Online movie rental company Netflix is locked in what is turning into an epic battle with arch rival Blockbuster and has made its latest move — lowering prices by $1 last week on its most popular plans. This is the latest in the price wars; Blockbuster reduced its rates on certain plans earlier this year.
Full disclosure: Our household is a Netflix one, driven there several years ago by my intense dislike of Blockbuster’s in-store late fees. (Blockbuster’s earlier attempt to drop late fees for in-store customers backfired when it decided to surreptitiously make the customer buy the movie instead.) Of course, if we were heavy renters, we might be upset by Netflix’s throttling practice.
Still, Blockbuster’s newest online plan, Total Access, where customers can have their movies delivered by mail with no late fees but can also go to the store for new movies, sounded appealing. Apparently, other customers thought so too, as Netflix lost 55,000 users in its second quarter, ending the quarter with 6.7 million subscribers, it announced last week. (Blockbuster has about 3.6 million online subscribers, including a whopping 600,000 new subscribers in Q2. The massive promotional spend, however, left the company at a loss for quarter.)
The dip in Netflix subscribers (its first net subscriber loss ever) combined with a lowered earnings forecast last week sent Netflix shares plummeting to its lowest point in two years. And to add insult to injury, the Netflix Web site unexpectedly was down for about 18 hours right after the company’s announcement of lower rates and a renewed focus on customer service.
Netflix may have revolutionized the movie rental industry, but Blockbuster is a fierce competitor as it plays catch up online and plays its retail card, appealing to the instant gratification gene most Americans have. Netflix hasn’t ignored this development and has introduced a new service that allows subscribers to watch a select number of movies instantly via their computer. Netflix also claims that its movie recommendation service gives it a leg up. (More Netflix news here.)
As the price wars go on, both companies will suffer. It’s a pretty tricky game, trying to woo a fickle consumer. Whoever has staying power appears to have the upper hand. Though, if Blockbuster has to result to this (courtesy of The Onion), then all bets are off.
Comments
John MacAyeal Says:
August 9th, 2007 at 8:57 am
The Onion “story” about Blockbuster eliminating fees brings up an interesting point. In fact there is an outlet that eliminated fees a long time ago. It’s also known as the library and its superiority over Blockbuster and other retailers is illustrated by a recent column by a Waco journalist. He said he couldn’t get Shut Up and Sing, a documentary about the Dixie Chicks, at any video stores in Waco. The DVD wasn’t stocked because of the group’s controversial comments about politics. However, the columnist could find a copy of Shut Up and Sing for free at his local library.
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