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Blockbuster monthly plan expands rentals, scraps late fees

By David Koenig
The Associated Press

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DALLAS — Video-rental giant Blockbuster is going national with a monthly subscription plan that lets customers rent an unlimited number of movies and keep two or three at a time without running up late fees.

Blockbuster will charge $24.99 a month for customers to keep two movies out, and $29.99 to keep three titles.

The Dallas-based company calls the monthly subscription plan a Movie Pass and says the promotion will be available immediately in more than 5,000 stores nationwide. It tested the concept for 18 months in 1,150 stores.

"This is a different way of renting movies," said Nick Shepherd, Blockbuster's chief marketing officer. "We wanted to make sure we had it right from the consumer's point of view and the economics point of view."

Blockbuster customers, who must drive to the store to return movies and pick up new ones, have more convenient options for movie-watching, such as pay-per-view on cable, mail-order rentals by companies such as Netflix, and cheap DVDs for sale from the likes of Wal-Mart.

Chief Executive John Antioco said recently that the company hopes 10 percent of its customers sign up for the movie plan by the end of 2005.

Blockbuster is expected to add an online-reservation feature and mail delivery to its plan later this year.

Analysts said the Movie Pass is designed to prevent more Blockbuster customers from defecting to Netflix, based in Los Gatos, Calif. About 2 million people have signed up for Netflix's all-you-can-watch service — for $21.99 a month, they can get up to three DVDs at a time through the mail.

"This is a customer-retention program," said Michael Pachter, an analyst for Wedbush Morgan Securities said of Blockbuster. "They'll lose fewer customers, and it will probably limit the growth of Netflix. Why would anyone sign up for Netflix if you can get the same service from Blockbuster?"
 
David Joyce, an analyst with Guzman, praised Blockbuster's move, even though he thinks it could cannibalize sales to customers who already spend more than $25 a month on rentals and late fees.

"But it's better to eat your own lunch than let somebody else do it," Joyce said.

Giving customers a way to reduce late fees is a double-edged sword for Blockbuster. The fees have contributed greatly to Blockbuster's revenue.

Blockbuster no longer discloses how much it makes from late fees, but it probably earns a much larger share of its revenue from the fees than do its competitors.

Blockbuster said the new subscription plan would cover all DVD and VHS titles in the stores.