Blockbuster Again Slashes Its Online Fee

How low can you go?

Like a contestant in a limbo competition, Blockbuster Inc. on Wednesday lowered the price bar for the second time in two months in its war with DVD rental rivals on the Internet.

The video chain slashed the monthly fee for its online subscription service to $14.99 from $17.49, undercutting Netflix’s $17.99 rate and the $15.54 charged by Walmart.com, the online branch of retail giant Wal-Mart Stores Inc.

“This definitely ratchets up the competition for the subscription business,” said analyst Larry Gerbrandt of AlixPartners.

With its stores struggling, Blockbuster has been aggressive in trying to lure customers to its online rental operation, seeking a strong foothold in a business that until recently it dismissed as unimportant.

“We are clearly determined to be the leader in this space and we are going to do whatever it takes to do that,” said Shane Evangelist, senior vice president of Blockbuster Online.

Internet-based rental services charge a monthly price, and don’t charge late fees. Blockbuster started its online service in August; it has 500,000 subscribers, compared with Netflix’s 2.5 million.

Netflix Chief Executive Reed Hastings said the company didn’t have plans to cut prices, predicting Netflix would continue to grow because of its appeal to frequent film renters. But he said that Blockbuster’s move underscored the appeal of online DVD renting.

“What this will do is continue to convince consumers that online rental is better than store-based rental,” he said. “And our prediction is that video stores of America will be empty this year as everyone floods online either to Blockbuster’s service or ours.”

WalMart.com gave no indication of its plans. “We’re always reviewing the changing competitive landscape,” spokeswoman Amy Colella said.

Marla S. Backer, an analyst with Research Associates, said Blockbuster’s price-slashing was a bold move showing that the company was a serious contender. But the action could cause some financial hardship initially.

“Near term, I do think we are in for a little bit of a roller coaster ride,” she said.

With most online customers renting five to six movies a month, Blockbuster is taking a risk, analysts said. Gerbrandt said Blockbuster hoped to get infrequent users to sign up for the online service. “If you only rent a couple [of movies] of month, they are net ahead,” he said.

Once a moneymaking juggernaut, Blockbuster has long dominated the video store business. But the company in recent years has suffered as discount retailers such as Wal-Mart, Best Buy Co. and Target Corp. have eaten into its business by selling DVDs at bargain prices.

Last week, Blockbuster stores eliminated late fees, although customers who keep DVDs too long will have to pay for them.

Also Wednesday, Blockbuster confirmed that its bid to acquire Hollywood Entertainment Corp. continued to meet resistance from the rival’s board.

Others interested in Hollywood Entertainment are rental chain Movie Gallery Inc. and investors led by Los Angeles-based Leonard Green & Partners.

Blockbuster shares dropped 27 cents to $9.40 on the New York Stock Exchange.