BorderEevilIII
12-15-2004, 11:31 AM
Blockbuster Plans to End Late Fees in 2005
12.14.2004, 05:34 PM
Blockbuster Inc., the nation's biggest movie rental company, says it will eliminate late fees on games and movies as of Jan. 1 - but if you keep them too long, you buy them.
The offer announced Tuesday suggests that Blockbuster is still struggling to blunt the competitive threat from NetFlix Inc. and cable.
The company had expected to earn $250 million to $300 million in operating profits next year from its unpopular late fees but believes it can make up for the lost income with increased volume - betting that customers, no longer worried about late fees, will rent more movies and games.
"We had to deal with late fees," said chairman and chief executive John Antioco. "It's the source of jokes on late-night TV. It's still anecdotally, and in some sense really, the biggest negative to Blockbuster ... There were customer transactions that never happened because of late fees."
Blockbuster shares rose 40 cents, or 4.6 percent, to close at $9.20 on the New York Stock Exchange. That is near the lower end of their 52-week trading range of $6.50 to $19.37.
Blockbuster faces new competition on several fronts - cheap DVDs in discount stores, mail-delivery service from Netflix, and movies on demand from cable TV operators - none of which come with late fees. Dallas-based Blockbuster said it tested dropping late fees in several cities over the past year and found that retail sales of movies increased.
Blockbuster customer Susan Murray, who raced to a Dallas store just before noon Tuesday to avoid a charge, welcomed the planned elimination of late fees. Murray said she gets dinged a late fee almost every time she rents - $11.50 for two movies last week alone - including occasions when she was sure she had beat the deadline.
"I was going to cancel (Blockbuster) and get Netflix," Murray said. "I decided a couple days ago that was it. Now I'll have to reconsider."
But rivals claimed that Blockbuster wasn't really eliminating late fees, only giving customers more time before incurring even larger payments.
Blockbuster said due dates at its 4,500 U.S. stores would remain one week for games and two days or one week for movies. The company said it would give customers a one-week grace period at no charge, starting on New Year's Day.
Renters who keep the movies or games beyond the grace period will be charged for purchasing the DVD or tape at Blockbuster's full retail price, minus the rental fee, the company said. If they return the movie or game in the next 30 days, they will get a refund for the purchase but will be charged a restocking fee of $1.25, the company said.
Reed Hastings, CEO of Los Gatos, Calif.-based Netflix, said Blockbuster had to do something to prevent losing store customers to Netflix and its own online movie-order service, which together have doubled their customers in the past year, to 3 million. Hastings said Blockbuster's move would backfire because of the potential of being charged for purchasing a late DVD.
"Many consumers will be unhappy with the idea that their credit card is going to get charged" if they miss the grace period, he said.
But Chelsea Burns of Dallas, who dashed over from the office where she works as an underwriter to avoid a $4 late charge on her DVD, said Blockbuster's about-face on fees would prompt her to rent a few more movies.
Burns only rents from Blockbuster but said she racks up so many late charges - nearly weekly - that she considered signing up for a $17.49-a-month subscription that comes with no late fees.
"Now I'm glad I didn't sign up because avoiding late fees was the whole reason for doing that," she said.
Named in several class-action lawsuits over late charges, Blockbuster stopped disclosing how much it made from the fees several years ago. In 2000, the last full year for which figures are available, the fees amounted to 19 percent of the company's revenue. A trade publication recently estimated that late fees accounted for about 10 percent of Blockbuster's revenue, which was $5.82 billion last year.
Antioco declined to say how much revenue Blockbuster expected from late fees in 2005, but he said the lost operating profit will be offset by increasing other revenue and cutting costs.
Dennis B. McAlpine, an analyst at McAlpine Associates, said giving up $250 million to $300 million in operating profit didn't make sense.
"What's he getting, other than a warm fuzzy feeling in the bellies of his customers?" McAlpine said. "That's lost money. He's not going to get that back."
Marla Backer, an analyst with Soleil Securities, called Blockbuster's move a positive step that will improve the chain's image. Backer said she was still worried about the weak rental market, however.
In August, Blockbuster launched an Internet-order, mail-delivery service like Netflix. Antioco said he expected to lose some subscriptions but still hit a goal of signing up 10 percent of its store customers by the end of next year.
