Video rental king Netflix Inc. (Nasdaq: NFLX) years ago usurped Blockbuster Inc. (NYSE: BBI)’s throne as the No. 1 video rental outlet, but now it’s focused on cementing its status as the market leader as other video rental companies struggle to play catch-up.

Blockbuster, still king of brick-and-mortar rental stores, learned first hand the threat an innovative upstart can pose when it ran up against Netflix’s DVD-by-mail business model.

With movie theater tickets costing upwards of $10 (and that’s not including the popcorn or sodas), Netflix’s $8.99 1-DVD plan with unlimited exchanges and streaming video access represents a decidedly better deal for consumers that are tightening their spending amid rising unemployment and waning confidence.

Netflix celebrated its 10 millionth subscriber in February, noting that it added more than 600,000 net subscribers since the beginning of the year. In its second quarter ended June 30, Netflix said it had a total of 10.6 million subscribers, with paid subscribers representing 98% of the membership. The company expects its total membership to rise to between 11.6 million to 12 million by the end of the year, upping its previous quarter’s guidance of 11.2 million and 11.8 million.

Churn, a measurement of customer cancellations, rose to 4.5% in the second quarter from 4.2% a year ago, Netflix said.

“It could be the economy,” Netflix Chief Executive Officer Reed Hastings said of increasing churn in an interview with The Motley Fool. “It could also be that we make it very easy for subscribers to put their accounts on hold if they go on vacation or don’t have enough money for a month or two. When a subscriber goes on hold, we count that as a cancellation. What you can look at – as a good stable indicator – are net additions. And net additions continue to grow.”

Netflix’s top and bottom lines continue to grow as well. Revenue grew to $408.5 million in the second quarter, up from $337.6 million in the same period a year ago. Profit grew to $32.4 million in the second quarter, up from last year’s $26.5 million.

As subscribers, sales and profit rise, so too does Netflix’s stock. Shares of Netflix have jumped more than 45% since the start of the year, and managed to sidestep the doldrums experienced by the markets in March.

Still, it’s no time for Netflix to rest on its laurels, lest it suffer the same fate as Blockbuster. That’s why CEO Hastings is quietly preparing for the death of DVDs themselves. Ultimately, consumers will one day dump the plastic discs in favor of movies delivered straight over the Internet, Hastings told The Wall Street Journal.

So Hastings, who is a self-proclaimed student of companies that stumble by failing to adapt to technology shifts, is quickly trying to shift Netflix’s business so that more videos are available online.

While Hastings is having success in getting Netflix instant video onto devices, the biggest challenge facing his company is convincing Hollywood executives to license their content. While 12,000 choices may seem like a lot, many are older AAA movies or TV shows, or newer movies that weren’t commercially successful. New releases of hit movies usually take months or even years to appear in Netflix’s streaming video catalog.

That’s because Netflix is competing with pay cable channels such as Time Warner Inc.’s (NYSE: TWX) HBO and Viacom Inc.’s (NYSE: VIA) Showtime, which gain exclusive rights to show movies and generally have larger audiences. To get the movies and TV shows consumers want, Netflix will have to boost its licensing spending from the roughly $100 million it spent last year, an anonymous source told The Journal.

“Netflix has yet to show that it has the resources and profitability to be in the markets where licensing is the business policy,” said Warren Lieberfarb, former head of Time Warner’s Warner Bros. home video division.

The company has had some success in the licensing department earlier this year when it inked a deal with Liberty Media Corp. (Nasdaq: LMDIA) to show movies from its Starz pay cable channel.

Netflix’s library of 100,000-plus DVD titles is made possible by the “first-sale doctrine” of U.S. copyright law, which allows buyers of DVDs to lend them out without the consent of studios.

Too Little, Too Late?

It’s difficult to say when Blockbuster’s fall from grace began, but it was somewhere between its well-publicized late fee fiasco and the proliferation of Netflix.

Blockbuster’s operating income at the end of its second quarter in 2004 was $105.3 million. That was just before Netflix entered mainstream consumer consciousness. Blockbuster’s operating income at the end of its second quarter this year was a loss of $1.5 million.

In spite-of an 8.3% industry-wide increase in rental revenue, Blockbuster’s revenue fell 13.3%.

