Blockbuster: Free Rentals To Netflix Users

Wednesday, 6 Dec 2006 | 6:43 PM ET

Blockbuster is running a two-week promotion that allows Netflix subscribers to rent DVDs from its stores for free. Wedbush Morgan Securities analyst Michael Pachter says the move is designed to bring attention to Blockbuster’s own online rental service – which lets customers return movies to stores and immediately choose a new title.

Blockbuster vs. Netflix
Blockbuster is offering special deals for Netflix customers, and Netflix is preparing to unveil its plan for movie downloads. Michael Pachter, Wedbush Morgan Securities Analyst, and CNBC's Bill Griffeth discuss the details.

“I think Blockbuster is on the defensive” – says Pachter. He estimates that as many as 2.5 million Netflix customers used to be loyal to Blockbuster. That’s a decent chunk out of Blockbuster’s 40% market share.

As for the future of the view-at-home movie business – Pachter doesn’t think downloadable movies are going to hurt either company. Movie studios make the bulk of their profit from DVD sales. Market saturation by downloadable movies is 10 years out – he says.

“Investors looking to invest in rentals today should feel pretty comfortable that these guys are going to pay off for the next three to five years” – Pachter says.

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Kenny Polcari