Form 425

Filed by: Blockbuster Inc.

Pursuant to Rule 425 under the Securities Act of 1933

Commission File No: 001-15153

Subject Company: Blockbuster Inc.

 

On September 29, 2004, Blockbuster Inc. began using the following slides in road show presentations regarding

the split-off exchange offer. Any slides that are subsequently revised will also be filed pursuant to Rule 425.

 

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Blockbuster Presentation Regarding Viacom Exchange Offer

September 2004

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Investors may obtain copies of these documents for free, where available, at the Forward-looking statements in this presentation are not based on historical facts, Forward-looking or other similar words or phrases and by Blockbuster pursuant to its These forward-looking from what is expressed in or indicated by such forward-looking Factors specific to Blockbuster include, and the potential impact of pronouncements or pending sections of sections of Viacom’s Annual offer or agreements or arrangements relating to any of such matters or that describe planned product and service offerings, including new offerings related to its subscription, Goodwill and Other Intangible Assets, Share-Based Payment, an Amendment of FASB Statements No. 123 and 95, (ix) the effect of game platform cycles; and (x) the impact of developments affecting Investors are advised to read Viacom’s Tender Offer Statement on Schedule TO, Blockbuster’s Registration Statement on Form S-4 and the Prospectus-Offer This presentation contains both historical and forward-looking statements. Similarly, statements concerning the Blockbuster special distribution or borrowings Viacom and Blockbuster cannot make any assurances that projected results or events will be achieved. the impact of changes in Blockbuster’s consumer rental terms, including Blockbuster’s dependance on revenues generated from retail home video and their maintenance of exclusive No. 142, The Stock Option Accounting Reform Act; In addition, the risk factors set forth in the section of the Prospectus-Offer to Exchange entitled “Risk to differ materially from those expressed in the forward-looking statements. Forward Looking Statements to Exchange, and any other documents relating to the exchange offer that are filed with the Securities and Exchange Commission as they become available and as they are amended because they will contain important information. SEC’s website at www.sec.gov or from Viacom Investor Relations at 1-800-516-4399. but rather reflect Blockbuster management’s current intent, expectations, estimates and projections concerning future results and events. statements generally can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as “believe”, “expect”, “anticipate”, “may”, “could”, “intend”, “intent”, “belief”, “estimate”, “plan”, “foresee”, “likely”, “will” similar expressions and variations thereof. new credit agreement and senior subordinated notes, the exchange Viacom’s or Blockbuster’s strategies, initiatives, objectives, plans, goals or results of operations are forward-looking statements. statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause Viacom’s or Blockbuster’s actual results, performance or achievements to vary materially statements. among others: (i) consumer demand for Blockbuster’s existing and trading and games initiatives, and the related impact of competitor pricing and product and service offerings; (ii) the variability in consumer appeal of the movie titles and games software released for rental and sale; (iii) Blockbuster’s ability to respond to changing consumer preferences and to effectively adjust its product mix, service offerings and marketing and merchandising initiatives; (iv) Blockbuster’s ability to effectively and timely prioritize, implement and maintain the necessary information technology systems and infrastructure to support shifts in consumer preferences and in its operating model, including support for its subscription, trading and games initiatives; (v) subscription rental offers; (vi) vendor determinations relating to pricing and distribution of their product and Blockbuster’s ability to reach agreements with its suppliers on acceptable commercial terms; (vii) the studios’ distribution windows for retail home video; (viii) the application of existing and future accounting policies and pronouncements, including without limitation any continuing impact of Statement of Financial Accounting Standards such as the Financial Accounting Standards Board Exposure Draft, legislation such as H.R. 3574, Blockbuster’s outstanding litigation and claims against it. Factors”, and the matters discussed in Blockbuster’s and Viacom’s SEC filings, including the “Disclosure Regarding Forward-Looking Information” Blockbuster’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and Blockbuster’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, and the matters discussed in the “Cautionary Statement Concerning Forward-Looking Statements” Report on Form 10-K for the fiscal year ended December 31, 2003 and Viacom’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, among others, could affect future results, causing these results to differ materially from those expressed in the forward-looking statements.

