Blockbuster Q4 profit drops

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DALLAS -- Movie-rental company Blockbuster Inc. said Tuesday its fourth-quarter earnings fell 28%, largely due to costs to launch and promote its growing online rental business.

The company also said it is trying to resolve a dispute with chairman and chief executive John Antioco over his 2006 bonus.

Quarterly net income dropped to $10 million, or 5 cents per share, versus $18 million, or 9 cents per share, a year ago.

Adjusted earnings, which factored in a $5.1 million goodwill impairment charge, were $20.4 million, or 9 cents per share, in the October-December period. That compared with earnings of $25 million, or 12 cents per share, a year earlier that were adjusted for a reserve charge.

The adjusted earnings were ahead of the 5 cents per share expected by analysts surveyed by Thomson Financial.

Revenue edged up 1% to $1.51 billion from $1.49 billion in the prior year, surpassing Wall Street's estimate of $1.47 billion.

Blockbuster shares dropped 18 cents, or 2.59%, to $6.76 in afternoon trading on the New York Stock Exchange. The shares have traded in a range of $3.20 to $7 in the past year.

Antioco called 2006 an "exciting year" for the company, which has been trying to offset a decline in in-store rentals by beefing up online offerings.

"We delivered four consecutive quarters of positive same-store domestic movie rental revenues," he said. "We also significantly reduced operating costs, sizably increased our online subscriber base and substantially improved our profitability and cash flow."

A big focus for the company has been its online rental program called Total Access, launched in November as a way to compete with online rental leader Netflix Inc.

Antioco said he expects Total Access to notch 3 million subscribers by the end of March, up from 2.2 million subscribers at the end of 2006. The company said it topped its goal of 2 million subscribers by the end of 2006.

Total Access allows customers to order movies online and return them through the mail or at their local Blockbuster store. In a research note, J.P. Morgan Securities called the 3 million subscriber forecast "surprisingly positive guidance."

"Total Access is on a roll ... and would appear to be the best way to increase shareholder value," Antioco said during a conference call with analysts.

Operating expenses climbed to $738.5 million in the fourth quarter from $719.5 million a year earlier, as advertising costs rose to $47.6 million from $27.8 million. But expenses were down for the year.

Merchandise sales grew to $501.7 million from $444.6 million, while base rental revenue fell to $828.7 million from $860.6 million.

The current quarter's revenue results were impacted by favorable foreign exchange rates and an approximately $30 million revenue increase in the online rental service.

For the full year, profits were $54.7 million, or 23 cents a share, compared with a loss of $588.1 million, or $3.20 a share, in 2005. Revenue was down 3.5% at $5.52 billion "mostly due to the closure of stores," Blockbuster said.

The company also said it was in discussions with Antioco to resolve a dispute over his 2006 bonus. The board on Jan. 25 awarded Antioco a bonus of $2.28 million, on top of his 2006 salary and deferred compensation of roughly $2.5 million. According to a statement in the company's earnings report, Antioco maintains he's entitled to a bonus of $7.65 million based on performance goals. The company has said it has set aside $4.5 million for this contingency.


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