Blockbuster Bit Off More Than It Could Chew

I’m not surprised at all by this. In fact, I expected it ever since Blockbuster started their strong-arm, undercutting price competition with Netflix.

From CNET:

The price of Blockbuster’s three-movies-out-at-once rental plan will now be $17.99 per month, up from $14.99, the company said Tuesday. The new rate is the same that Netflix charges for three movies–the most it allows customers to have at a time. … The new prices go into effect Aug. 19.

When Netflix didn’t budge, some analysts predicted a decreased user base. Instead, they had a great quarter.

“Our business performed impressively across all key operating measures in the second quarter, reflecting the broadening consumer appeal of our service and the rising competitive strength of our organization,” said Reed Hastings, Netflix co-founder and chief executive officer. “Looking at the second half of 2005, we’re confident of hitting four million subscribers by year’s end and expect to reach that milestone profitably and as the clear-cut market leader.”

Meanwhile, Blockbuster is screwing over its new customers by sticking them with the hiked price this month. Longer term subscribers can enjoy lower prices slightly longer.

Blockbuster’s $17.99 price applies to new subscribers and anyone who signed up on or after March 1, 2005. Customers who subscribed for the service prior to March 1 were guaranteed the $14.99 rate through Jan. 31, 2006, the rental company said. All Blockbuster online customers can access a library of 40,000 titles and get two free in-store rentals per month, the company said.

This move is a triage measure, as the company is apparently struggling hard.

Movie rental chain Blockbuster Inc. (BBI) on Tuesday posted a quarterly loss that was more than double Wall Street’s forecast as lackluster new video releases failed to attract consumers.

The largest U.S. home video and DVD rental company also said it was no longer on track to meet its 2005 financial forecast and said it has reached an agreement with creditors to waive certain debt covenants for the second and third quarters. Without the waiver, the company would have been in default, Blockbuster said.

Blockbuster is a sinking ship. If I had any stock, I’d be dumping it now. With Amazon poised to enter the Internet DVD rental business, Blockbuster is in its last throes. I’m glad I stuck with the slightly more expensive Netflix.