Blockbuster (NYSE:BBI) had better watch out. The steady trickle of announcements coming out of this once-mighty video rental giant just might make people think that things really are as bad as they seem. Today, Blockbuster said it will reduce the monthly charge for its online rental service to $14.99 per month, which sounds like a desperate move to me.
This news comes on the heels of the much-buzzed-about "Blockbuster cancels late fees" news that set my teeth on edge. I agree wholeheartedly with longtime Fool Rick Munarriz's assessment -- that the headlines proclaiming such a cancellation were misleading, since that move was more about extended rental periods than canceled late fees. Not even to mention, under Blockbuster's new plan, there may not be any such thing as "late," but after a certain degree of, let's say, tardiness, you've bought yourself a used DVD at retail price. Let's hear it for games of semantics.
Such a climate really makes me favor Netflix (NASDAQ:NFLX) when pondering who might win this war for subscribers' hearts, at the very least, although a protracted price war could become a scorched-earth policy for the entire industry. Blockbuster's steady stream of price cuts -- the last of which was a $15.99 promotion as recently as early November, which was covered here -- doesn't seem to be doing the trick if Blockbuster's gone to $14.99 so soon. Meanwhile, the rumble of mighty Amazon.com (NASDAQ:AMZN) has echoed across the seas, what with its long-rumored launch of DVD rentals coming to pass in the United Kingdom. (That's two Motley Fool Stock Advisor picks that are making Blockbuster's life pretty darn difficult, come to think of it.) Wal-Mart (NYSE:WMT), of course, is also in the fray.
Way back in October, Rick predicted that Blockbuster stock is destined to be a dud. Given my own coverage of Blockbuster over the months, it's pretty obvious that I agree with him. Today's price cut may be an aggressive move to undercut opponents, but it smacks more of desperation to me. Further, it will help guarantee that Blockbuster's profitability will be adversely affected in the coming months, just as the company warned in early November.
Like Rick, I think the "canceled late fees" misnomer will prove itself extremely unfriendly to customers, who, once burned, may very well develop a negative view of Blockbuster and even more reason to switch to rivals like Netflix on principle alone. Although low prices such as the new rock bottom that Blockbuster is proposing are often strong incentives for customers who watch their wallets, in certain situations, principle counts for something too.
Netflix and Amazon.com are both Motley Fool Stock Advisor picks. To see what else is on the Gardner brothers' agenda, try it out for six months, risk-free. Or visit our Netflix discussion board, where Fools are discussing this latest price cut as we speak.
Alyce Lomax does not own shares of any of the companies mentioned, although she is a recent convert to Netflix's service. Buh-bye, Blockbuster.
