November 5, 2004 4:00 AM PST

DVD price wars: How low can they go?

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August, and then followed news of Netflix's price cuts last month with its own $17.49 plan.

"We were growing our business at a very nice clip, but would not have elected to lower our prices," Blockbuster Chief Executive Officer John Antioco told Reuters last month. "Having said that, we are determined that we are not going to be beaten from a price-value perspective."

Netflix executives have said they expect Amazon to enter the market, but the online retailer has not confirmed those plans.

Impulse rental rivals
Even the giants could soon be facing sharper competition from local retail outlets, in the form of kiosks offering 99-cent-a-day DVD rentals.

Tiny DVD Station, with just 20 employees, has kiosks in about 14 retail outlets so far, including Sony's Metreon center in San Francisco. Another kiosk maker, Los Gatos, Calif.-based DVDPlay, is testing 99-cent DVD rentals in partnership with McDonald's.

DVD Station offers retailers everything they need to set up a rental service within their stores, with up to 25,000 titles. The DVDPlay kiosks stack from 100 to 350 movie titles in a vending machine, offering mostly new releases.

"The selection is obviously not comparable to Blockbuster, but they do have new releases, and it's cheaper than Blockbuster," wrote a Colorado resident who has seen the DVDPlay machines in McDonald's.

DVDPlay CEO Jens Horstmann said he believes free video rentals may soon be coming in the form of incentive programs with retail stores. For example, he said, some stores using DVDPlay's kiosks currently offer free rental coupons for customers who spend a certain amount of money on groceries or other products.

Down the road, he said, these deals may become automated through partnerships with customer loyalty programs by major chains such as Safeway. He said no such deals have yet been worked out, however.

Biting the bottom line
The price cuts will undeniably make Netflix's business trickier to manage.

The company has found in recent months that one of the prices of a successful service has been rising costs. In recent reports to federal regulators, the company said its customers are now on average renting about 6.6 movies per month, up from 5.6 last year.

Losing close to 18 percent of its subscription revenue as a result of the price cuts could help push the profitable company underwater. In the quarter that ended in June, the company had a net profit of just $2.9 million, with subscription revenue of $119.7 million.

Nevertheless, Netflix's Hastings said the price cuts had galvanized subscriber growth and reduced churn rate, so that the company has already reached the low end of its predicted year-end goal, about 2.3 million total subscribers. He said the company will maintain a break-even financial performance despite the cuts.

"All subscription DVD rental businesses have a hard time meeting demand for new releases."
--Jens Horstmann, CEO, DVDPlay

Nor is the company standing still. Its spending on marketing has more than doubled in the last year, and it has partnered with TiVo to start testing a video-on-demand service that would take advantage of the digital video recorder company's network and hardware.

Industry insiders say Netflix also has pioneered measures that help control its costs. One key factor has been the development of a user interface that steers subscribers toward renting back-catalog movies instead of new releases. This allows the company to have fewer expensive copies of the latest movies on hand, industry insiders said.

"All subscription DVD rental businesses have a hard time meeting demand for new releases," said DVDPlay's Horstmann. "Sometimes customers have to wait a month or two" to see the latest movies.

According to Bill Fischer, vice president of corporate development at DVD Station, rental businesses that make appropriate use of technology can double or triple interest in catalog titles. For example, Fischer said 40 percent of DVD Station's rentals make up titles more than six months old, compared with just 11 percent for Blockbuster.

Hastings said the "land grab" in the coming months will be driven by huge marketing expenditure on all sides. Netflix itself will spend about 20 percent of its revenue on marketing next year, he told the investor conference on Wednesday.

More broadly, the company is betting on its experience to keep it afloat through all the competition, he has said.

"We think we will compete successfully with (rivals) because we have great scale, we ship 3 million DVDs a week, and we have five years of experience in this market," Hastings told CNET News.com in an interview last month.

CNET News.com's Michael Kanellos contributed to this report.