The company blamed the drop partly on reduced inventory as it tries to generate more cash to handle its debt load, the Los Angeles Timesreported.  Although Chief Executive Officer Jim Keyes told analysts in a conference call a renegotiation of a revolving line of credit meant stores would be fully stocked and more aggressively marketed, he admitted last week that didn’t happen.

“Temporarily during the first and second quarter, we put our plans for increased availability on hold,” Keyes said on the call. “We made this change with the recognition that we were also facing new and very aggressive competition who are better capitalized and would likely take share from us as we pulled back.”

Still, Blockbuster is doing everything it can to stay afloat, from closing stores to kiosk deployment.

“We’re deploying as many as 10,000 vending machines by the middle of next year,” Keyes told Bloomberg News in a telephone interview, adding that his company is focused on increasing cash flow rather than boosting sales in a “very challenging credit market.”

Blockbuster’s $250 million revolving line of credit is due on Sept. 30, 2010, and the company has more than $350 million of long-term debt outstanding that it must pay by the end of next year, according to a research note written by Wedbush Morgan Securities Inc. analyst Michael Pachter. Blockbuster had $99 million in cash and equivalents as of July 5, down 36% from $154.9 million on January 4, Pachter said.

“[Blockbuster needs] the credit markets to loosen up and they need to refinance,” Pachter told Bloomberg. “They’re not on track to repay this debt in the time frame they need to, so they’ve got to extend the terms.”

Pachter downgraded his rating on Blockbuster stock from “outperform” to “hold” last week. Blockbuster shares have tumbled more than 44% since the start of the year.

The Little Red Box That Could

Blockbuster was effectively rendered obsolete by Netflix’s quick response to changing technology. But Coinstar Inc.’s (Nasdaq: CSTR) Redbox Automated Retail LLC, which offers consumers new release DVDs for $1 per night, is hoping to avoid a similar fate.

Kiosk vendor Redbox, initially funded by McDonald’s Corp. (NYSE: MCD) and Coinstar in 2002, saw Coinstar acquire its remaining shares in February. The company’s $1-a-night DVD rentals are found in places like McDonalds restaurants, grocery stores, and numerous locations owned by retail giant Wal-Mart Stores Inc. (NYSE: WMT) that that serve at least 15,000 customers a week.

Redbox plans on having 21,000 to 22,000 kiosks throughout the United States by January, up from 13,700 a year earlier. The company’s sales, which were $188.9 million in the second quarter, account for 57% of Coinstar’s overall sales, up from 41% in the same quarter last year. Coinstar’s stock has risen more than 62% since the beginning of the year.

At a time when consumers are strapped, Redbox is perfectly positioned for those looking to save money. But now Hollywood is looking to stunt Redbox’s growth.

Tinseltown accuses Redbox of depressing DVD prices and depriving studios of the same revenue-sharing opportunities they now enjoy with traditional DVD rental houses such as Blockbuster, Reuters reported.

Three studios – News Corp.’s (Nasdaq: NWS) 20th Century Fox Home Entertainment, Warner Bros. and General Electric Co.’s (NYSE: GE) NBC Universal – are vowing to withhold their DVD distribution to kiosks like Redbox until 28 days after they are released.

To counter, Redbox has filed a lawsuit against at least one of the studios, 20th Century Fox.

“At the expense of consumers, 20th Century Fox is attempting to prohibit timely consumer access to its new release DVDs at Redbox retail locations nationwide,” said President Mitch Lowe. “Despite this attempt, Redbox will continue to provide our consumers access to all major new releases including 20th Century Fox titles at our more than 15,000Redbox DVD rental locations.”

Speaking to the LA Times, Lowe said Redbox isn’t a threat to Hollywood, but instead an additional source of income. However, Papi Capital analyst Richard Greenfield disagrees, writing that Redbox’s pricing is a “substantial risk” to the movie industry.

“It sets an ultra-low price point for movie content that will impact consumers’ decision-making process about all forms of movie-related commerce – theater-going, DVD purchase, video-on-demand,” Greenfield wrote.

Of course, distribution withholding and lawsuits aside, if Netflix’s Hastings is right and DVDs do walk the path of oblivion like CDs are now, Redbox will need to adapt and find a way to enter the already-crowded Internet video market.

