Better Late Than Clever

Do you think that Blockbuster (NYSE: BBI) would like to hit the rewind button and go back on its "No More Late Fees" ad campaign? New Jersey's attorney general is suing the leading movie rental specialist for allegedly violating the state's Consumer Fraud Act, and other states are starting to take notice.

I'm not surprised. I've been calling the mantra misleading for a couple of months now. When it was first announced back in December, I wrapped up my tirade with the following tidbit that would make Nostradamus blush:

Yet investors buying into Blockbuster today better not come crying to me when they want out as this public fiasco unfolds next year -- only to be hit by their broker's "minimal restocking fee" on the way out.

Earlier this month, when I wrote a piece on disposable DVDs and called it "deceptive on many levels," I got an email from a Blockbuster executive. She wasn't interested in "arguing me out of my position" as much as trying to understand where I was coming from. Fair enough.

I detailed my "levels" as the following:

1. No late fees implies that there will be no fees for turning in the movie late. Yet there will be. Hold on to the film long enough and you have restocking fees -- even if you return the movie a couple of weeks later.

2. Instead of late fees you are charged for the movie itself after the grace period. Yes, I realize it can be credited to you -- minus restocking fees -- within a month. The fact that there is a "grace period" already implies that there is a lateness and a penalty for lateness.

3. As recently as last month, there were still quite a few stores NOT participating in the program despite the nationally advertised campaign.

My suggestion -- the same as it was two months ago -- was to shelve the "No More Late Fees" pitch in favor of a consumer-friendly campaign that doesn't lack integrity. Blockbuster is extending the length of its rental periods as part of its 2005 operating policy at participating stores. That's honest. That doesn't require an asterisk. Why not just roll with that?

Blockbuster is trying to fight so many battles these days. It's punching it out with Netflix (Nasdaq: NFLX) online. It's battling Movie Gallery (Nasdaq: MOVI) in its quest to acquire Hollywood Entertainment (Nasdaq: HLYW) offline. It's got one ugly balance sheet after taking on a good chunk of debt to pay Viacom's (NYSE: VIA) ransom for emancipation. The last thing the company needs is to be picking fights at the state level, too.

Later this week, I'll be back with some ways that Blockbuster can avoid having this all end horribly wrong. Because, as ironic as it may seem, the "no more late fees" company doesn't exactly have all the time in the world to make things right.

Be kind. Rewind -- with these recent related stories:

• Read my gut instinct reaction.
• Ask yourself if canceling late fees is a good idea.
• Maybe Blockbuster is just playing possum.

Longtime Fool contributor Rick Munarriz never did hear back from the Blockbuster V.P., but he guesses the company has its hands full these days. He owns shares in Netflix. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.