That bouncing smiley-face thing over at Wal-Mart (NYSE:WMT) is at it again -- this time the little critter is rolling back the cost of the Arkansas retailer's online DVD rental program.
According to a Reuters article, the new cost for the three-movies-out-at-one-time option at the company's website is $17.36 per month. The old price was $18.76. This reduction is, of course, not unexpected by the countless observers out there who are having a wonderful time watching competitive capitalism at work.
Netflix (NASDAQ:NFLX) recently decided to lower its monthly subscription rate from $21.99 to $17.99. Blockbuster (NYSE:BBI), however, entered the fray on the heels of that announcement; it decided to undercut Netflix by a couple more quarters, bringing its monthly price to $17.49. (The Blockbuster website indicates that the company is also offering some free rental coupons good at a local store along with the three movies per month; that should be noted, but I want to focus on just the price differentials here, especially since it is arguable that people who want the convenience of online commerce won't necessarily find value in traveling to a location.)
So, as is obviously evident, Wal-Mart is playing a game of psychology. A mere 13 cents is intended as a moat of value against Blockbuster, and slightly more than a mere 63 pennies is a thumb to the nose at Netflix. In reality, these savings aren't exotically exorbitant and shouldn't necessarily cause an exodus of subscribers from either Blockbuster or Netflix.
But that's how I think. As we all know, there is a large contingent of consumers out there who are very conscious with regard to price. Wal-Mart will surely win a lot of these people over if the company decides to aggressively market its service. Right now, I think Netflix has the upper hand in brand awareness among Net-savvy circles. All of that could change, however, especially as the subscription DVD-by-mail sector grows as a result of all these cost-cutting initiatives.
With the threat of Amazon's (NASDAQ:AMZN) own service theoretically in the balance (nothing has been announced; this issue is still speculative), an investor would have to think carefully before investing in Netflix. I think, however, that the company might still offer some long-term value, and I think Rick Munarriz outlined several interesting elements to the stock's story. If an individual is confident that the DVD rental market is growing and that a lot of the expansion will be captured by an online operation, then Netflix is the logical play here. Keep in mind, though, the price wars could conceivably get nastier.
DVDs should, however, continue to thrill the public -- which certainly thrills conglomerates such as Time Warner (NYSE:TWX) and Viacom (NYSE:VIA) -- so don't count this company out yet.
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Fool contributor Steven Mallas owns none of the companies mentioned.
