STORY TOOLS

Blockbuster launches lower priced online-only rentals

By Cindy Spielvogel and Jennifer Netherby -- Video Business, 6/12/2007

Antioco

JUNE 12 | Blockbuster has launched an online-only movie rental plan starting at $4.99 per month, with a tiered structure that has the most popular plan, unlimited rentals of three movies out at a time, at $16.99 per month, a dollar lower than Netflix.

Pricing for Total Access, which allows customers the option to return a movie received by mail directly to a Blockbuster store to get another movie rental free, remains at $17.99 per month for the three-out-at-a-time plan.

The new online-only Blockbuster by Mail customers will have the option of returning their movies to a store, which allows faster shipping of the next movie, but they will not be allowed a free in-store rental. However, like Total Access customers, they will receive one coupon per month for a free in-store movie or game rental.

Blockbuster chairman and CEO John Antioco had said previously that the company was considering offering an online-only plan, but many observers believed the company would try to increase profitability by raising the price of Total Access rather than offer online-only at a lower price.

The new Blockbuster by Mail online-only service is broken down in the following tiers: $22.99 per month for unlimited rentals of four movies out at a time, $16.99 for three at a time, $13.99 for two at a time, $8.99 for one at a time, $6.99 for one at a time maximum of three per month and $4.99 for one at a time maximum two per month.

Blockbuster will continue to offer the Total Access online/in-store option with rates that are $1 higher than each Blockbuster by Mail plan in the same tier.

In comparison, Netflix offers unlimited online-only rentals at $23.99 for four out at a time, $17.99 for three at a time, $14.99 for two at a time, $9.99 for one at a time and $4.99 for two per month one at a time. Each plan also offers a graduated number of free hours of its “Watch Now” streaming service.

Although consumers are likely to be pleased by the new lower-priced online-only offer, Wall Street did not look on it favorably. Blockbuster’s stock price dipped a couple cents below $4 in morning trading after closing at $4.07 the day before the announcement.

Netflix stock rollercoaster

Rival Netflix's stock was off 7% to trade at $20.37 midday Tuesday after an analyst downgraded it due to the increased pressure from Blockbuster. In a note to clients, Citigroup analyst Tony Wible said Blockbuster's price cuts would likely make it more difficult for Netflix to sustain its earnings. He cut his price target for the stock to $15 from $25.

In its most recent earnings call in April, Netflix execs lowered earnings expectations, citing pressure from Blockbuster.

Execs predicted Blockbuster would eventually have to raise prices, but they said they didn't know when the company would do so.

On Monday, Netflix stock was down 5%, following a downgrade by JP Morgan, also citing stiff competition.

It has been a roller coaster ride for the company's stock holders lately. Last week, the company's stock shot up more than 5% two days in a row on rumors of a possible acqusition by Amazon.

Those rumors, which have come up over the last couple years, were shot down by most analysts who cover the companies.

Blockbuster franchisee stores close

Meanwhile, on Blockbuster's bricks-and-mortar side, three Blockbuster franchise stores in Lexington, Ky., have become corporate stores as a result of financial difficulties experienced by franchisee Lex Entertainment, which operated 10 stores in the area. Lex's six other Lexington Blockbuster stores have been closed.

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