Blockbuster warns studios it'll play favorites

Plans to give more shelf space to movies it has access to first

Memo to film studios from Blockbuster: If you don't give us access to your movies before they go to Netflix and Redbox, you won't get much shelf space for your DVDs.

That was CEO James Keyes throwing down the gauntlet on Thursday as Blockbuster announced it had lost $65 million in its first quarter, reversing last year's $28 million profit.

It wasn't the only thing reversing on Thursday. During the regular session on Wall Street, Blockbuster shares rallied 16% to 50 cents, but after the earnings were released, shares sunk by 24%.

Investors and analysts were spooked -- yet again -- by Blockbuster's dwindling cash and lingering debt, a persistent problem that could eventually lead to bankruptcy protection for Blockbuster and big losses for equity investors.

But the nation's top bricks-and-mortar renter of movies still has a few things to crow about, so Keyes indeed crowed.

He noted that Movie Gallery and its Hollywood Video are disappearing, making Blockbuster the only national brand left. Of course, it still has Netflix and Redbox with which to contend.

But Blockbuster has a 28-day advantage on those two when it comes to almost 50% of new-release DVDs, courtesy of advantageous windows granted it by Warner Bros., Fox and Universal.

And Keyes said the reward for holding back DVDs from Netflix and Redbox for four weeks is that those studios will get the most shelf space at Blockbuster stores.

Keyes broached the subject because one analyst was curious as to why he saw only two copies of "The Lovely Bones" at his neighborhood Blockbuster. The "Bones" DVD is a Paramount title, so it was a sensible slight, Keyes explained.

"We're going to help those who are helping us," he told analysts.

Speaking to The Hollywood Reporter afterward, Keyes expanded on his "unscripted" moment during the conference call.

"It's the reality," he said. "Warner, Fox and Universal have worked very cooperatively toward agreements that actually allow us to be in stock."

"I've encountered as a retailer an acceptance of opportunity cost -- a product being out of stock," he said. "If the deal structure for 'Lovely Bones' makes it prohibitive to stay in stock, that's a loss for the studio and for Blockbuster."

Keyes said same-store sales in March rose for the first time in two years, and he gives some of the credit to the 28-day windowing deals struck with Fox, Warners and Universal. It's an advantage he would advertise more, if Blockbuster had more marketing money to spend.

"Advertising requires liquidity," he said. "We have adequate liquidity to pay our debt, but we don't have extra."
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