealed the disappointing figures.

Store threat

The world's largest video rental chain is revising its full-year financial targets while its creditors have agreed to waive certain debt agreements for the remainder of 2005.

Blockbuster has been facing increasingly tough competition from online-only rental providers.

I don't think they will ever make up for the late fee loss
Stacy Wilditz, Fulcrum Global Partners

It has acknowledged that it may have to close some of its 9,000 stores worldwide as more customers order videos online or buy them from general retailers such as Wal-Mart.

Changing retailing trends could also ultimately affect its 700 UK stores.

"As the decline in store-based video rental industry continues, stores will have to close," chief executive John Antioco said.

Blockbuster scrapped late fees at half its US stores and all outlets in Canada. They still apply elsewhere, including the UK.

Customers can now hold onto a video for seven days after its due date free of charge. On the eighth day, however, they are obliged to buy it, minus the cost of the rental charges.

The shift in policy contributed to a 1.6% fall in revenues while profits were also affected by a lack of big movie releases over the period.

The firm made a $48.6m profit in the corresponding period last year.

Costly move

Analysts said the decision could knock the firm's profits by up to 15%.

"I think they have been in the mode of 'just try things and maybe they'll work," said Stacy Wilditz, an analyst with Fulcrum Global Partners.

"Unfortunately all these things have all cost a lot of money. I don't think they will ever make up for the late fee loss."

Blockbuster insisted it would be able to recoup the income from late fees from extra business and would return to profitability in 2006.

However, its shares fell to a nine-month low in trading on Tuesday.

Earlier this year, Blockbuster failed in an expensive bid to buy smaller rental chain Hollywood Entertainment.

Blockbuster investors vote on row
12 May 05 |  Business
Blockbuster sticks to hostile bid
06 Mar 05 |  Business
Viacom plans to sell Blockbuster
10 Feb 04 |  Business

The BBC is not responsible for the content of external internet sites


Americas Africa Europe Middle East South Asia Asia Pacific