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17 comments

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Oh no, not Two months.....
The fact that someone would be upset with having to wait two months to see a new release is a pretty sad commentary on the state of people's diversity. I'm not sure about the rest of the world, but In my dwelling there is a thing called a door. Magical thing really, you turn a little knob on it and it opens up to a world of fun and excitement, that is both never ending and can never be turned off. If your waiting around for the latest new release on DVD, you should do a gut check and re-examine if your world has become frighteningly miniscule and mundane. I relaize that there are exceptions to this that prevent some from venturing out, but is it any wonder why the rest of the world looks at the United States as a bunch of overweight lazy folks? And yes, I am from the United states, and yes, our current social priorities pretty much disgust me.
Posted by (1 comment )
Reply Link Flag
i don't care
what blockbuster and walmart do. there's a reason i don't rent from blockbuster or hollywood video, or any of the other chains. i'm with netflix for good. i've been very happy with them.
Posted by (1 comment )
Link Flag
Good one...
Too many people looking at navel fluff lately.
Posted by Steven N (487 comments )
Link Flag
Netflix is better
I have tried Walmart's DVD rental program for two months and
even if it is cheaper than Netflix, I do not get as many movies
per month as when I am renting from Netflix. It takes longer for
Walmart to receive my returned movies and also to send a
replacement. Netflix is way faster. Plus, I usually have no
problem getting any movie on my list in the correct order with
Netflix, while Walmart rarely sent the ones at the top of my
queue.
Posted by Not Bugged (195 comments )
Reply Link Flag
Patent?
What happened to the patent Netflix won regarding the mail order rental business model?
Posted by ammoy01 (2 comments )
Reply Link Flag
Blockbuster online rental sucks
I tried Blockbuster's online subscription mainly because they had a 1 month free offer, but after being a paying member for 1 month I decided to cancel it. The selection was very poor, I had 20 DVDs on my queue and 15 of them has at least a "short wait" tag. Also some DVD's took 10 to 12 days to arrive from the day they mail it out! Average wait is 6 days from the time they "say" they mailed it out. That means if you return DVDs you watched over the weekend, don't expect to have any DVD's over the next weekend! They also send out DVDs out of order! So I have to watch the Soprano's series out of order. They also have Godfather part 1 and 3 availabe, but not 2... ***! they're store employees also gives you bad service when you claim your dvd coupon at the store. i think they jumped on this market way too early, they are currently buying used dvd's agressively to stock-up their dvd's, but i can't pay them $20/mo while i wait. they offered me a 1 month free when i cancelled, but i turned it down since i'll just spend the whole month waiting for dvd's that are tagged "short wait" or "long wait".
Posted by (8 comments )
Reply Link Flag
Fully concur - Blockbuster online is terrible
I had the same experience and have gone back to Netflix. At Blockbuster, sometimes I got movies 10 days after they had shipped. It took them 7-8 days at times to post a return even though I was shipping to a local address. I barely got 2-3 "turns" per month compared to 6-7 a month at Netflix. So unless BB is less than $7/mo , its no value at all. Their software is buggy too - I updated my queue and logged off. The next day my old queue appeared again. I deleted all the entries, updated the queue and logged off - When I logged on again, the queue was back with a few entries deleted.
Stay away from BB online till they get their act together.
Posted by (1 comment )
Link Flag
Yeah it totally sucks!
I live in Washington DC and my distribution center is located in Gaithersburg MD. That is only 25 miles away. According to their website, it takes 3 days for them to receive my DVD's in the mail. I had to call blockbuster at least 3x because, for some unknown reason, my 3rd movie would never ship. I would have 2 movies shipped with 25 in my queue. It also takes 3 to 4 days for me to receive a movie (only 25 miles from distribution center). When I was on the 2 week trial period, I was getting at least 5 movies a week. After the free period ended, they started screwing me over. On Well, as soon as I use up my free month (offer by BB to convince me to stay) I will try Netflix.
Posted by (2 comments )
Link Flag
Worst customer experience I've had in years: BB is awful!!
I invested hours in emails asking for help when they sent DVDs out
of order, and yes, they were in my queue in the proper order and
"locked" as sets by year. They continued to send canned answers
proving they cannot be bothered to help. Not much riles me up
these days but theses clowns sure did. I cancelled and ran. Their
response was to send me an email inviting me to join again with
differing levels of DVDs received per month (I had the premium
service, I cannot imagine taking the lesser service - how bad would
that be). STAY AWAY from BB online and run to the competition.
Posted by farmkitty (1 comment )
Link Flag
Netflix clearly the best
While I've tried Blockbuster's service, it took much longer to receive movies if they were even in stock. Netflix's service is unparalleled and their user interface is by far a superior product than the competitors.
Posted by verice (39 comments )
Reply Link Flag
High impact
I'm startled that News.com would give some video rental story the "High Impact" symbol, but not give it to the IBM supercomputer. Sorry guys, genetics research is more important than staring blankly at the newest teenie-bopper movie.
Posted by sdencar (28 comments )
Reply Link Flag
Well I'm sold.....
Just signed up for netflicks. That is a solid price.
Posted by Jonathan (832 comments )
Reply Link Flag
Healthy direction for unhealthy habit?
It's good to see they're almost back to the original price. I signed up with NetFlix their first month when it was $17.99 for 4 movies at a time. Cancelled when I went through an interstate move and job change. I looked into signing up again but they'd bumped the price and cut the movies down to three. What with all the 2for1 coupons from local stores the internet rentals still aren't worth it.