Source: Hot Stocks: Netflix Finds Success in Innovation, While Other Video Rental Companies Fight For Survival ]]> http://www.contrarianprofits.com/articles/hot-stocks-netflix-finds-success-in-innovation-while-other-video-rental-companies-fight-for-survival/19974/feed 1 http://www.contrarianprofits.com/articles/blockbuster-where-is-the-rewind-button-when-you-need/19922 http://www.contrarianprofits.com/articles/blockbuster-where-is-the-rewind-button-when-you-need/19922#comments Fri, 14 Aug 2009 21:30:43 +0000 Andrew Snyder http://www.contrarianprofits.com/?p=19922 Just when it thought the competition was leveling off, Blockbuster (NYSE:BBI) faces another nasty barrage. The company missed estimates yesterday, now the Street is forcing it to pay.

Competition can be so mean. In a country where the government is doing its best to make sure we  all have equal incomes and resources, you would think companies like Redbox, Netflix (NASDAQ:NFLX) and TiVo (NASDAQ:TIVO) would take it easy on Blockbuster (NYSE:BBI) for a few quarters.

After all, isn’t it “un-American” to force your fellow citizens into bankruptcy?

Banks can’t force homeowners delinquent on their mortgages out of their houses. General Motors (NYSE:GRM) and Chrysler were saved. How in the world can we stand by and watch Blockbuster go under? Where will I rent my Saved…

I watch about one movie each month, if I am lucky, and most of those are borrowed from a friend or relative’s Netflix (NASDAQ:NFLX) account. So it is safe to say Blockbuster (NYSE:BBI) is not getting any money from me… and neither is Netflix.

Looking at Blockbuster’s latest earnings report, it is not getting much money from anybody.

The year’s first quarter was far from a good one for the movie-rental business. Blockbuster claims its drop in sales was due to a lack of good movies reaching the rental market and the closing of some stores, but more likely it is a lack of a good business model that is driving the company slowly but surely towards bankruptcy.

Over the last three months, Blockbuster watched its profits decline by 39%, down to just $27.7 million on $1.12 billion in revenues.

If the current trend continues, Blockbuster will not be in the black – and quite possibly, in business – for much longer.

Out of all the figures the company released last night, the most foretelling is the horrific drop in same-store sales. Thanks to a host of negative factors, sales dropped by 10.9% at stores open for more than 12 months. This time last year, the figure was an increase of 2.9%.

That’s not good.

It should be obvious to shareholders that the news is bad, but just in case they misread the earnings report, one glance at today’s share price action should tell them something is horrifically wrong.

Is this flick a drama or a comedy?

Shares of Blockbuster traded down by as much as 30% today.

Could the selling activity be in anticipation of a future bankruptcy filing?

While it is still too early to say for certain that the rental company is gearing up for a day in court, anybody with a crystal ball or a set of tarot cards would say a filing appears inevitable.

It may not happen this year or next, but it likely will happen someday in the relatively near future.

Blockbuster simply has not found a solution to competitors like Netflix and online offerings. Yes, the company has its own mail-based service and offers movies on the Internet, but we all know how fickle Web surfers can be.

If a company is unable to be a first mover online, it is likely to never get the kind of momentum it needs to overcome its competitors. Unless Blockbuster can somehow find the capital it needs for an all-out media blitz and a full-on re-launch of its name, its solvency will remain a high concern for investors.

If you are looking for a way to play this situation, take a look at going short on Netflix. Surprisingly enough, it has its own set of pains.

Netflix may be the industry leader, but it is not immune to some of the fundamental problems facing its competition. In the next six months or so, its correlation with Blockbuster will increase, meaning its share price will drop.

Shares of Netflix have remained strong and are in positive territory based on the bad news from Blockbuster. By almost all standards of valuation, Netflix is overvalued.

Go short and wait for the hype to dwindle. As consumers continue to cut their expenses, Netflix subscriptions will be hurt.

Blockbuster is hurting and is likely in serious trouble. Its pain is a symptom of the dire illness overtaking the entire industry.

Source: Is Blockbuster Going The Way Of The VHS?

But ignore the chatter. Although plausible, the arguments are profoundly false.

As I explained in an interview for Oxford Club members, we’ve witnessed seven similar stock market rallies of 25% or more in eight weeks for the Dow…

And guess what? Every time, the rallies have continued. For at least six months. And in six out of seven cases, they have lasted for another year.

My point is not to be the lone voice of dissension – or an unabashed, ignorant bull. I merely want to shed some truth on the subject. Because it’s perfectly possible the rally could continue…

Then again, it might not. Which brings up the real reason for writing today.

