Netflix, Blockbuster hold dueling investor meetings
SAN FRANCISCO (Reuters) - Like two films going head to head on opening weekend, Blockbuster Inc and Netflix Inc made rival presentations to investors on Wednesday as both vie to stay competitive in an evolving market.
The mature movie rental industry is undergoing rapid change as the likes of Apple Inc, Amazon.com Inc and Microsoft Corp move into online film distribution.
Amazon said on Wednesday it would launch a streaming video service in the next few weeks.
At Netflix's investor day in San Francisco, company executives elaborated on their push to provide online video streaming, noting they expected the company's core by-mail DVD rental business to peak sometime in the next five to 10 years.
"Our key challenge is growing earnings per share and subscribers while funding streaming, which should give us years of subscriber and earnings expansion," Chief Executive Reed Hastings said.
Netflix said last month gross margins would remain flat for the next two quarters due to higher spending for content for its online streaming service, now offered free to subscribers.
Netflix's streaming service has only about 10 percent of the 100,000 movies and TV shows it offers on DVD, with studios reluctant to provide top-tier titles for streaming or download due to fears of interfering with other sales channels.
Hastings said Netflix's online investment in 2008 and 2009 would be "fairly inefficient," but that it was spending more to cultivate partnerships and content.
Netflix does not break out how many of its 8 million-plus subscribers use the streaming service that is so crucial to its future, but Hastings said he was bullish about it.
"Once we're in streaming ... we can attract well beyond 20 million subscribers worldwide," said Hastings, who a little over a year ago said Netflix's earlier long-term goal of hitting 20 million subscribers by 2012 was in doubt.
Wedbush Morgan's Michael Pachter, who attended the conference, said he believes Netflix will spend $70 million on content acquisition in 2008 versus $40 million in 2007, but that the higher spending was likely justified.
"The higher the level of subscribers using the streaming service, the more sense it makes from a spending standpoint. And based on their presentation, I think subscriber levels are high and they're optimistic," he said.
NEW DEVICES
Netflix demonstrated a set-top box, unveiled last week with privately held Roku, that lets viewers watch Web content on TV. Netflix had promised in April to announce three partnerships similar to a set-top box alliance with LG Electronics Inc that will also let viewers watch Web-based video on TV sets.
Meanwhile, on the other side of the country, archrival Blockbuster held its annual shareholders meeting in New York where it unveiled a kiosk made with NCR Corp that allows in-store digital downloads, much like a cash machine.
Blockbuster Chief Executive Jim Keyes said the Dallas-based company was succeeding with turnaround efforts that have boosted profits but offered little new on its controversial bid to buy Circuit City Stores Inc for up to $1.3 billion.
"We are in due diligence ... (and) we do plan to be responsible with this approach," he said. "With or without the Circuit City acquisition, we think we have a terrific opportunity to transform these stores."
Blockbuster, which has redesigned about 6 percent of its stores to emphasize games, electronics and DVD sales, said on Wednesday it was also working on its own set-top box.
With the kiosk, movies can be downloaded in about two minutes, said Keyes, declining to detail the number of titles available in the pilot program or which studios were on board.
Blockbuster, the top U.S. movie rental chain with about 20 million customers, has said the kiosks would start appearing in June in a few Dallas stores and be rolled out to most stores in the next two to three years.
(Additional reporting by Franklin Paul in New York; Editing by Maureen Bavdek and Braden Reddall)
