Audio Video News

Blockbuster, the world's biggest video rental chain, is coming to grips with the swelling popularity of DVD by revamping its inventory.

The company, a unit of Viacom, Inc., is re-calculating the value of its inventory, and will charge off as much as $450 million against second-half earnings because of diminishing demand for movies on tape. The move will put the video rental leader temporarily in the red, according to reports issued in mid-September. Blockbuster is basing the value of its videotape inventory on a street price of about $8 per tape. Some older titles originally wholesaled for prices as high as $79.95 during the peak of tape's popularity; many of them may not sell for the estimated $8 value, some analysts noted.

Blockbuster also plans to eliminate as much as 25% of its videotape inventory to make space for new DVDs, a move that will take many older or more obscure titles out of circulation. Some older films rent only once or twice per year, and occupy valuable space that could be better used for new ones. DVDs have lower wholesale and retail prices, and are more profitable for dealers than tapes, Blockbuster executives claim. The reduction in the videotape inventory will eventually pare down each outlet's average of 8000 titles to about 6000.

Blockbuster will also accelerate the amortization on its videotape inventory, writing it down over a period of nine months rather than three years. The effects of the accounting changes will eliminate "future risk" on the inventory, according to Blockbuster chairman John Antioco. This is the second time in three years Blockbuster has revised the value of its videotape inventory. Despite the write-downs, Blockbuster is in good shape, enjoying a market share of 36%, well up from the 27% it claimed in 1997. Although tape won't disappear anytime soon, DVD is clearly the solid growth area, Antioco noted. News of the write-off caused an immediate drop in Blockbuster stock, by more than 8%.