Whether you believe we’re in a new bull market, a bear market rally destined to collapse, or as one pundit put it oh so clearly, “A cyclical bull market in a secular bear market” (come again?) – I’ve got the perfect stock for you. Coinstar is positioned to rally no matter what the markets do next.

Coinstar Inc. – Profiting From Pocket Change and Cheap Thrills

While we can argue all day long about the next move for the markets, we can agree on two things.

• First, unemployment is destined to rise. It’s a lagging indicator, so even if the economy perks up in the second half of this year, as many expect, the layoffs will continue well into next year.
• Second, the severity of the current recession dramatically impacted consumer spending, presently and for the foreseeable future. That tends to happen when you lose your job, fear it’s imminent or see others around you coping with no income.

Both conditions play right into Coinstar Inc.’s (Nasdaq: CSTR) hands.

You see, the average U.S. household has about $90 of spare change just sitting around. The severity of the current economic slowdown will prompt many of them to convert it into cash to fund life’s mini-indulgences.

Coinstar eliminates the tedious and time-consuming task of rolling coins. The company operates more than 18,000 coin-counting machines in supermarkets and other retail stores. All you have to do is dump the change into a sorting basket. The machine counts it and then spits out a voucher, which can be redeemed for cash at the nearest register.

International expansion and the addition of 3,200 new machines in Wal-Mart stores this year will only make the company’s services more accessible.

Coinstar Positioned to Profit From Ultra-Thrifty Consumers

But Coinstar’s positioned to profit from the new class of ultra-thrifty consumers in yet another way. Thanks to timely acquisitions of DVD Express and Redbox, they also operate the largest network of self-service DVD rental kiosks.

Instead of shelling out $5 at Blockbuster, consumers can pay $1 a night at any of the company’s 12,900 kiosks located in supermarkets, drugstores and McDonald’s throughout the country. Each machine holds 150 titles (with multiple copies) at a time, almost all of which were released in the last six months.

And the recent results prove consumers are buying into the concept:

• Redbox’s sales soared 180% in 2008 to $400 million. And the momentum is continuing this year. In the most recent quarter, Redbox sales jumped another 156%.
• A bankruptcy filing by Blockbuster (NYSE:BBI), which appears imminent, should only drive more consumers to the company’s kiosks.

• And they will be readily available, as management plans to almost double the number of kiosks to 20,000 in 2009.

To sum it all up, whether this stock market rally continues or falters, this recession will impact consumer spending for a long while. And more people will be forced, or choose, to look for cheap thrills and a way to “monetize” their pocket change. Coinstar is the only way to capitalize on both… and rally, regardless where the markets head next.

Good investing,

Louis Basenese

Source: Coinstar Inc. (Nasdaq: CSTR): The Perfect Stock for Bulls & Bears

According to the deal, TiVo users will be able to rent Blockbuster’s 10,000 titles for $1.99 and $3.99, and purchase movies for between $14.99 and $19.99. Blockbuster will also sell Tivo DVRs in its stores and on its Web site.

The move shows Blockbuster is starting to understand what Netflix and Amazon.com Inc. (AMZN) have all along: It’s cheaper and more profitable to chase the customer instead of building stores and waiting for the customer to walk in during business hours.

It’s also the second time Netflix beat them to the punch. Its top rival began renting films on TiVo last year and has developed streaming video on its Web site and through Microsoft Corp.’s (MSFT) Xbox 360 video game console.

This time – unlike Netflix – Blockbuster’s TiVo offerings will be available a few weeks after they arrive in rental stores, but before they reach pay-per-view audiences.

“You will see us in a large number of other devices going forward,” Kevin Lewis, senior vice president of digital entertainment at Blockbuster, said.

Lewis added that the company also plans to sell its movies via Apple Inc’s (AAPL) products.

“We need to be in the normal places that consumers want to watch movies,” he said.

Shareholders Happy… For Now

More than ever, Blockbuster needs a better business model – and fast. Last quarter, the movie-rental chain posted a net loss of  $359.8 million, or $1.89 per diluted share, while taking a $435 million non-cash charge “for the impairment of goodwill and other long-lived assets.”

Blockbuster’s shares dipped as low as 13 cents early this month when a report surfaced that the company hired Kirkland & Ellis LLP to advise a possible bankruptcy filing.

