Blockbuster (BLOKA) 8-K Regulation FD Disclosure

2

FORWARD-LOOKING STATEMENTS

This

presentation

includes

forward-looking

statements

related

to

Blockbuster's

operations

and

business

outlook

and

related

financial

and

operational

strategies

and

goals.

Specific

forward-looking

statements

include,

without

limitation,

statements

relating

to

(i)

Blockbuster's

overall

strategies

and

its

related

initiatives

and

investments;

(ii)

Blockbuster's

expectations

with

respect

to

the

expected

competitive

and

financial

impact

of

these

initiatives,

in

particular

its

"No

Late

Fees"

program

and

its

online

subscription

initiative;

(iii)

expectations

with

respect

to

the

future

of

the

rental

industry;

(iv)

Blockbuster's

trends

and

expectations

with

respect

to

its

future

goals,

strategies

and

results;

and

(v)

Blockbuster's

expectations

with

respect

to

improved

operating

flexibility

as

a

result

of

the

third

amendment

to

its

credit

facilities.

These

forward-looking

statements

are

based

on

Blockbuster's

current

intent,

expectations,

estimates

and

projections

and

are

not

guarantees

of

future

performance.

These

statements

involve

risks,

uncertainties,

assumptions

and

other

factors

that

are

difficult

to

predict

and

that

could

cause

actual

results

to

vary

materially

from

those

expressed

in

or

indicated

by

them.

Factors

include,

among

others:

(i)

consumer

appeal

of

Blockbuster's

existing

and

planned

product

and

service

offerings,

in

particular

its

"No

Late

Fees"

program

and

its

online

subscription

initiative,

and

the

related

impact

of

competitor

pricing

and

product

and

service

offerings;

(ii)

overall

industry

performance;

(iii)

Blockbuster's

ability

to

obtain

favorable

terms

from

suppliers,

including

on

such

matters

as

copy

depth

and

uses

of

product;

(iv)

the

studios'

dependence

on

revenues

generated

from

retail

home

video

and

their

related

determinations

with

respect

to

pricing

and

the

timing

of

distribution

of

their

product;

(v)

the

variability

in

consumer

appeal

of

the

movie

titles

and

games

software

released

for

rental

and

sale;

(vi)

Blockbuster's

ability

to

comply

with

operating

and

financial

restrictions

and

covenants

in

its

debt

agreements;

(vii)

Blockbuster's

ability

to

respond

to

changing

consumer

preferences,

including

with

respect

to

new

technologies

and

alternative

methods

of

content

delivery,

and

to

effectively

adjust

its

offerings

if

and

as

necessary;

(viii)

the

extent

and

timing

of

Blockbuster's

continued

investment

of

incremental

operating

expenses

and

capital

expenditures

to

continue

to

develop

and

implement

its

initiatives

and

its

corresponding

ability

to

effectively

control

and

reduce

operating

expenses

and

capital

expenditures;

(ix)

Blockbuster's

ability

to

effectively

and

timely

prioritize

and

implement

its

initiatives

and

its

related

ability

to

timely

implement

and

maintain

the

necessary

information

technology

systems

and

infrastructure

to

support

its

initiatives;

(x)

Blockbuster's

ability

to

capitalize

on

anticipated

industry

consolidation;

(xi)

the

application

and

impact

of

future

accounting

policies

or

interpretations

of

existing

accounting

policies;

(xii)

the

impact

of

developments

affecting

Blockbuster's

outstanding

litigation

and

claims

against

it;

and

(xiii)

other

factors,

as

described

in

Blockbuster's

filings

with

the

Securities

and

Exchange

Commission,

including

the

detailed

factors

discussed

under

the

heading

"Cautionary

Statements"

in

Blockbuster's

annual

report

on

Form

10-K

for

the

fiscal

year

ended

December

31,

2004

and

under

"Disclosure

Regarding

Forward-Looking

Information"

in

Blockbuster's

quarterly

reports

on

Form

10-Q

for

the

quarters

ended

March

31,

June

30

and

September

30,

2005.

