Is Blockbuster Back to Its Old Tricks?

Proposed Circuit City Acquisition Brings Up Questions

Back in September of 2001, Blockbuster Inc. issued a press release about exciting forthcoming changes in the video rental market, along with its earnings report. John Antioco, then chairman and chief executive officer, discussed the coming role of DVD's as a major role in Blockbusters strategy. To make room the company would reduce its inventory on videocassette tapes and take a one time $450 million charge.

The huge write-off against earnings was glossed over by management as an insignificant, one time, non-cash item and stressed that the future of Blockbuster was extremely bright. Heck, the charge was less than one percent of total sales. Antioco's strength was in marketing, not finance; he definitely had a way to spin lemonade out of the huge lemon of a financial report.

The real bottom line was that its rental library, reported on the books at a value of $610 million just seventy days earlier, was admittedly worth only 25 cents on the reported dollar. The implications were grim. After the big bath to earnings it was apparent that Blockbuster hadn't retained any profit from its 1982 inception to September of 2001 from VHS tape rentals. What was to make DVDs any different?

Antioco's huge compensation packages were totally out of whack with the company's performance. Blockbuster's shareholders saw the value of a share of stock plummet from approximately $25 a share at the end of 2001 to about $4 per share at the end of 2007. New board member Carl Ichan, was particularly irritated over Antioco's $7 million cash compensation in addition to over $20 million in restricted stock in 2004. In 2006, Antioco balked at the board's $2.28 million bonus award, demanding a bonus of no less than $7.65 million. Blockbuster actually reported a rare profit in 2006 of $50 million but this was sandwiched between a loss of $584 million in 2005 and $74 million of red ink in 2007.