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Offering Summary

Structure: Tax-free split-off

Distribution Company: Viacom (Ticker: VIA/VIAB)

Distributed Company: Blockbuster (Ticker: BBI/BBI.B)

Fixed Exchange Ratio: 2.575 class A shares and 2.575 class B shares of Blockbuster for each class A or B share of Viacom

Exchange Offer: Viacom is offering an aggregate of 72.0 million class A shares and 72.0 million class B shares of Blockbuster in exchange for up to approximately 28.0 million Viacom shares

Minimum Tender Condition: At least 16,776,699 Viacom shares, which will enable Viacom to exchange at least 60% of its Blockbuster shares

Exchange Offer Expiration: Midnight NYC time on October 5, 2004

Dealer Managers: Bear Stearns

Goldman Sachs

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Our vision

To transform Blockbuster from a place you rent a movie to a brand where you rent, buy or trade movies and games new or used, in-store or online.

We will be making significant investments in 2004 and 2005 as we transform our business, build our active membership and remove consumer barriers to rental. We believe this will provideattractive future returns for our shareholders.

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Introduction to Blockbuster

Largest movie and game rental retailer in the world

Rental revenue more than 2x two closest competitors combined

Highly recognizable global brand

9,000 stores in 26 countries

65% US/35% International

80% company-operated stores/20% franchised

50 million active member accounts(1)

2003 revenues of $5.9 billion

2003 Free Cash Flow(2) of $402.7 million

Average Free Cash Flow(2) since 2000 of $346.0 million

(1) 12-month active members.

(2) Free Cash Flow = Net cash flow provided by operating activities—CAPEX—rental library purchases.

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Home Video Is a Growth Market

Aggregate Size ($            in billions)

Annual Spend per Video HH

Source: Kagan Research, LLC.

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Opportunities Brought on by DVD

Significantly improved rental margin

Increased copy depth and product availability

Enabled subscription rental business

Expanding consumer DVD collections should drive trading

Also,

Solidified studios’ interest in maintaining home video window

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Movie Release Windows

Months

Note: Airlines and hotels have a smaller window between box office and home video.

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Studios Are Dependent on Home Video

Home Video is a Critical Window—Studio Revenue by Window

1998(1)

VOD/PPV 1.4%

Theater 28.6%

Home Video 44.6%

Premium Channels 10.4%

TV & Cable 15.0%

2003(1)

VOD/PPV 1.8%

Theater 23.1%

Home Video 51.8%

Premium Channels 9.3%

TV & Cable 14.0%

(1) Source: Kagan Research, LLC.

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We Believe VOD Will Stay in the PPV Window

VOD would significantly cannibalize retail sales of movies

Studio profitability would be impacted

1 Retail sale $15.00

1 VOD Sale $3.00

It takes 5 VOD transactions to maintain profitability of one retail sale

Blockbuster estimates. Source:

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New Initiatives

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Blockbuster Now Operates in Growth Businesses

US Movies and Games Industry

    

2003

   

2006E

     

Movie Rental(1)

   

$7.9B

   

$6.4B

     

Retail Movies(1)

   

13.5B

   

20.8B

     

Online Subscription(1)

   

289M

   

1.3B

     

Used/Traded Movies(2)(3)

   

1.3B

   

2.2B

     

Retail Games (4)

   

5.8B

   

8.0B

     

Games Rental/Used/Traded(2)(3)

   

1.8B

   

2.2B

     

Total

   

$30.6B

   

$40.9B

   

CAGR10.1%

(1) Source: Kagan Research, LLC.

(2) Source: LEK.

(3) Includes previously viewed/played product, which Blockbuster reports under rental revenue.

(4) Source: Veronis Suhler.

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Subscription Initiative

    

In-Store

  

Online

Launch

   

Approximately
1,100 at y/e
2003

  

Launched in
the UK in
May 2004

    

All
domestic
stores by May
2004

  

Launched in
the US in
August
2004

Goal

   

8% of
active monthly
members by

  

Substantial
share by y/e
2005

    

y/e 2004

    
        

Ultimate
goal to
broaden
online to
include sale

    

10% of
active monthly
members

  

and
online
delivery of
movies and
games

    

by y/e
2005

    

Offering/

   

Offers
immediate
gratification
and

  

Offers
deeper
catalogue

Results

   

access to
new releases

  

Home
delivery
convenience

    

Increased
customer
loyalty

    

Integrated Subscription Planned for 2005

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DVD Trading Initiative

Launch

   

Movie
Trading
Company
(acquired in
2002)

    

Introduced
Big DVD
Trade-In
during
Q4’03

Goal

   

More
than 2,000
US stores
and all UK
stores by
end of 2004

    

Substantially
all
Blockbuster
stores by
end of 2005

Offering/

   

Customers
can
monetize
movies
through
store credit

Results

   

