Blockbuster Posts $1.4-Billion Loss

Blockbuster Inc. said Wednesday that it spilled $1.4 billion in red ink in the third quarter, owing to a one-time, noncash accounting adjustment, and also warned that its video rental business continued to suffer.

The nation’s largest video chain said that its fourth-quarter earnings would “decline significantly” from a year earlier and that the rental business would further deteriorate in 2005 before finally stabilizing. Blockbuster also said it was hurt by expenses to start an online business and to expand its video game offerings.

Separately, the Dallas-based company said its second in command, Nigel Travis, resigned as president and chief operating officer. Chief Financial Officer Larry Zine said Travis wanted to be a chief executive, noting that Blockbuster CEO John Antioco just signed a new five-year contract.

Once a profit juggernaut that dominated the business, Blockbuster has been pummeled by discounters such as Wal-Mart Stores Inc., Target Corp. and Best Buy Co. Their cut-rate prices are enticing consumers to buy DVDs instead of rent them.

Blockbuster also faces competition from online services such as Netflix Inc., which offer unlimited home video rentals with no late fees and home delivery. Blockbuster announced its entry into the online service in August, undercutting Netflix by offering a lower monthly fee.

The loss Blockbuster announced Wednesday was caused by a $1.5-billion write-off.

After being spun off from entertainment giant Viacom Inc., the company was required to perform an “impairment test” to make sure its intangible assets were properly valued on its books.

Accounting rules require companies to reconcile “goodwill,” or the difference between an asset’s purchase price and its fair value. In Blockbuster’s case, the goodwill it was required to carry on its books stemmed largely from its own acquisition by Viacom in 1994.

The $1.4-billion loss contrasted with a $63.7-million profit in the year-earlier quarter. Excluding Blockbuster’s write-down, the company earned $3.4 million, which was depressed by the investments on the new businesses. Revenue rose 1.8% from a year earlier to $1.41 billion.

Zine said the results did not come as a surprise. “We think these initiatives are very good, but they require investment upfront and that affects the value of the company right now,” he said.

Blockbuster shares fell 28 cents to $6.81 on the New York Stock Exchange.