An Interview With the Shareholder Who Will Fight to Save Blockbuster, an "American Icon"

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Blockbuster CEO Jim Keyes at one of the prototype extreme makeovers debuted in Dallas in 2008
Had a long talk with Greg Meyer last night. He's the guy who owns 645,000 shares of Blockbuster -- more than any exec at Blockbuster, save for CEO Jim Keyes, whose stock comes with the title, and more than anyone on the board of directors. He's the former managing director of DVDXpress who, in 2005, told Blockbuster to get into the kiosk business (it didn't). He's the guy giving Keyes all kinda fits in advance of the June 24 shareholders meeting at 1201 Elm Street downtown. He's the guy who wants to be on the Blockbuster board; only, Keyes doesn't want him. Right. That guy.

For somebody I'd never heard of till a few weeks ago, when Meyer made public in docs filed with the Securities and Exchange Commission his intentions to stage a proxy fight, he's gotten quite a bit of press. He's surprised too.

"It's been absolutely unexpected, unplanned for," he told Unfair Park last night, after dropping off his Definitive Proxy Statement with the SEC. But he knows why people care.

"Because Blockbuster is an American icon," he says. "It's a name people know. Love it or hate it, they grew up renting movies there, and it's always sad to see a company so well known and that employs tens of thousands of people mismanaged and not having the proper guidance from a board to ensure its longevity and survival. When they see someone they know has skins in the game and who's paying attention to the situation and is willing to dedicate time and energy and his own money to what he thinks is right, they respect that."

In the next couple of days, he will send to Blockbuster shareholders a gold card asking them to vote him to the board of directors, rather than Keyes's selection, James Crystal, an insurance man. It's a rather undramatic fight, all things considered -- he won't, for instance, get up at the meeting on June 24 and give a Gordon Gekko-style speech. Chances are, he might not even fly in from New York if he's not elected. "But I'm not planning on that outcome," he says. He expects to win a seat on the board.

Why? And, to what end? Jump for our extensive Q&A in which he says Blockbuster -- " one of the most reviled companies in the country, possibly the world" -- owes its customers a big ol' apology.

Why are you willing to put so much time and energy into saving a company that, five years ago, blew you off when you suggested, well before the advent of Redbox, that it get into the kiosk business?

Many reasons. The company is absolutely poised for a turnaround if the right decisions are made at the highest levels. If you look at the amount of revenue Blockbuster generates, it's still well in excess of Netflix and Redbox. Even though the stock is trading at 43 cents versus Netflix at $107 a share, more revenue is spent in Blockbuster stores each year than any of its competitors. There's real business.

And there have been some developments over the last couple of months that are extraordinarily positive, among them the 28-day exclusive new-release window Blockbuster now enjoys versus Netflix and Redbox with key studios such as Warner Bros., Universal and Fox. For example, when Avatar -- the biggest movie of all time -- was released on DVD April 22, you could go into a Blockbuster to rent that movie, but you couldn't get it on Netflix or in a Redbox. Today is May 11, and you still can't get it on Netflix or Redbox. They won't have it for 28 days.

Never in the history of the video rental industry has this type of window existed, and it's real positive. It should result in increased traffic into the Blockbuster stores and increase profitability. And that's just one major positive.

But at the same time, Blockbuster cut major deals with the studios: Blockbuster pays less for the DVDs upfront but more on the back end. And, in some instances, they gave up the first lien on their Canadian properties to make this happen.

My understanding is there may be higher revenue sharing on the back end, but the upfront cost is lower. And that's obviously something that helps Blockbuster's cash position.

When you refer to positives, are you also talking about the T-Mobile deal that allows, for the first time, Blockbuster's content to stream over a mobile device?

Those initiatives are great, but they're not going to add up to a lot of dollars in the near term. What will add up, or what has the potential to be pretty important, is the fact the company's No. 1 brick-and-mortar competitor, Movie Gallery, has announced they'll be shuttering all 2,400 stores. If you run McDonald's and all the Burger Kings go out of business, what do you think will happen to the sales of your hamburgers? And these are the customers who were previously frequenting Movie Gallery and Hollywood Video stores. By their past rental behavior they have demonstrated they in fact prefer to rent from a physical store for one reason or another.

You're a real believer in the stores, aren't you -- the man who pushed kiosks believes the brick-and-mortars will help save Blockbuster in the end?