Chief Executive Officer Jim Keyes didn’t refute the report outright, but rather misdirected it, saying that bankruptcy is “not our objective,” Bloomberg reported.

“We have retained expertise both on the legal side and the investment-banking side to very aggressively pursue our refinancing alternatives,” Keyes said.

Keys said he has support from his investors, including Mark Wattles, founder of rival Hollywood Entertainment Corp., who took a 5.7% equity stake in Blockbuster as a sign of his confidence in the industry and Blockbuster’s financial stability.

“I was pleased to find he is a strong believer in our industry,” Keyes said. “We didn’t have any strategic discussions. He just emphasized his confidence in the direction of the company.”

But there’s one shareholder who demands that his actions and opinions about the company’s direction be watched: Billionaire Carl Icahn, who owns an 8.7% stake in Blockbuster, making him the company’s largest shareholder.

Icahn famously, and successfully, led the charge to dethrone Yahoo! Inc. (YHOO) co-founder Jerry Yang from his job as the company’s Chief Executive Officer. Icahn – upset with Yang’s performance – threatened to seek control of the board and resuscitate takeover talks with Microsoft.

Icahn ultimately won the battle, with Yang stepping down and Yahoo selecting Carol Bartz, chairwoman of Autodesk Inc. (ADSK), as his replacement a few months later.

Icahn did not get his ultimate wish, however, as Microsoft did not succeed in taking the company over.

Source: Blockbuster Teams with TiVo Go Global to Escape Extinction

• The auditors at General Motors Corp. (GM) have raised “substantial doubt” about the carmaker’s odds of surviving without filing for bankruptcy protection. “Amid the automotive depression, GM is dependent upon the largesse and forbearance of the U.S. and foreign governments to sustain its various entities,” Standard & Poor’s equity analyst Efraim Levy said in a note for clients, Reuters reported.

• Ford Motor Co. (F) said it plans to cut about 40% of its $25.8 billion automotive debt by offering creditors cash and new shares. Despite the plan, Standard & Poor’s cut its corporate credit rating on Ford to “CC” from “CCC+” while Fitch said it will not affect the current rating of “CCC,” Reuters reported.

• Despite overall retail numbers falling in February, Wal-Mart Stores, Inc. (WMT) reported sales growth for the month that outpaced its quarterly forecast. Revenue increased 5.1% at U.S. stores open at least one year, as more customers came to the world’s largest retailer for groceries.

• Google Inc. (GOOG) has an $8.6 billion pile of cash that will only be used for “very very conservative investments,” Chief Executive Eric Schmidt said in an interview with The Wall Street Journal. The primary plan is to let the cash “pile up” as the company tries to retain its footing during the global financial crisis.

• Mortgage delinquencies rose to the highest level on records that date back to 1972, as unemployment rose to a 15-year high and real estate values tumbled, Bloomberg reported. The U.S. real estate market lost $2.4 trillion in value last year, and the percentage of loans at least a month overdue or in foreclosure increased to a seasonally adjusted 7.88%, the Mortgage Bankers Association reported yesterday (Thursday).

• Blockbuster Inc. (BBI), the top U.S. movie rental chain, said sales at stores open at least a year rose 4.4% in the fourth quarter as strong demand for electronics and video games overshadowed a slump in rentals.  Blockbuster shares jumped 23% following the news and the company said it has no plans to file for bankruptcy, as was rumored earlier this week, Reuters reported.

• Shares of Citigroup Inc. (C), once the world’s biggest bank by market value, dropped below $1 in New York trading for the first time as investors lost confidence the shares could recover after more than $37.5 billion in losses and a government rescue. Citigroup is now the 184th biggest bank by market value, behind Malaysia’s Bumiputra-Commerce Holdings Bhd, according to data compiled by Bloomberg.

• Oil fell nearly 4% yesterday (Thursday) as the deteriorating economic outlook heightened expectations that consumption would shrink further, Reuters reported. U.S. crude slipped $1.77 to settle at $43.61 a barrel, while London Brent crude fell $2.48 to $43.64. Oil prices have dropped more than $100 a barrel since last July as the economic crisis triggers the first decline in global energy use in a quarter century.

Source: Global Investment News Briefs Friday, March 6, 2009

Volume was so-so. Only 99,266 contracts were estimated to have traded, including a switch effect of 8,734 contracts.

