I'd like to thank Blockbuster
As it is, we got to see that 3 million subscribers to the Total Access online rental plan translated into $109 million of revenues in the first quarter. That's an average of about $12 per customer per month, $6 below the cost of what Blockbuster calls its "most popular" rental plan, which allows for three movies at home at any given time. With 800,000 new subscribers, free trials should explain a significant part of the pricing dichotomy.
More importantly, management blamed some of the net losses directly on Total Access, and again indirectly when it pointed fingers at "an extremely tough in-store rental market." It's tough because of cannibalism.
Netflix
So for the consumer, Total Access is great (until you tire of the in-store selection, but that's a different story). For Blockbuster itself, not so much. The company is eating itself in two ways -- first by turning its in-store renters into online subscribers, and then by giving them even less incentive to ever spend another thin dime in the physical store.
Of course, we don't have the level of insight into operating results to make a definitive judgment on this seemingly suicidal strategy. We also don't know what happens if Blockbuster raises prices, reduces the torrent of coupons, or otherwise adjusts to the economic realities of giving away what you used to sell. Total Access isn't quite the same as eliminating rental fees altogether, but it's a serious step in that direction.
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Grab some popcorn and dig in:
- Before the Call: Blockbuster Premieres
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- The Ups and Downs of Blockbuster
Fool contributor Anders Bylund is a Netflix shareholder but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure can bust your block any day.