I wouldn't misinterpret that. Brick-and-mortar is still a very real business, and again it currently accounts for the lion's share spent on DVD rentals. With the significant reduction of industry capacity we've seen in the last couple of years, that means those stores that remain have a real chance of being solidly profitable for several years into the future. So what that means is the company should be able to generate enough cash to service its debt over the next couple of years, but clearly they need a long-term plan to transition customers into the channels that won't become obsolete.

You refer, of course, to the kiosks, digital on demand, by-mail ...

Blockbuster has some advantages on the digital on demand side because they have access to new-release movies on demand, which Netflix does not. Netflix has a great streaming program, but it's mostly for older content. Ultimately if Blockbuster is properly marketed it should gain those subscribers who care more about new releases, and Netflix will take those subscribers who care more about the streaming of catalog, older titles.

With the kiosks, Blockbuster is partner with NCR, and Blockbuster has licensed their brand and is competing with Redbox. If they had entered the kiosk business in 2005, they would be dominating the space right now and be in a sound position strategically and financially.

Why did they ignore you in 2005?

They'll say that in 2004 Viacom saddled us with $1 billion in debt and couldn't do any initiatives. They'll say, "We didn't have options." That's a bunch of baloney. If you look at the amount of money the company has wasted ... One thing Jim Keyes has done well is cut costs, and we're talking hundreds of millions taken out of corporate overhead. There was a definite opportunity to invest a hundred million in the kiosk business in 2005, which would have resulted in a billion dollars' worth of value today. The reason I think they didn't do it: complacency.

Viacom is an excuse. That was an easy thing to point to. They didn't need to think too hard and see where the industry was going.

How far up the food chain did your proposal get?

The proposal was sent to the board.

Do you think anyone at the company seriously considered it?

[Long pause] I don't want to speculate. I can tell you I didn't receive a formal response. As a matter of pure business profesionalism, I would say it probably wasn't given too much consideration. This is something you see with companies that dominate their space for decades. The human nature is to become complacent and think that the company is invincible. It's been the No. 1 player and always will be. When, in reality, they need to be taken a look at: What's changing? What competitors are coming on the scene? How are they better serving our customers and how do we need to adapt to address that?

If you look at any article posted about Blockbuster and read the comments underneath, it's atrocious. Sometimes they're former store managers or customers who were abused by excessive and erroneous late fees. But there's a big segment of the U.S. consumer base that has sworn off Blockbuster forever. Why did that happen? That happened because for years the company was in the dominant position and mistreated its customers. Not every store, but it happened enough that a lot of animosity built up.

It would make sense for someone in a leadership position at Blockbuster to come clean and issue a formal apology to the U.S. moviewatcher for past practices at Blockbuster and let them acknowledge that prior iterations of management may not have treated the customer with the respect they deserve, but there are a lot of benefits of going to Blockbuster and renting movies from Blockbuster at the store, from a kiosk, by mail or by demand. A simple communication from the highest level of the company to consumers would change the overall tone with which a lot of customers view the company.

All the comments boil down to the same thing: "I can't believe it's still in business." It's amazing. It's one of the most reviled companies in the country, possibly the world. But it's reviled for its past practices. Things have changed. But word needs to get out that change has occured and it's not being done by the company right now. I think their reaction to my bid for a board seat demonstrates a similar type of complacency.

I am surprised at the force with which Keyes is keeping you from getting on the board.

I am equally surprised. I haven't been given a good reason by Mr. Keyes as to why he objects to my serving on the board. My intention is to do nothing but help the company. It almost makes one wonder what is there to hide that he wouldn't feel comfortable having an independent director with more shares than any other director on the board, who has 10 years of experience in this industry and an energy level and willingness to work for the betterment of the company. Why would you turn that down when your stock's trading at 40 cents and there are rumors of imminent bankruptcy? And that view is shared by other stockholders?

Have you spoken to many during this process?

I have, and they're very supportive. They say, "We're obviously not happy with the direction of the company and the stock." There are those who think management has done a decent job and those who think it's done not such a decent job, but all think the incumbent board doesn't have the level of engagement, industry experetise and share alignment it needs to and think my participation will be a step in the right direction.

How do you think it'll go? Because the last thing Blockbuster needs is an expensive, messy and very public proxy fight at this point.


It's extremely poor busines judgment that the board and, really, Keyes would opt to spend the company's precious capital, which it needs to conserve to service its debt let alone spend on operations and advertising. So, again, it's very baffling why anyone would make that decision. Why would you choose to spend a precious resource to keep a qualified individual off the board when the money is needed elsewhere? I can't see how it's viewed as a sound business decision. It's just a distraction, which is the last thing Blockbuster needs right now.

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