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Silver’s action yesterday was similar to gold’s…with the exception that the ‘low’ for yesterday [such as it was] occurred in early morning trading in Hong Kong…not in New York. However, silver’s London rally ran into the same Comex brick wall as gold, and at precisely the same time…9:00 a.m. in New York.

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Despite the fact that both gold and silver got it in the neck on Tuesday, open interest numbers for that day’s trading were underwhelming. Gold open interest only fell 2,071 contracts to 365,271…and silver’s o.i actually rose 15 contracts to 93,051. Hopefully these figures will be in the Commitment of Traders tomorrow. In another long conversation with Ted Butler, he feels that the tech funds in silver have pretty much been cleaned out…even though the price didn’t get anywhere near the 50-day moving average…and that gold had a long way to go to achieve the same position that silver is now in. Yesterday’s low in gold for the April contract was $900.40…with the 50-day m.a. at $895.93…less than five bucks away. The gold price would have to be dropped to about $880-885 [or a bit lower] to clean out the majority of the tech longs in the Non-Commercial category. Will that happen? One way or another, it’s my bet that we’ll find out what JPMorgan (NYSE:JPM) et al have in store for us sometime during the next 48 hours.

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There were 111 contracts delivered in Comex gold yesterday. JPMorgan was the biggest issuer [77 contracts] and also the biggest stopper [97 contracts]. So far in March, 1,061 contracts in gold have been delivered…which is quite a bit for a non-delivery month. In silver, 261 contracts were delivered. The big issuers were Bank of N.S. [120] and JPMorgan [126]…with the biggest stoppers being JPMorgan [116] and Goldman Sachs (NYSE:GS) [106]. Comex warehouse silver stocks rose a hair under one million ounces. The U.S. Mint has reported production for part of the first week of March. So far they’ve punched out 26,000 one troy ounce gold eagles and 541,500 silver eagles. There were no changes in either GLD or SLV inventories.

In other news today I note that Blockbuster Video (NYSE:BBI) and Reader’s Digest are filing for bankruptcy. And as was pointed out over at lemetropolecafe.com yesterday…the share price action of JPMorgan and General Electric (NYSE:GE) are ominous. On a huge up day in the Dow, GE sank 32 cents to $6.69, after making an intraday low of $5.72. GE credit default swaps are 17% bid…19% offered! Doesn’t GE still have a AAA credit rating??? Just asking! JPMorgan lost $1.71. JPMorgan has the biggest derivatives position on planet earth. It would take tens of trillions of dollars to bail them out…if they can be bailed out, that is. And the once mighty AIG closed at 43 cents yesterday. In a Bloomberg story the headline read “More Than 8.3 Million U.S. Mortgages Underwater as Values Sink”…”An additional 2.2 million borrowers will be underwater if home prices decline another 5%…Households with negative equity or near it account for a quarter of all mortgage holders.” [Gee, I wonder what will happen when house prices fall another 25-50%...which is what I expect they're going to do before this all over. - Ed] And lastly, in a story out of The Jerusalem Post the headline reads “Israel seriously considering military action against Iran”…”Israel is seriously considering taking unilateral military action to stop Iran from acquiring nuclear weapons according to a report by top US political figures and experts released Wednesday. The report also says Israel’s time frame for action is growing shorter, not only because of Iranian advances, but because Teheran might soon acquire upgraded air defenses and disperse its nuclear program to additional locations.”

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Today’s first story is from The Telegraph in London…and as you might already suspect…it’s from Ambrose Evans-Pritchard. “European banks face a US dollar ‘funding gap’ of almost $2 trillion as a result of aggressive expansion around the world and may have difficulties rolling over debts, according to a report by the Bank for International Settlements.” The headline reads “Europe’s banks face a $2 trillion dollar shortage”…and the link is here.

It appears that some French politicians are receiving plain brown envelopes with 9mm bullets in them…along with very sinister notes. The headline from the dailymail.co.uk says it all…”You’re all dead men walking”: The sinister threat sent with a BULLET to French politicians including Sarkozy”. Once again I thank Craig McCarty for sending me the story. The link is here.

In the next story from New Jersey, they haven’t broken out the firearms yet, but they did tar and feather the mayor of Hoboken…in effigy, that is. The story is from nj.com [via the King Report] and the headline reads “Protest outside Hoboken City Hall reveals anger, frustration” [Anger...frustration??? You ain't seen nothin' yet, baby!!! There will be plenty more of that across the USA, and other countries, before this meltdown is over. - Ed] The link is here.

