No Late Fleece

If Blockbuster's (NYSE: BBI) pockets are feeling a little lighter today, it's because the video rental giant agreed to settle with most of the country over its questionable "No Late Fees" campaign.

It may have been worth it. Despite its debt-laden balance sheet, the $630,000 settlement is manageable, while agreeing to refund the minimal restocking fees and automatic movie purchases that its customers have been hit with over the past three months may amount to little more than a rounding error. New Jersey, the state that first decided to sue Blockbuster over the ads, isn't covered in the announced settlement; it's looking to square away its own case.

In fact, it may be better than fine. Blockbuster claims that the new policy has resulted in more rentals. The March quarter should show that much. That may help sway its franchisees, which present a major sticking point, since nearly half of the franchised locations have not adopted the policy, while all of the company-owned locations have. So this bout of publicity in notoriety's wrapper may work even better than Blockbuster could have imagined.

This is it for Blockbuster. Earlier this week, it conceded Hollywood Entertainment (Nasdaq: HLYW) to rival bidder Movie Gallery (Nasdaq: MOVI). It has taken the "all you can eat" DVD rental model pioneered by Netflix (Nasdaq: NFLX) online and is rolling it out offline. Despite the tight range in which the stock has traded this year, the company has so much going on that within a year, it could either float into higher into the double digits if its gambles pay off, or teeter on obsolescence if the risks don't pan out.

The company is in the process of better communicating its campaign. Blockbuster promises more prominent signage of the terms behind the new policies. I don't think that will be enough. There is no asterisk big enough after the words "No Late Fees" if there are, in fact, fees for being late. Whether it's minimal restocking charges or automatic movie purchases for delinquent rentals, I think Blockbuster will need to ultimately abandon that clever ad campaign and simply embrace the less confusing fact that it has extended the length of its video rental periods. Until then, it's likely to milk it for every incremental rental it can get.

Some recently rented headlines:

• New Jersey went after Blockbuster first.
• Blockbuster has to find a way to make its online and offline worlds jell.
• It gave up on the bidding war on Hollywood Entertainment this week.

Longtime Fool contributor Rick Munarriz can't remember the last time that he stepped into a Blockbuster store. He owns shares in Netflix. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.