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News
Blockbuster sets charge
September 10, 2001: 11:21 a.m. ET

Video rental firm plans $450M charge as it shifts to DVD from VHS, games
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NEW YORK (CNNfn) - Blockbuster Inc. said Monday it was moving away from its current stock of VHS tapes and video games to DVD movies, and would take $450 million in charges to account for the changes.

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graphicCNNfn's Joya Dass takes a peek at Blockbusters's shift from VHS to DVD rentals.
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The nation's biggest video rental chain said in a conference call with Wall Street analysts that it remains confident in the full-year earnings outlook. Analysts surveyed by First Call forecast the company to earn 85 cents a share this year, up from 64 cents last year. The company said it also expects to see profit margins improve 2 to 3 percent due to the shift to more DVDs.

The company said that DVDs are lower-cost and therefore higher-margin products and that they take up less shelf space, allowing it to market more product in the stores.

The Dallas-based retailer said most of the charge will be a non-cash expense reflecting lower residual value of its tapes and video games. The company will eliminate about 25 percent of its stock of videotapes and games that it said contribute less than 1 percent of its rental revenue in order to expand its selection of DVD movies.

Shares of Blockbuster (BBI: down $1.45 to $18.54, Research, Estimates) lost ground following the announcement. The company is a publicly traded subsidiary of Viacom (VIA.B: up $0.88 to $38.75, Research, Estimates), the media conglomerate that still owns 82 percent of Blockbuster shares.

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The company said it will take $400 million of the charge in the third quarter and the remainder in the fourth. The company will write down the value of VHS movies to $2 each and the current video games to $5 each.

The introduction of new video game platforms is hurting the residual value of its current game cartridges, the company said. It also said it will accelerate the amortization period of its VHS tapes to nine months from the current 36 months. graphic


Reuters contributed to this report

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