3

Agenda

Blockbuster Management Participants

–

John Antioco, Chairman and CEO

–

Larry Zine, Chief Financial Officer

–

Mary Bell, Treasurer

Blockbuster Business Update

–

Strategic Overview

–

Industry Performance

–

Status of New Initiatives

–

Repositioning Blockbuster

Financial Summary

–

Third Quarter 2005 Performance

–

Bank Amendment

–

Capital Structure

Q&A

Blockbuster Business Update

John Antioco, Chairman and CEO

5

Launched

In-store subscription

Online subscription

Game concepts

Movie trading

No late fees

Revitalize Our Core

Rental Business

and

Create Alternative

Revenue Sources

In 2004, We Began To Reposition The Company...

Our Goal :

6

...To Offset The Decline In The In-Store Rental Industry

Movie Rental

(1)

$7.1

$5.6

Online Subscription

(2)

1.0

1.7

In-Store Subscription

(2)

0.4

0.7

Total Rental

$8.5

$8.0

Retail Movies

(1)

18.7

23.3

Used / Traded Movies

(2)(4)

1.3

1.3

Retail Games

(3)

7.9

9.6

Games Rental / Used / Traded

(3)(4)

2.1

2.3

Total Industry

$38.5 B

$44.4B

2005E

2007E

CAGR

7.5%

US Movies and Games Industry

1)  Source:  Kagan Research, LLC.

2)  Source:  Adams Media Research

3)  Source:  LEK Consulting (includes software and accessories)

4)  Includes previously viewed/played product, which Blockbuster

reports under rental revenue.

Note:

Columns

do

not

total

due

to

rounding

Two-year investment plan better positions

Blockbuster to capture movie

and game traffic.

7

2005 Has Proved To Be Especially Challenging

Home Video Box Office Results¹

2004 vs

2005

2004

Q2

2005

15.6%

35.9%

2004

2005

2004

2005

Q3

Q1

2004

2005

Q4E

19.6%

0.8%

Box Office Revenue²

Q3 2005 YTD

Box Office Admissions³

Q3 2005 YTD

2005

2004

2005

5.9%

2004

8.6%

(3.7%)

(10.4%)

Domestic In-Store Rental Industry

Q3 2005 YTD and 2005E

Q3 YTD Industry Actuals 3

2005 Analysts consensus

4

1

Blockbuster

2

Kagan,

Motion

Picture

Investor,

10/13/05

3

Industry

reflects

total

(in-store

+

online)

NRR

actuals

as

reported

by

RenTrak

minus

Blockbuster

estimates

for

the

online

segment

4

Sources:

Average

of

analysts

(Kagan

Research

LLC,

Adams

Media,

LEK

Consulting

-

Feb-05)

8

We Are Well Prepared To Face Industry Challenges

Blockbuster rental revenues outperformed the industry, even with

the

elimination of extended viewing fees which totaled approximately

13% of

rental revenues in Q3 2004

No Late Fees continues to drive traffic

–

Active member comps ranging from approximately 5-9 percentage

points higher than non-participating franchise stores

Total base rental revenues, which exclude extended viewing fees,

were

up 11% over Q3 2004

Grew Blockbuster Online to 1 million subscribers in less than a year,

increased pricing to $17.99 in August of 2005 and completed integration

of approximately 900 stores

Our efforts to reposition the Company were timely and effective as

evidenced by our performance during Q3 2005

9

Blockbuster Showed Improvement in Active Member Trends 

Active Comp Trend Comparison

2005 Weekly; Percent

Note: Test market results reflect a straight average of Chattanooga and Fresno performance for the first 39 weeks of testing

-15%

-10%

-5%

0%

5%

10%

15%

20%

1

3

5

7

9

11

13

15

17

19

21

23

25

27

29

31

33

35

37

39

Weeks

Test Markets

Company

Non-Participating Franchisees

Launched

No Late Fees

Strong active member growth in test markets demonstrates that “No

Late Fees”

builds traffic

10

Traditional Rental ¹

$7.1B

$5.6

B

-11.2%

Online Subscription ²

1.0B

1.7

B

30.4%

In-Store Subscription ²

0.4B

0.7

B

32.3%

Total

$8.4B ³

$7.9

B ³

-3.0%

2005E

2007E

CAGR

US Movies Industry

1

Source:

Kagan

Research,

LLC

2

Source:

Adams

Media

Research

-

Updated

June-05

-

Proprietary

Subscription

model

3

Columns

do

not

foot

due

to

rounding

Note:

Kagan’s

industry

forecast

does

not

provide

specific

online

and

in-store

subscription

forecasts

Subscription is Projected to Stabilize Rentals

Subscription, including in-store, could represent 20% to 30% of movie rental

revenues within the next three years.

