Blockbuster Tries Revenue-Sharing to Boost Market Share

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In an effort to spur flat revenue growth, Blockbuster
Entertainment Group CEO John Antioco plans to build the home-video retailer's market share
from its current 23 percent to 40 percent, using revenue-sharing as a cornerstone of the
strategy.

"We think that there is a lot of untapped potential in
the video market, considering the [previous] management's 'consumer-dissatisfaction
model,'" Antioco said, referring to Blockbuster's previous focus on product sales,
rather than on depth of rental product.

By satisfying consumer demand for popular titles at lower
rental fees than competitors offer, Antioco said, he can boost the company's market share
by three points per year well into the next millennium.

Antioco, speaking exclusively to Video Business, sister
publication to Multichannel News, said 25 percent of the chain's first-quarter
rental revenue was realized on revenue-sharing product. He expects that figure to grow to
80 percent by the end of the year.

He added that rental revenue jumped 9.3 percent during the
first quarter, compared with a decline of 4.5 percent during the same period last year.

While Antioco wouldn't discuss the details of his company's
direct revenue-sharing deals with studios or with distributor Rentrak Corp., he did
confirm an analyst's assessment of how revenues are split.

Jill Krutick, analyst with New York-based Solomon Smith
Barney, said in a report April 7 that Blockbuster's revenue-sharing agreements with
studios provide for a 40-60 split, with Blockbuster keeping 60 percent of rental revenues.

In comparison, retailers that buy titles from
revenue-sharing Rentrak generally keep 50 percent of rental revenues.

Antioco also signaled an end to Blockbuster's hiatus on
new-store openings, saying that he plans to open approximately 200 new stores within the
United States by year's end.

He outlined a number of additional ways to achieve his 40
percent market-share goal, including everything from reward programs designed to regain
lost customers to guaranteeing availability of certain titles to aggressive pricing and
advertising campaigns.

One way to woo back lost customers -- who, he estimated,
spend $1 billion annually with competitors -- is a "Blockbuster Rewards"
campaign, Antioco said. Under such a program, Blockbuster customers would pay $9.95
upfront for one rental per month. Such a program could bring back 5 million customers by
the end of 1999, Antioco said.

He added that Blockbuster will roll out a DVD (digital
versatile disc) software and hardware program in approximately 1,000 stores within 60 to
90 days.

As part of his first round of public meetings last week,
Antioco led analysts on a tour of Blockbuster's McKinney, Texas, distribution center --
now in full operation -- and he told them about the substantial savings that the company
is beginning to reap from the center.

Krutick reported that Blockbuster's cost to distribute
rental cassettes is 33 cents per unit, compared with $1.02 per unit through an outside
distributor.

Analysts have speculated that Antioco was hired to turn
Blockbuster's red ink to black in anticipation of a spinoff to reduce Viacom Inc.'s debt.

Antioco, while not confirming that speculation, said his
business model can stand alone.

"I'm open either way to Blockbuster remaining part of
Viacom or going it alone," Antioco said. "I would miss the support of Viacom,
the relationships and the synergy of being part of a worldwide company, but there is
something to be said for singularity of purpose in a stand-alone company."

Brett Sporich is a reporter for Video Business, sister
publication to
Multichannel News.

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