Increased
traffic and
use of credit
drives
revenue

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Games Initiative

    

Store-In-Store

   

Freestanding

Launch

   

Launched in
approximately

   

Acquired
UK-based
Gamestation
in Q4f02

    

200 stores
Q4’03

   

2nd
largest games
retailer

         

X
Doubled size
to 145 stores
as of Q2’04

         

Acquired
US-based
Rhino video
games in

         

Q2’04
(40 stores)

Goal

   

Approximately550
operating

   

Approximately
250 operating
in 2004

    

in 2004

     
         

Approximately
400 operating
in 2005

    

Approximately1,000

     
    

operating in
2005

     

Offering/

   

Complete
source for rental,

   

Complements
store-in-store

Results

   

retail and
trading

     
         

Broadens
addressable
market

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Blockbuster Offers the Most Options for Movie and Game Customers

In-StoreSub-scriptions

          

On-line Sub—  scriptions

          

Games Trading

          

Games Retail

   

Fully
developed
capabilities

     

Games Rental

          

Movie Trading

          

Used Movies

          

DVD Retail

   

Partially
developed
capabilities

     

DVD Rental

        

Public
filings
and
company
websites.

Hollywood Movie Gallery Electronics Boutique Game Stop

   

Circuit
City Best
Buy

   

Source:

Blockbuster Wal-Mart

   

Netflix

     

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We believe:

     
    

VOD is
not a
significant
threat

    

Blockbuster
has already
felt the
major
portion of
retail impact

Blockbuster intends to drive revenue and

     

profits by growing:

     
    

Core
rental
business

    

In-store
rental
subscription

    

Online
rental
subscription

    

DVD
trading

    

Video
games
business

    

New
opportunities
to leverage
brand and
store
network

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Financial Overview

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($            in millions)

Strong Revenue and Gross Profit Growth

Gross Profit

Revenue

(2.2%) 5.1% 2.5% 5.6% 8.3% Same-StoreRevenueGrowth

Rental

Retail

Includes add-back of non-cash charges of $337.6 million for change in accounting estimates and special items. (1)

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Increasing Profitability

Gross Profit Margins

70.2% 57.3% 39.0% 18.5% 6.9%

NA

RentalDVD Mix:

Rental

Retail

Total

Includes add-back of non-cash charges of $337.6 million for change in accounting estimates and special items. (1)

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($            in millions)

Strong Cash Flow

2003 2002 2001 2000 1999

(1)

OIBDA

(2)

Free Cash Flow

(1)

   

OIBDA = Operating
Income before
Depreciation and
Amortization of
intangibles. Includes add-
back of non—  cash
charges of $31.6 million in
2000 related to the
impairment of certain
hardware and capitalized
software costs. Includes
add-back of non-cash
charges of $345.4 million
for change in accounting
estimates and special items
in 2001. Includes
Wherehouse Entertainment
Inc. lease guarantee write-
down of $18.7 million in
2002. Includes add-back of
impairment of goodwill
and other long-lived assets
of $1.3 billion in 2003.

(2)

   

Free Cash Flow = Net
cash flow provided by
operating activities—
CAPEX—rental library
purchases.

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($            in millions)

OIBDA Reconciliation

    

1999

   

2000

   

2001

  

2002

   

2003

  

1H
2003

   

1H
2004

Operating income (loss)

   

$121.7

   

$75.7

   

($219.6)

  

$337.1

   

($845.2)

  

$254.0

   

$201.2

Depreciation and

                                 

amortization of intangibles

   

392.3

   

427.5

   

421.1

  

233.8

   

257.9

  

123.3

   

120.1

Non-cash charges

   

–

   

31.6

   

345.4

  

–

   

–

  

–

   

–

Impairment of goodwill and

                                 

other long-lived assets

   

–

   

–

   

–

  

–

   

1,304.9

  

–

   

–

OIBDA

   

$514.0

   

$534.8

   

$546.9

  

$570.9

   

$717.6

  

$377.3

   

$321.3

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($            in millions)

Free Cash Flow Reconciliation

    

1999

  

2000

  

2001

  

2002

  

2003

  

1H
2003

  

1H
2004

Cash provided by operations

   

$1,142.8

  

$1,320.8

  

$1,395.1

  

$1,451.2

  

$1,416.1

  

$579.3

  

$455.2

Rental library purchases

   

(808.7)

  

(810.0)

  

(859.4)

  

(1,060.9)

  

(836.6)

  

(435.2)

  

(355.7)

Capital expenditures

   

(374.4)

  

(221.5)

  

(93.3)

  

(140.6)

  

(176.8)

  

(55.8)

  

(109.1)

Free Cash Flow

   

($40.3)

  

$289.3

  

$442.4

  

$249.7

  

$402.7

  

$88.3

  

($9.6)

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($            in millions)

Free Cash Flow Reconciliation (cont.)