Growing online rental is a key priority.

Projected Online Subscribers

5.8M

10.5M

11

Online is an Opportunity Blockbuster Can’t Ignore

Large

addressable

market

65¹

million

households

with

both

DVD

player

and

internet

access

90¹

million

households

routinely

pay

for

entertainment

subscription/rental

Online

rental

has

grown

to

over

5

million

subscribers

over

the

past

3

years

and

is

projected

to

be

between

7-12²

million

subscribers

by

2008

Blockbuster

reached

1

million

subscribers

in

less

than

a

year

Blockbuster

is

the

only

brand

that

offers

In-store

and

Online

rentals

In-store

customers

that

sign

up

for

Online

have

lower

average

churn

rates

Online

gives

Blockbuster

a

new

relationship

with

the

customer,

providing

a

foothold

for

future

media

delivery

Increased

price

in

August

2005

to

$17.99

Significant

investment

is

behind

us

1

Source:

ICR

Survey.com

2

Source:

Adams

Media

Research

-

Updated

June-05

-

Proprietary

Subscription

model

12

Goals For Building Future On Our Current Strategy

Outperform

In-store rental

industry

Grow

Blockbuster

Online

Achieve

Financial

Flexibility

No Late Fees

Traffic

Transactions

Active members

Improved comps

Industry

Consolidation

Best rental offering

Market share growth

Subscriber Growth

2 million subscribers in

2006

Improve Profitability

Major investment is

behind us

Profitable in 2007

Lower Overall Cost

Reduce G&A and marketing

Lower capital spend

Review overall asset

portfolio

Modified Capital Structure

Obtained covenant relief

Infusion of equity capital

Established

Base

Financial Review

Larry Zine, Chief Financial Officer

14

Rental

Retail

Revenue

2005 Q1-Q3; $ millions

$1,549

$1,386

$1,399

Q2

Q3

Q1

Rental

Retail

Gross Margin

2005 Q1-Q3; $ millions

Reported Third Quarter Results-Revenue and Gross Margin

$864

$771

$791

Same-store

sales

(0.4%)

(4.7%)

(3.8%)

Q2

Q3

Q1

55.8%

55.1%

57.0%

% Margin

Rental

Retail

$1,410

$1,386

Revenue

Q3 04 vs

Q3 05; $ millions

Q3 04

Q3 05

Same-store

sales

(3.0%)

(3.8%)

Rental

Retail

$862

$791

Q3 04

Q3 05

61.1%

57.0%

% Margin

Gross Margin

Q304

vs

Q3 05; $ millions

15

1

Excludes non-cash charges, extraordinary items and share based compensation

OIBDA¹

Q1-Q3 2005; $ millions

$10

$63

$38

Q2

Q3

Q1

Reported Third Quarter Results-SG&A and OIBDA

SG&A

2005 Q1-Q3; $ millions

$878

$761

$735

Q2

Q3

Q1

SG&A

Q3 04 vs

Q3 05; $ millions

Q3 04

Q3 05

$735

$779

Q3 04

Q3 05

$63

$83

OIBDA¹

Q3 04 vs

Q3 05; $ millions

16

Adjusted EPS¹

Q3 05

vs. Q3 04; $ per diluted share

Q3 04

Q3 05

Reported Third Quarter Results-Earnings and Cash Flow

$0.03

($0.13)

Adjusted EPS¹

Q1-Q3 2005; $ per share

Q2

Q3

Q1

($0.23)

($0.13)

($0.22)

Free Cash Flow²; $ millions

($148)

($119)

