Blockbuster to test prices, store formats

By Michele Gershberg and Gina Keating

NEW YORK/LOS ANGELES (Reuters) - No. 1 U.S. movie rental chain Blockbuster Inc said on Thursday it will test different models for pricing and store formats, but its shares fell as Wall Street had sought more concrete forecasts.

Shares of Blockbuster slipped more than 7 percent after Chief Executive Jim Keyes said that while raising prices could boost results almost immediately, he preferred to take an approach that was mindful of customers.

"Are we raising prices? No, as of today," Keyes told a company analyst day in New York. "What I don't want to do is raise them three or four times."

Keyes said Blockbuster will experiment with store layouts to add downloading stations, books or beverages in a bid to shore up its customer base.

He expects the new emphasis on stores to turn around falling same-store sales and rental revenues. But he said that change would not come in the fourth quarter, nor would the initiatives be "an overnight success."

Wall Street was disappointed that the company gave no forecasts or direction on future profitability, said Wedbush Morgan analyst Michael Pachter.

"Some investors viewed that negatively -- if they're not going to commit to things getting better, there must be something wrong," he said. "It was lack of a positive."

Keyes said the company was looking at recapturing some of the revenue it lost when it abolished late fees and allowed some online customers to exchange DVDs for free at its stores.

Tightening the number of days that customers can keep films also will help boost in-store inventory and mend Blockbuster's reputation for being out of stock on first-run titles, said Keyes, a former 7-Eleven CEO.

He noted the retail success of Apple Inc, which has a far smaller store base but makes the most of it with sales of its iPod digital media players, iPhone and computers.

"I get excited about what we could do with what is some of the most choice real estate," Keyes said.

Blockbuster posted a wider quarterly loss on November 1 as it closed stores around the world. It has since focused on boosting sales at its remaining stores and away from its online battle with Netflix Inc.

CHANGING PERCEPTIONS

Blockbuster is looking for promotional partnerships with movie studios and manufacturers for exclusive product tie-ins, such as proprietary toys or beverages linked to DVD releases.

To avoid being saddled with excess inventory, Blockbuster plans to negotiate risk-sharing arrangements with the studios and use management systems at its U.S. stores to let local store operators manage product assortment and inventory.