    

1999

  

2000

  

2001

  

2002

  

2003

  

1H
2003

  

1H
2004

Net income

   

($69.2)

  

($75.9)

  

($240.3)

  

($1,627.6)

  

($983.9)

  

$141.7

  

$159.4

Depreciation and

                             

amortization of intangibles

   

392.3

  

427.5

  

421.1

  

233.8

  

257.9

  

123.3

  

120.1

Non-cash charges

   

–

  

31.6

  

345.4

  

–

  

–

  

–

  

–

Impairment of goodwill

                             

and other long-lived assets

   

–

  

–

  

–

  

–

  

1,304.9

  

–

  

–

Capital expenditures

   

(374.4)

  

(221.5)

  

(93.3)

  

(140.6)

  

(176.8)

  

(55.8)

  

(109.1)

Rental library purchases,

                             

net of rental amortization

   

(133.6)

  

(74.4)

  

18.9

  

(36.6)

  

118.2

  

77.4

  

15.7

Changes in working capital

   

(12.2)

  

70.6

  

95.1

  

(10.5)

  

(45.2)

  

(206.0)

  

(231.3)

Cumulative effect of change in

                             

accounting principle, net of tax

   

–

  

–

  

–

  

1,817.0

  

4.4

  

4.4

  

–

Changes in deferred taxes

                             

and other

   

156.8

  

131.4

  

(104.5)

  

14.2

  

(76.8)

  

3.3

  

35.6

Free Cash Flow

   

($40.3)

  

$289.3

  

$442.4

  

$249.7

  

$402.7

  

$88.3

  

($9.6)

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2003: A Year of Record Profitability and Strong Cash Flow

Significant Expansion of Rental Margin Driven Primarily by Improved Product Buying and Inventory Management

Significant Reduction in Advertising Expense Driven by Leveraging Increased Studio Advertising

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Business Outlook

Profitability for the third quarter of 2004 expected to decline significantly from last year based on estimated mid-single digit percentage decline in worldwide same-store revenues and significant increase in operating expenses associated with new initiatives

Percentage increase in total revenues for full year 2004 expected to increase in low-single digit range

Full year 2004 diluted EPS, excluding the impact of 1Q’04 tax benefit, expected to decrease approximately 30% from adjusted diluted earnings per share of $1.48(1)(2) last year as a result of investment of approximately $90 million of incremental operating expenses associated with the development and launch of the key growth initiatives and continued weakness in the rental industry, as well as the difficult comparison to the prior year. If the company decides to accelerate its investment spending or if Blockbuster’s rental business is softer than currently anticipated, the year over year decline would exceed 30%

(1) Before cumulative effect of change accounting principle. Includes add-back of impairment of goodwill and other long lived assets of $6.93 per diluted share.

(2) Before costs related to any incremental expenses associated with the divestiture.

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Business Outlook (cont.)

Approximately 400 company-operated stores expected to be opened in 2004

Capital expenditures expected to range between $250 million to $280 million, an increase over $176.8 million recorded in 2003

Blockbuster expects the rental industry to continue to decline in 2005, but believes the industry will stabilize by end of year as DVD penetration is expected to reach 70% of US households

Expected softness in rental combined with continued heavy investment in the business will adversely affect profitability for full year 2005

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($            in millions)

Pro Forma Balance Sheet

    

6/30/04

Cash and cash equivalents

   

$157.3

Debt

     

Credit facility

     

Revolving credit facility

   

$50.0

Tranche A (due 2009)

   

100.0

Tranche B (due 2011)

   

550.0

Total Facility

   

$700.0

Senior Subordinated Notes (due 2012)

   

$300.0

Other

   

2.1

Capital lease obligations

   

93.8

Total Debt

   

$1,095.9

Total Stockholders' Equity

   

2,505.1

Total Capitalization

   

$3,601.0

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Financial Highlights

Significant growth in revenues and profits over past four years

Strong balance sheet and cash flow

High topline margins and strong operating results support investments in business

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Blockbuster Presentation Regarding Viacom Exchange Offer

September 2004