Blockbuster Undercuts Netflix Online

Aug 11, 2004
George Anderson

By George Anderson

Netflix, the online DVD rental business, has done a good job of cutting into Blockbuster’s video rentals, so Blockbuster has decided to offer an online rental service of its own, only for less.

Blockbuster’s online DVD rental subscription program will allow consumers to keep out three movies at a time for a monthly fee of $19.99. Netflix currently charges $21.99 for the same service. Both programs do not charge late fees and shipping fees are included in both company’s plans.

Consumers can choose to keep more movies out, as well. For $29.99 a month, Blockbuster will allow consumers to keep five DVDs. Consumers are charged $33.99 for the equivalent program at Netflix.

For those wanting even more movies on hand at a time, both Blockbuster’s new service and Netflix allow consumers to upgrade to eight titles. Blockbuster charges $39.99 compared to Netflix’s monthly fee of $49.99.

Blockbuster’s president and chief operating officer, Nigel Travis, told The
Associated Press
he is looking for solid gains as a result of offering the
service. “The mixture of new customers and getting more out of existing customers
… we see ourselves picking up a greater share of the entertainment wallet.”

Blockbuster same-store sales were down 5.1 percent for the first six months of the year.

Kagen Research is looking for the online DVD rental business to grow to $1.9 billion by 2008. Online DVD subscription programs generated $289 million in sales last year.

Wade Holden, a Kagan analyst, doesn’t think Blockbuster is getting into the DVD subscription business too late. “Netflix has pretty well cornered the market, but Blockbuster is getting in on it, and Blockbuster definitely has the brand recognition,” he said.

Moderator’s Comment: What are your thoughts on Blockbuster’s
announcement that it will offer an online DVD rental subscription program?

Wade Holden is right that Blockbuster has brand recognition,
but it will need more than that and a lower price if it is going to succeed
at taking share away from Netflix.

Wal-Mart, too, got into the DVD rental subscription business
with a lot of fanfare. It, too, had brand recognition and lower prices than
Netflix. At the time, we subscribed to Netflix and took Wal-Mart up on its offer
for a free month trial. What we found was that it took usually three days longer
for Wal-Mart to get us a movie than Netflix. We never made it past the first
month with Wal-Mart and are now going on more than two years with Netflix.

George Anderson – Moderator

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