Is Blockbuster illegally inflating its revenue?

[Ridge]

I'll be the first to admit that I don't know much about buisness or stocks, but something about this seems illegal to me. With Blockbusters online program, they claim that every time a customer uses one of the in store coupons, the store gets $3 in revenue. I can see where that's plausable, seeing as how the program is $18 per month, so they can take the $12 off the online membership fee. But earlier this week, I was told that the store would get $40 in revenue whenever a customer signed up for the one month trial. I don't understand how they can get away with that, seeing as how there's no money coming in from a customer to cover that. Can someone explain how this isn't fraud of some sort? Do they just subtract all the "in store revenue" from the totals they tell people the store is bringing in, or are they just pumping nonexistant money into itself like Enron did?

[DraconianSM]

Blockbuster Online is a seperate branch from the Blockbuster stores. So, as store employees help promote the Online part of the business, the stores get a small piece of the online subscription they've helped generate. The Online branch allocates $$ to the stores for the initial trial registration, coupon use, and subscription. After that, The Online BBV gets all the revenue. Ultimately Blockbuster,Inc. gets it all. But for the stores that little boost they get could be the difference between a merit bonus or not.

[OzMan]

As long as there is a debit on the other side of the balance sheet, they're not doing anything wrong.

On the other hand, when $12 per month AND the first $40 goes to the store, how much money is BB Online losing??

[Antithesys]

The Blockbuster Ticket and the Enron E do appear to be tilted at the same angle...

[Idiotsaroundme]

ken lay faked his death so that he could come back as antiaccos side kick!111!!!oneone!@

[exfacior]

blockbuster is obviously going to lose money on the online program to gain market share over netflix.

the key to making money of course is subscriptions (i.e. payign for the same service more than once.) blockbuster knows this, and just like MS loses money for each xbox, BB loses money (initially) for each online, but the benefits of that go to the stores instead of the customer.

also, looking at the stock price lately, and analyzing industry trends, BB looks like it still has a good current ratio and cash flows to support the $3 per coupon and $40 bonus on the signup.

part of this is that we are buying movies for less money this year, so the cost of running the operations has fallen as well...

and of course im positive blockbuster has qutie a few legit audits, especially since the financial troubles, all companies must apply to the new SEC laws since the Worldcom and Enron fiascos.

[OzMan]

and of course im positive blockbuster has qutie a few legit audits, especially since the financial troubles, all companies must apply to the new SEC laws since the Worldcom and Enron fiascos.

Remember, a lot of what Worldcom and Enron were doing wasn't necessarily illegal until they bankrupted themselves.

Do I really need to repeat for the THIRD time today (I know, that's what I get for going away for almost two weeks) as to the myriad ways that BBI fails to follow GAAP??

[zooworker]

Remember, a lot of what Worldcom and Enron were doing wasn't necessarily illegal until they bankrupted themselves.

Do I really need to repeat for the THIRD time today (I know, that's what I get for going away for almost two weeks) as to the myriad ways that BBI fails to follow GAAP??

I agree with your analogy, even though my DL keeps saying online is making a profit.I would like the see a complete P&L statement. As I would for my store. The SPR doesn't give it all to you.

[Suli]

The $40 is all the store will get where it was a $12 when you sold it then $3 per coupon for the rest of the the customers online life with blockbuster but not its just $40 straight nothing else the store doesn't make $3 off the coupons anymore. In the short run the store will make more money but in the long run if the customers stays with company and uses the coupon at that store or another they will no longer be getting that $3 so the store will be making less money in the end.

[sar94pga]

I agree with your analogy, even though my DL keeps saying online is making a profit.I would like the see a complete P&L statement. As I would for my store. The SPR doesn't give it all to you.

if you deep dive into the spr, it will break it down line by line, how much you got in activations and how much you got in coupon $$. how many pages is your spr? if it is only 1, your DL is jippin you.

[OzMan]

if you deep dive into the spr, it will break it down line by line, how much you got in activations and how much you got in coupon $$. how many pages is your spr? if it is only 1, your DL is jippin you.

But doesn't that just tell you if YOUR store is profitable??

The question is, where is the $40 coming from??

Short term, customer gets 1 month free and pays $20 per month, so it takes THREE months just to cover the cost credited to the store. And that doesn't even begin to cover the cost of postage and the DVDs.

It costs about 78 cents to mail the DVD, and the studios will want something; I think if BBI is paying even as little as $1.25 per disc, they are very lucky. So, if a customer has only TEN DVDs shipped to him per month, BBI has NOTHING to show for profit. So where is the $40 coming from??

Even if the "average" customer would only rent 5 online per month, that means costs (under the arbitrary numbers I am using) are $10. First month is free to the customer, so it would take 6 months just to pay off the $40 for the store...... and that doesn't even take into account the free in-store rentals.

All I am saying is (especially considering this is a company that tracks voids as credits, creating a much higher credit percentage than is proper), I don't see how the math works here.

If someone can explain it, I would love to hear it. Is no one else curious as to how this all balances out??

[Spin]

But doesn't that just tell you if YOUR store is profitable??

The question is, where is the $40 coming from??

Short term, customer gets 1 month free and pays $20 per month, so it takes THREE months just to cover the cost credited to the store. And that doesn't even begin to cover the cost of postage and the DVDs.

It costs about 78 cents to mail the DVD, and the studios will want something; I think if BBI is paying even as little as $1.25 per disc, they are very lucky. So, if a customer has only TEN DVDs shipped to him per month, BBI has NOTHING to show for profit. So where is the $40 coming from??

Even if the "average" customer would only rent 5 online per month, that means costs (under the arbitrary numbers I am using) are $10. First month is free to the customer, so it would take 6 months just to pay off the $40 for the store...... and that doesn't even take into account the free in-store rentals.

All I am saying is (especially considering this is a company that tracks voids as credits, creating a much higher credit percentage than is proper), I don't see how the math works here.

If someone can explain it, I would love to hear it. Is no one else curious as to how this all balances out??

Oz, the SPR is a 'internal scorecard'...and not a statutary accounting record, so the 'credit' of $40 is somewhat academic...it's a notional internal credit to the stores 'scorecard' and not a real cost.

The only real cost to BB will be the increased bonus payout that the $40 'credit'/spiff or whatever you want to call it generates.

So it's a real credit to us, with the potential to get us more on the bonus front, but inside BBI it's wooden dollars...not too much of a mystery:) and the economics appear sensible.

[OzMan]

Oz, the SPR is a 'internal scorecard'...and not a statutary accounting record, so the 'credit' of $40 is somewhat academic...it's a notional internal credit to the stores 'scorecard' and not a real cost.

The only real cost to BB will be the increased bonus payout that the $40 'credit'/spiff or whatever you want to call it generates.

So it's a real credit to us, with the potential to get us more on the bonus front, but inside BBI it's wooden dollars...not too much of a mystery:) and the economics appear sensible.



But it's still a balance transfer from one company to another (you do realise that BB Online and BBI are, legally, two separate companies?). And it is reflected in the financials that BBI reports to the SEC and the shareholders.

So this "figure", regardless of how it is arrived at, still has to come from somewhere. I mean, transferring non-existant profits from one company to another is the main thing that caused the downfall of Enron.