Poor Sales Challenge Entertainment Firms
`THE recession probably hurt us more than we had thought it would,'' says H. Wayne Huizenga, leaning across a conference room table on which he has spread out a series of brightly colored graphs showing current and future earnings estimates. ``Then there was the Gulf war, which didn't help sales. But now we're back on track. People are renting movies again. They're coming back into our stores.''
Mr. Huizenga is chairman of Blockbuster Entertainment Corporation, which has more than 1,600 Blockbuster video stores throughout the United States and abroad, plus another 200 stores in the Erol's chain, based in Washington, D.C. Huizenga is also a quick reader of consumer tastes. As the driving force behind a once small Midwestern trash hauling company, he turned Waste Management Inc. into the biggest refuse collection business in the US. Now, after just four years as head of Blockbuster, he has built the video rental shop into the McDonald's of the industry.
Blockbuster is just one of a number of communications/entertainment companies that felt the adverse double-whammy of the Gulf war and the recession. The Disney Company has seen attendance drop at its theme parks and the scuttling of Sky Cable - a satellite-to-receiving-dish TV system for Europe that was a joint venture with General Motors, General Electric, News Corporation Ltd., and Cablevision Systems Corporation. Paramount Communications Inc. announced last week that it was posting a $55 million loss for its second quarter. Time Warner Inc., though not as troubled, is reportedly considering selling new equity to help reduce its $11 billion in outstanding debt.
Relatively small Blockbuster, in fact, may be among the better off of the communications companies, in the sense that it remains highly focused - videos - rather than having a multiplicity of operations geared to diverse and costly product-lines. Huizenga expects Blockbuster's earnings for the year to be 50 to 60 cents per share, better than last year's 42 cents a share.
Although Huizenga says that he is exploring new possibilities for Blockbuster stores - from expanding popcorn sales to selling airline tickets - some stock analysts don't read too much into that line of discussion. All the talk about other products is ``to show that Blockbuster's management is not asleep,'' says Fran Blechman Bernstein, a vice president of Merrill Lynch & Co. She has a ``buy'' recommendation on Blockbuster's stock.
The challenge for giant communications corporations like Paramount, Time Warner, Disney, and to a lesser extent Blockbuster, experts say, is to win back consumers by holding down prices while getting a tighter grip on product costs. A top Disney official recently circulated a controversial memo exhorting his industry to hold down spiraling production costs. But for companies with fingers in many pies, that's easier said than done. Paramount, for example, is into publishing, television, films, and sports . Time Warner is into cable systems, records, books, television, and films.
Paramount's $55 million loss for the quarter ending April 30 tells the tale. The results reflect a write-down of entertainment-sector products as well as a financial settlement with Paramount's departing chairman, Frank Mancuso. Operating earnings for the entertainment sector were off, reflecting the adverse impact of several costly films that didn't meet expectations. Educational publishing was down. Consumer books did well, although profits were down because of the recession. And although Paramount do esn't break out all results in its sports sector, operating expenses were up and profits were said to be down for Madison Square Garden. And salary contracts at Paramount's New York Knicks basketball team, for example, are far from minuscule. Still, Paramount is a cash cow, with over $1.5 billion on hand.
Despite industry problems, some analysts, such as Christopher Dixon of PaineWebber Inc., continue to see a good year for the entertainment sector.