And lastly, a gold story out of Taipan of all places…Justice Litle, editorial director for the Taipan Publishing Group newsletters, argues in his latest essay that neither threats by the International Monetary Fund and U.S. government to sell gold [nor actual sales of such gold] are likely to suppress the gold price much, insofar as too many governments with huge and depreciating dollar surpluses probably would scoop up any and all gold made available that way. Litle’s essay, “Why the IMF and Fort Knox Won’t Put the Hurt on Gold,” can be found linked here.

The natural progress of things is for liberty to yield and government to gain ground. – Thomas Jefferson

Yesterday was just another effort to rearrange the world’s financial and monetary deck chairs. The fact of the matter is, that central banks must hyperinflate…or die. Plain vanilla inflation is no longer an option. I also noted that the US Treasury has got several large auctions coming up next week and it will be interesting to see how well gold will be allowed to ‘compete’ against them. Regardless…we’re at, or very close to, a bottom…and as I said earlier…the next 48 hours of gold trading should tell us a lot.

All of us at Casey’s Daily Resource Plus look forward to seeing you right here…bright and early on Friday morning.

Source: And Then There’s This…Thursday, March 05th, 2009

This from Today’s Financial News:

Last night, I sat down at the kitchen table and realized I was a bit lopsided. I checked to see if the chair was broken. It checked out.  I sniffed my glass of water to make sure it wasn’t tainted. It was alcohol free.

It turns out my overstuffed wallet was the culprit. My worn-out leather companion has slowly grown to nearly two inches in thickness. The growth cannot because of an accumulation of greenbacks. You have a better chance of finding a moth infestation than more than forty bucks in cash in my back pocket.

The culprit was a collection of gift and membership cards. As I started digging through the mess, I uncovered memories I had long forgotten, like my membership to a local gym. I called to see if it was still active. The kind lady that answered the phone told me the gym closed over two years ago. No wonder I have not been going.

As my stack of “throw-away” cards grew to over an inch in thickness, I hesitated when I got to my Blockbuster (NYSE:BBI) membership card. I hadn’t used the thing in at least a year, but had a tough time convincing myself that would be a long-term trend. After all, I am recently married and that means I will be spending a lot more time at home, snuggling on the couch. Ugh…

In the end, I decided to experiment and toss the rectangular piece of plastic into the hopper that will ensure it is buried for all of eternity. I think I made the right decision.

The Internet killed the video star

Blockbuster is in a ferocious industry battle. The video-rental company was doing fine, even leading its industry, until Netflix (NASDAQ:NFLX) came along and changed the rules of the game.  No longer do consumers have to get in their cars and shell out four or five bucks for a movie that is due back in a couple of days. Thanks to Netflix, they are delivered straight to a subscriber’s door.

Blockbuster enjoyed nearly half of the industry’s “store” business, but cannot get anywhere close to a leadership position in the industry’s new monthly subscription business. Netflix dominates with nearly three-quarters of the $2.2 billion industry’s total sales.

Blockbuster has tried to keep up with the mail-based subscription industry, but as it was not able to obtain a position as a first-mover, its brand is rarely associated with the industry. Just as brands like Kleenex, Google and Xerox became synonymous with their products so has Netflix. It has become a strong and relentless competitive advantage for the company.

But now the industry is changing once again and Blockbuster is desperate to take the lead. Check out any of the latest in television or set-top products at the Consumer Electronics Show and you will see one thing. Almost all of them have Internet connections. A broadband-enabled TV is the way of the future.

At least that is what Blockbuster hopes.

Earlier today, the company announced a deal with Sonic Solutions (NASDAQ:SNIC), a $35 million company specializing in digital video software and products. Through Sonic’s CinemaNow video library and Blockbuster’s own digital content offerings, the companies are working to beat Netflix to the downloadable movie leadership position.

Netflix has the advantage. It has been offering online video downloads since 2007. Subscribers can download videos to their computers, Xbox systems and the company has a deal with TiVo (NASDAQ:TIVO) that sends movies straight to a TV set.

Blockbuster wants to follow the same route, but offer the content to even more digital devices hooked to the Web. It is going to be an interesting battle.

Playing for keeps

The real question is not what devices or technology the company’s should use. What investors need to know is if there is room for more than one player in this industry.

