Blockbuster price hike will send customers packing
Posted
Dec 21 2007, 06:15 AM
by
Kim Peterson
Rating:
Blockbuster continues to struggle with balancing its online rental plans with its more profitable in-store business. The company said yesterday it's raising prices for its Total Access subscription plans, and Citigroup analyst Tony Wible said he thinks half of the subscriber base will ditch.
In a nutshell, the premium plan increases by a shocking $10 to $35 a month. That plan allows you to rent three DVDs at a time online with unlimited in-store trades.
If you rent one DVD at a time, the price increases by $2 to $12 a month. The most popular plan, which gets you three DVDs at a time, will cost $21 a month. These plans let you rent DVDs online or at stores. To ease the pain, Blockbuster is cutting the monthly price of some of its by-mail plans by $1.
Rival Netflix saw an immediate gain from the decision, with shares jumping nearly 10% yesterday to $27.24. Blockbuster shares barely moved and closed at $3.55. Blockbuster has 3.1 million online subscribers, compared with 7 million for Netflix.
I think Blockbuster is trying to drive online customers away -- and into its stores. Online rentals is a niche market, one that Netflix has successfully dominated. There just isn't room for another big competitor, and Blockbuster found that going toe-to-toe with Netflix was too expensive and distracting.
So Blockbuster's going to focus on its stores, paying the short-term price of customers jumping to Netflix. Blockbuster has an obvious brick-and-mortar advantage: You can get a movie right away, without having to wait for a DVD to arrive in the mail. (Netflix is offering streaming movies, which gives instant access, but that business isn't mature yet.) Also, Blockbuster can seize the in-person rental opportunity to sell other goodies, including used movies and video games as well as popcorn and candy.
It's really interesting to watch this company figure out its online business. Blockbuster acquired Movielink last year, so it's obviously keen on some sort of digital offering. The company just isn't moving forward with it, and that's OK for now. But Blockbuster can't ignore the Internet forever.