In any case, the earlier poster hit the nail about us getting a life. If I'm watching more than a couple full-length movies a month there's something very wrong with my priorities. So much to be done and so little time!
Posted by (22 comments )
Reply Link Flag
Blockbuster is better
I don't know how long ago you joined Blockbuster's online rental program but it is much better now. They offer the same program as netflix for the same money and they give you two free in store rentals per month. I also got a free copy of Shrek 2. And as of this month, December, they have arranged a system with the post office where they, the USPS, scan the movies and notify blockbuster that you dropped them in the mail. This way, the movies don't have to make it all the way back to the DC in order for the next one to be sent to you. It's much faster than Netflix. I average 12 movies per month or $1.66 per movie (including the two free in store rentals) where as my friend in netflix averages 9.9 movies per month and $2.47 per movie. Over the year, he averaged 16 days between the shipped and return dates where as i'm averaging 8.8 days with blockbuster becuause of the USPS scanning. WIth the same number of movies available (25K) and with the addition of the backing of the stores nationwide in 2005, I think Blockbuster.com is the way to go.
Posted by offbeat13 (1 comment )
Reply Link Flag
Getting Worse
I've been with BB for about two months, I switched from Netflix when they raised the price per month. BB started out great, I was getting movies very quickly but the past couple of times it's been getting slower, the last couple of times it's taken between 5-8 days to receive the movies from the time I mailed. I don't have any issues with my queue yet as far as sending of movies out of order but anything can happen. If the situation with the mailing gets any worse I'm going back to Netflix.
Posted by (1 comment )
Link Flag
Yes! Blockbuster online totally sucks!
I live in Washington DC and my distribution center is located in Gaithersburg MD. That is only 25 miles away. According to their website, it takes 3 days for them to receive my DVD's in the mail. I had to call blockbuster at least 3x because, for some unknown reason, my 3rd movie would never ship. I would have 2 movies shipped with 25 in my queue. It also takes 3 to 4 days for me to receive a movie (only 25 miles from distribution center). When I was on the 2 week trial period, I was getting at least 5 movies a week. After the free period ended, they started screwing me over. On Well, as soon as I use up my free month (offer by BB to convince me to stay) I will try Netflix.
Posted by (2 comments )
Reply Link Flag
BlockBuster online has excessive delivery times, bad servic and is a ripoff
12-1-07

BlockBuster 3 DVD delivery plan for 24.99 per month.

PRO: You can get 3 new movies when you return 3 delivered movies at a store. When you receive the 3 movies in the mail, you can have 6 movies out at a time! Better deal than cable for new movie releases.

Con: Excessive delivery times of over 7 days for "available" DVD's is normal.

We have waited many times over 7 days for delivery of DVD's that are on the available list. We are not receiving the service for which we are paying for. There is no excuse for BlockBuster and we are ready to cancell. Go for the in store program if you live close to a BlockBuster. Again, the in store program is a better deal if you live close to a store. The in store service is very good!
Posted by CHjunior (1 comment )
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