Just like the satellite-radio industry, the world of downloadable movies has high fixed costs and little in the way of variable costs. That means if the subscribers are spread over too many competitors, individual profits will remain low and we will see a wave of consolidation. Again, just look at Sirius XM (NASDAQ:SIRI).

But if one company emerges as the winner, it will be able to fend off competition because newcomers will not be able to afford the initial technology costs. That is why Netflix and Blockbuster are fighting so hard while this industry is in its infancy. The winner will secure a huge long-term revenue stream.

Right now, it is anybody’s battle to win. Netflix has the better brand, but it appears Blockbuster has the superior technology. Traders would be wise to look beyond these two companies and look at the firm’s making it all happen, like Sonic or even TiVo.

For investors looking to break into an industry of the future, this is a fantastic opportunity. Share prices are cheap and the profit potential can only grow from here. All you have to do is pick the winner.

Source: Want to get rich? Invest in the company that can dominate your entertainment

At first, Netflix’s threat to Blockbuster seemed laughable. But now, with more consumers cutting back and looking for instant entertainment, low monthly costs and the ease of Netflix are really starting to squeeze Blockbuster.

And that’s not to say that Blockbuster hasn’t given its rivals a hand. There was the misguided and disastrous attempt to merge with financial-albatross Circuit City (OTC: CCTYQ), the botched roll-out of the “no more late fees – just other fees” program and the complete failure to see how a vindictive fee and collection system could alienate its customers.

But the competition isn’t just coming from Netflix. Redbox’s easy-to-use, dollar-a-day rental system is also stealing revenue. Most Redbox vending machines are located outside of parent company McDonald’s (NYSE: MCD) and inside grocery stores. Often in the same shopping centers as Blockbuster.

In the same way Eastman Kodak (NYSE: EK) missed the advent of digital, Blockbuster missed the transformative power of the Internet and subscription rentals. It’s playing catch-up. And only time will tell if BBI can recover.

Source: Blockbuster (NYSE: BBI) – Another Nail In The Coffin

In the company’s Monday release, Circuit City said it is closing stores in 55 metro areas and will exit 12 markets entirely. It also said it is reducing future store openings, “aggressively” renegotiating current leases and considering “all available options and alternatives to restructure its business.”

The release also throws a lot of blame, citing “waning consumer confidence,” a “significantly weakened retail environment” and “unfavorable macroeconomic conditions.”

Circuit City also said it is waiting for nearly $80 million tax rebate it believes the federal government owes the company.

That figure is nearly twice its shrunken market cap.

“Since late September, unprecedented events have occurred in the financial and consumer markets causing macroeconomic trends to worsen sharply. The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors,” James A. Marcum, vice chairman and acting president and chief executive officer, said in the release.

“The combination of these trends has strained severely our working capital and liquidity, and so we are making a number of difficult, but necessary, decisions to address the company’s financial situation as quickly as possible.”

Missing from his statement is the fact that the electronics industry has widened over the past decade – growing popularity of DVDs, video games, HDTVs computers and laptops, cell phones – spawning new competitors such as GameStop Corp. (GME) and Apple Inc’s (AAPL) iTunes in addition to its chief rivals Wal-Mart Stores, Inc. (WMT), Target Corp. (TGT) and Best Buy Co., Inc. (BBY).

And those other companies are doing a much better job pushing the same merchandise off their shelves than Circuit City.

Uphill Battle

To gauge how steep an uphill battle Circuit City has, it helps to look back key moments in its decline.
Over the past year and a half, the company has slashed retail management positions, eliminated jobs at its corporate offices and laid-off 3,400 retail workers.

On March 28, it was ousted from the Standard & Poor’s 500 Index.

The following month, Blockbuster Inc. (BBI) – another fading national company – made an unsolicited $1 billion acquisition bid for Circuit City for at least $6 a share. The idea was to create a supermedia retailer that might be more competitive.

That offered fizzled.

In May, the company put itself on the auction block, a day after Best Buy announced plans to open stores in Europe through a $2.1 billion 50-50 joint venture with London-based Carphone Warehouse Group PLC.

In June, it suspended its 4-cent dividend. And in September, CEO and President Philip Schoonover resigned on the spot.

All that carnage has caused Circuit City’s stock tofall 99% in the past year and a half – from about $30 a share to its current price of 36 cents a share.

Source: Battered Circuit City Closing 155 Stores, Scraping for Capital