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Blockbuster Reduces Online Rental Prices

Sonny Steward, left, Amanda Steward, right, and Alma Gonzales, back to camera, prepare DVD's to be mailed from Blockbuster Inc.'s distribution center in Dallas
Donna Mcwilliam
Sonny Steward, left, Amanda Steward, right, and Alma Gonzales, back to camera, prepare DVD's to be mailed from Blockbuster Inc.'s distribution center in Dallas

Blockbuster is offering lower-priced plans for online movie rentals as it competes with Netflix in a market that it said could grow 43 percent this year.

Blockbuster said Tuesday it would offer a plan letting customers place online orders to rent three movies at a time for $16.99, a buck cheaper than it most popular offering called "Total Access." The movies are mailed to the customer.

The difference is that customers on the cheaper plan, called "Blockbuster by Mail," won't get a free rental when they return DVDs to a store instead of mailing them back. They will, however, get a coupon for one free in-store rental per month.

Blockbuster said it would offer more limited plans for as low as $4.99 per month, also $1 cheaper than current offerings with the free rental for taking movies back to a store.

Netflix charges $17.99 for a three-out at one time plan, and it has begun throwing in movies streamed over the Internet for customers with high-speed access and a Windows-based computer. It also has a $4.99 plan for up to two rentals per month.

Netflix doesn't operate stores, but it got a head start in the Internet ordering and mail delivery of DVDs and boasts more online subscribers than Blockbuster. But Blockbuster is growing faster.

Dallas-based Blockbuster has been spending aggressively to build its online business, weakening the company's near-term financial results with heavy spending on advertising and movie inventories. But executives believe they have no choice _ that the growth of movie rentals is online while the in-store rental business shrinks.

"Consumers have a choice, and we're making it easier for them to rent movies in a way that best fits their lifestyle whether that's through our stores or by mail," said Shane Evangelist, general manager of Blockbuster's online division.

Evangelist cited a forecast by Adams Media Research that the online rental market is expected to grow 43 percent this year.

Blockbuster hopes to beat that pace. It began the year with 2 million online subscribers, ended March with 2.8 million paying subscribers, and predicts it will have more than 4 million by year end.

In the first quarter, Blockbuster added 800,000 new online subscribers, nearly double Netflix's increase of 487,000.

Netflix had 6.8 million customers at the end of March. But the Los Gatos, Calif.-based company recently disappointed Wall Street by reducing its goal for 2007 _ it expects to have 7.3 million to 7.8 million subscribers at the end of the year.

Blockbuster shares slipped 6 cents to $4.01 in midday trading while Netflix shares dropped $1.23, or 5.6 percent, to $20.70.

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