$19

Q2

Q3

Q1

Adjusted Operating Income ¹

Q3 05 vs. Q3 04; $ millions

Q3  04

Q3 05

$4.9

$19.1

1

Excludes non-cash charges, extraordinary items  and share based compensation

2

Free Cash Flow = Net cash flow provided by operating activities

-

CAPEX -

rental library purchases

17

Goals For Achieving Financial Flexibility

Modified

Capital Structure

Review Asset

Portfolio

Divest Non-Core

Assets

DEJ

Other

Review Overall

Asset Portfolio

Covenant Relief

Amendment to the credit

agreement

Infusion Of Equity Capital

Proceeds Uses

Debt reduction

General business purposes

Established

Base

Lower Overall

Cost

Reduce G&A and

Marketing

Over $100M in 2006

and $50M in 2007

Reduce overhead and

marketing

Operating savings

from non-core

divestitures

Lower overhead

above the store level

Lower Capital Spend

Lower capital

expenditures to $90

million in 2006

18

Amendment

To

Credit

Facilities

Financial

covenant

relief

–

replaces

Leverage

and

Fixed

Charge

Coverage

tests

with

minimum

EBITDA

test

through

2007

and

adds

Capex

covenant

for

the

life

of

the

credit

facilities

Condition

precedent

–

gross

proceeds

of

at

least

$100mm

from

equity

offerings

by

11/20/05

Starting

in

2008

for

the

remaining

life

of

the

deal,

the

existing

Leverage

and

Fixed

Charge

Coverage

tests

are

reinstated

Amendment

gives

Blockbuster

improved

operating

flexibility

over

the

term

of

the

credit

agreement

1

19

Proposed

Capital

Structure

Positions

For

Results

Driving

Performance

In

Our

Core

Business

Creating

Profitable

Growth

in

Online

Increasing

Efficiency

Financial

Flexibility

Earnings

Power

Total

Returns

Appendix

Reconciliations of Non-GAAP Financial Measures

21

Reconciliation

of

Adjusted

Net

Income

and

Adjusted

EPS

($ in millions)

Q1 2005

Q2 2005

Q3 2005

Q3 2004

Restated

Reconciliation of adjusted net income (loss):

Net loss

(57.5)

$                   

(57.2)

$              

(491.4)

$            

(1,414.6)

$         

Adjustments to reconcile net loss to adjusted net income (loss):

Costs incurred for the potential acquisition of Hollywood Entertainment Corporation, net of tax

7.7

-

-

-

Severance costs incurred for reduction-in-force, net of tax

1.2

4.4

-

Non-cash share-based compensation expense, net of tax

7.1

6.2

7.7

-

Impairment of goodwill and other long-lived assets, net of tax

-

6.4

347.6

1,419.8

Deferred tax valuation allowance

-

-

111.5

-

Adjusted net income (loss)

(41.5)

$                   

(40.2)

$              

(24.6)

$              

5.2

$                  

Adjusted net income (loss) per diluted share

(0.23)

$                   

(0.22)

$              

(0.13)

$              

0.03

$               

Weighted average shares outstanding—diluted

183.7

183.7

183.8

181.7

OIBDA Reconciliation

($ in millions)

Q1 2005

Q2 2005

Q3 2005

Q3 2004

Restated

Reconciliation of adjusted operating income (loss) and OIBDA:

Operating loss

(72.1)

$                   

(58.5)

$              

(350.4)

$            

(1,485.3)

$         

Costs incurred for the potential acquisition of Hollywood Entertainment Corporation

12.6

-

-

-

Severance costs incurred for reduction-in-force

2.0

7.2

-

-

Non-cash share-based compensation expense

10.1

11.4

7.7

-

Impairment of goodwill and other long-lived assets

-

9.2

347.6

1,504.4

Adjusted operating income (loss)

(47.4)

$                   

(30.7)

$              

4.9

$                  

19.1

$               

    Depreciation and intangible amortization

57.5

68.2

58.3

64.1

OIBDA

10.1

$                    

37.5

$               

63.2

$               

83.2

$               

Free Cash Flow Reconciliation

($ in millions)

Q1 2005

Q2 2005

Q3 2005

Net cash flow provided by operating activities

110.9

$                  

164.7

$             

216.8

$             

Adjustments to reconcile net cash flow provided by operating activities to free cash flow:

Rental library purchases

(220.6)

(242.3)

(175.6)

Capital expenditures

(38.4)

(41.1)

(22.3)

Free cash flow

(148.1)

$                

(118.7)

$            

18.9

$