Netflix, Blockbuster hold dueling investor meetings

By Sue Zeidler

SAN FRANCISCO (Reuters) - Like two movies going head to head on opening weekend, Netflix Inc and Blockbuster Inc made rival presentations to investors on Wednesday, as each DVD rental company vies to stay competitive in a converging marketplace.

Both companies are repositioning themselves to address the challenges of a maturing video rental business and an evolving online sector with giants such as Apple Inc, Amazon.com Inc and Microsoft Corp moving into the market.

At the Netflix Investor Day in San Francisco, company executives talked broadly about the push to provide online streaming, noting they expected the by-mail business to peak sometime in the next five to 10 years.

"Our key challenge is growing earnings per share and subscribers while funding streaming (online video), which should give us years of subscriber and earnings expansion," said Reed Hastings, chief executive of the Los Gatos, California-based company.

He told investors the company's online investment in 2008 and 2009 is expected to be "fairly inefficient," but noted the reason for higher spending was to cultivate better partnerships and content.

Netflix last month warned that 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.

Hastings and other company executives were bullish on the company's long-term position given its successful expansion into the streaming DVD market.

"Once we're in streaming ... we can attract well beyond 20 million subscribers worldwide," he said.

Netflix's chief rival, Blockbuster, held its annual shareholders meeting in New York City on Wednesday, where Chief Executive Jim Keyes said the company is succeeding with turnaround efforts that analysts said boosted profits last quarter.

However, Keyes offered little on the status of Blockbuster's controversial bid to buy Circuit City Stores Inc for up to $1.3 billion, and suggested that Blockbuster's turnaround does not depend on acquiring Circuit City.

"We are in due diligence ... (and) we do plan to be responsible with this approach," he said, regarding the Circuit City bid. "With or without the Circuit City acquisition, we think we have a terrific opportunity to transform these stores."

Dallas-based Blockbuster is the largest U.S. movie rental chain with about 20 million customers. Netflix is the leader in the movie-by-mail market with about 8 million subscribers.

Netflix shares rose as much as 30 percent in the first four months of this year on optimism over its subscriber growth and profitable execution, before the stock began to pull back in April on spending concerns. The shares are still up about 18 percent so far this year.

Blockbuster shares are down about 14 percent in the year to date after dropping in mid-April when the Circuit City bid was announced. Wall Street generally favors Netflix over Blockbuster, which had to hire a new CEO last summer to turn around losses and which is considered to be a brick-and-mortar dinosaur.

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