Blockbuster Lowers Prices To Beat Netflix - Game On!

Within 24 hours of Netflix's shocking subscription price reversal, Blockbuster responded by cutting their 3-out subscription fee to $17.49 (Netflix just lowered their fee last night to $17.99), according to this story from Reuters.

Blockbuster Chief Executive John Antioco told Reuters the company would reduce the monthly subscription price for online DVD rentals to $17.49 from $19.99, and the move would become effective "the week after next."

"We were growing our business at a very nice clip, but would not have elected to lower our prices. Having said that, we are determined that we are not going to be beaten from a price/value perspective," Antioco said.

My buddy Tony over at the Buzzhit blog says, "...you never start a price war against a better capitalized competitor who has a low-cost-leadership advantage. We know BB is better capitalized; whether they have LCL is debatable... we'll know more when we get an earnings report or two."

Tony has this to say about the price war:

Reed's a very bright guy, with a strong team behind him... so perhaps I'm missing something. But I've been beating the "Netflix has no competitive advantage" drum for a couple of months now, and for him not to acknowledge that Blockbuster, with a more established brand, better capitalization, larger customer base, and most importantly, an impulse rental satisfying physical store (i.e., channel) presence... shows either arrogance or ignorance. (And believe me, I have no motive to ascribe such words to Reed, just calling it as I see it.)

You can read the rest of Tony's analysis here.

Comments

[mark]

While I think the impending price war is great for customers all around, I think both companies are planning to work hard to add more new customers to their memberships. The 70% figure of new Blockbuster users being old Netflix users tells me that, while the pie is growing, it might not be growing fast enough to support a price war.

I'm predicting that there'll be a bigger push to create more awareness about online movie renting via ad campaigns on TV/print/online. With the holidays around the corner, online memberships may become a great gift item.

But will more demand then trigger a rise in prices? Maybe. And maybe that's what this price war is all about. Raising awareness of online rental and making it "more normal" (as opposed to traditional renting) and then a slow creep in prices this time next year.

I don't know much about advertising, so I could be completely wrong, but this is what I see. In the meantime, I'm happy to save even more money on my movie rentals. And I'm sure there is still plenty of room for others to sign up and prices to remain low. :-)

[badass]

Blockbuster said Friday after trading hours that they will lower their online price to $17.49
per month to compete with Netflix. They also stated that they will not be undercut on price no
matter what it takes!
Now I look at this two ways: 1. Blockbuster is desperate and if they don't establish their base
online customers in vast numbers very quickly, they will go under. 2. They are going to go all the
way with this online model and make a huge business transistion in 2005. Costing them a lot of
money and while attempting to balance their thousands of stores along with the online rentals that
will ultimatly be hurting their stores at the same time. I read an article that a very
large chunck of Blockbusters cash comes from late fees from lazy customers, so with all of their
current customers switching to their online service I belive their stores will do less revenue
because of this. I mean how could the stores do better than they have done before Netflix?
Especially when Blockbuster is hurting themselves now too. I think they will have to lower their
in-store price for a DVD or something.....something has got to give for Blockbuster just as well
as it did for Netflix this month! Especially since both stock prices are now very close and also
because now each company has a $17.00 price for monthy subscription. I think maybe if the online
rental model is not profitable for Blockbuster in the next year then they will have to close
stores or slash prices.
Besides, Blockbuster is owned by Viacom and Netflix is owned by Netflix.....meaning that if
Netflix is aquired by TimeWarner or Verizon as I've read in rumors, then Netflix will be solid for
sure and that is always an option that Blockbuster doesn't have. Either way I am confident that
Netflix is going to be allright expecially since they are now competitive with thier new low
monthly prices.
I also read an article where it said that what Netflix is
doing the smart thing now because when E*Trade was new a few years ago it didn't take competition
seriously and took all of it's profits every quarter and it led to the competition gaining
customers. Those customers became loyal to another company back then and never left. Same with the
trades, meaning E*Trade kept their trade price at $20.00 while newcomer Ameritrade was doing a
trade at $7.00. The article said that if E*Trade would have gone for customers instead of profits
they would have nearly double the customers they have today. Also they would have fended off a lot
of the competition that they have today by lowering prices early. Now those customers they lost in
those years are forever with another company.
Also I read that the massive advertising caimpaign that both Netflix and Blockbuster has in
store for the holidays will boost consumer registration by a lot. They said that this may be the
plan and then they will steadily raise the price as they gain the right amount of customers etc.
By the way I read that in mid summer Wal-Mart only had 40,000 subscribers compared to the two
million something that Netflix has. Also I read that Blockbusters claims that they will gain more
subscribers before 05' than Netflix had in it's first year and a half is highly misleading. The
reason is because Netflix didn't get it's large jump in subscribers until 2002 and they were
already public by that time with nearly 600,000 subscribers. Netflix started in 1998 so they had
ben around for nearly four years before they had gone public with nearly 600,000 subscribers, so
it's no great feat that Blockbuster is boasting on those numbers. I think blockbuster is in
trouble more than they are telling us. And maybe Wal-Mart will quit after it sees that they just
can't get the subscribers compared to the others after the holidays. Have you ever even seen an
advertisment for Wal-Mart rentals? Not me.

[GMan]

I am currently using Walmart dvd rentals and the service is terrible. They only ship from one location in the east and service to the west is BAD. Plus they seem to say 3/4 of my selections are on a wait list. I'll be switching to another service.

[Keith]

With the new rental company, Gameznflix.com entering the market, and providing a low cost Game and Movie rental subscription, Netflix and BBI may need to lower their cost even more than they have already. Will be interesting.