Blockbuster takes big gulp

New CEO is former 7-Eleven head

Movie rental king Blockbuster Inc. appointed former 7-Eleven boss James Keyes as its new chairman and CEO on Monday, putting an early finish to a John Antioco reign that was expected to last until year's end.

Antioco will cease being a company director, a spokesman said.

Antioco led the company for a decade, surviving withering competition from Netflix and public criticism from activist shareholder Carl Icahn, who recently complained that Antioco's pay was exorbitant considering the poor performance of Blockbuster stock, down about 83% in the past five years.

"John agreed to stay until the end of the year, if necessary, but he's a pretty smart guy and a big shareholder of Blockbuster, so he wanted to have the smoothest transition," Blockbuster board member Gary Fernandes said. "John's attitude was, if they found someone before the end of his contract, he'd step aside."

Keyes was president and CEO at convenience-store chain 7-Eleven from 2000-05, where he used technology to turn 10 years of declining same-store sales into 36 consecutive quarters of increases. He said Monday that he came out of retirement to accept Blockbuster's offer.

"I love the business world," Keyes said. "And what I love most is to take a great brand and make it more relevant to the consumer."

Although stressing that it is too early to speculate on specifics, Keyes said one focus will be on developing a strategy for the digital delivery of movies. A top competitor, Netflix, is dabbling in that arena with movies on computer screens, while Amazon, via a partnership with TiVo, and Apple, with its iTunes and Apple TV combination, already deliver movies to TV sets on-demand.

"We have the opportunity to buy, build and partner," Keyes said when asked about Blockbuster's digital intentions. "I think we'll use some combination of those approaches."

As he did at 7-Eleven, Keyes said that he will tap into the latest technological innovations to learn what Blockbuster customers want and to deliver it to them.

"The secret with technology is to use it to put a lot of new product into stores but with nominal risk. With the right data, it takes the guesswork out," he said.

Keyes also hinted at striking more exclusive relationships, like the one Blockbuster has with the Weinstein Co. that makes it the only company in the U.S. with rights to rent DVDs from that independent studio.

"We all have to find ways to make money here. We have to create more reasons for the consumers to want to rent or buy from Blockbuster," he said.

Separately Monday, the challenging atmosphere for the traditional bricks-and-mortar DVD rental business was underscored when Movie Gallery said that it failed to meet the terms of its senior credit facility, causing its stock to plunge 55% to 89 cents, a 52-week low, in after-hours trading.

The company said that it intends on accelerating store closures and might even put itself up for sale. Asked whether Blockbuster might want to acquire the company, Keyes didn't rule out such a move.

Icahn and outgoing CEO and chairman Antioco have had their differences, but the billionaire financier who owns nearly 10% of Blockbuster praised Antioco on Monday.

"Blockbuster has transformed itself numerous times, and I believe the initiative he most recently helped put in place, namely Blockbuster Total Access, should help position the company for future growth," he said.

Total Access is Blockbuster's version of Netflix, though subscribers have the option of returning movies in stores or by mail.

Investors and analysts seemed to like the choice of Keyes, and Blockbuster shares rose 3.5% on Monday to $4.46, making them the second-biggest gainer on The Hollywood Reporter's Showbiz 50 stock index.

"At the very least, the appointment adds stability to the Blockbuster story," said Tony Wible of Citigroup, who rates shares a "buy" and has a $6.50 target.

"We continue to believe that Blockbuster is still aiming to provide a triple-play offering, providing in-store rentals, online subscription rentals and Internet download," he said.

Georg Szalai in New York contributed to this report.