Blockbuster, Netflix and Wal-Mart Stores Inc. are locked in a brutal price war that has raised questions about the profitability of online-ordering services.
Blockbuster said it would spend about $50 million to promote the end of late fees, mostly on advertising.
Link To Story (http://www.forbes.com/home/feeds/ap/2004/12/14/ap1711900.html)
12.14.2004, 05:34 PM
Blockbuster Inc., the nation's biggest movie rental company, says it will eliminate late fees on games and movies as of Jan. 1 - but if you keep them too long, you buy them.
The offer announced Tuesday suggests that Blockbuster is still struggling to blunt the competitive threat from NetFlix Inc. and cable.
The company had expected to earn $250 million to $300 million in operating profits next year from its unpopular late fees but believes it can make up for the lost income with increased volume - betting that customers, no longer worried about late fees, will rent more movies and games.
"We had to deal with late fees," said chairman and chief executive John Antioco. "It's the source of jokes on late-night TV. It's still anecdotally, and in some sense really, the biggest negative to Blockbuster ... There were customer transactions that never happened because of late fees."
Blockbuster shares rose 40 cents, or 4.6 percent, to close at $9.20 on the New York Stock Exchange. That is near the lower end of their 52-week trading range of $6.50 to $19.37.
Blockbuster faces new competition on several fronts - cheap DVDs in discount stores, mail-delivery service from Netflix, and movies on demand from cable TV operators - none of which come with late fees. Dallas-based Blockbuster said it tested dropping late fees in several cities over the past year and found that retail sales of movies increased.
Blockbuster customer Susan Murray, who raced to a Dallas store just before noon Tuesday to avoid a charge, welcomed the planned elimination of late fees. Murray said she gets dinged a late fee almost every time she rents - $11.50 for two movies last week alone - including occasions when she was sure she had beat the deadline.
"I was going to cancel (Blockbuster) and get Netflix," Murray said. "I decided a couple days ago that was it. Now I'll have to reconsider."
But rivals claimed that Blockbuster wasn't really eliminating late fees, only giving customers more time before incurring even larger payments.
Blockbuster said due dates at its 4,500 U.S. stores would remain one week for games and two days or one week for movies. The company said it would give customers a one-week grace period at no charge, starting on New Year's Day.
Renters who keep the movies or games beyond the grace period will be charged for purchasing the DVD or tape at Blockbuster's full retail price, minus the rental fee, the company said. If they return the movie or game in the next 30 days, they will get a refund for the purchase but will be charged a restocking fee of $1.25, the company said.
Reed Hastings, CEO of Los Gatos, Calif.-based Netflix, said Blockbuster had to do something to prevent losing store customers to Netflix and its own online movie-order service, which together have doubled their customers in the past year, to 3 million. Hastings said Blockbuster's move would backfire because of the potential of being charged for purchasing a late DVD.
"Many consumers will be unhappy with the idea that their credit card is going to get charged" if they miss the grace period, he said.
But Chelsea Burns of Dallas, who dashed over from the office where she works as an underwriter to avoid a $4 late charge on her DVD, said Blockbuster's about-face on fees would prompt her to rent a few more movies.
Burns only rents from Blockbuster but said she racks up so many late charges - nearly weekly - that she considered signing up for a $17.49-a-month subscription that comes with no late fees.
"Now I'm glad I didn't sign up because avoiding late fees was the whole reason for doing that," she said.
Named in several class-action lawsuits over late charges, Blockbuster stopped disclosing how much it made from the fees several years ago. In 2000, the last full year for which figures are available, the fees amounted to 19 percent of the company's revenue. A trade publication recently estimated that late fees accounted for about 10 percent of Blockbuster's revenue, which was $5.82 billion last year.
Antioco declined to say how much revenue Blockbuster expected from late fees in 2005, but he said the lost operating profit will be offset by increasing other revenue and cutting costs.
Dennis B. McAlpine, an analyst at McAlpine Associates, said giving up $250 million to $300 million in operating profit didn't make sense.
"What's he getting, other than a warm fuzzy feeling in the bellies of his customers?" McAlpine said. "That's lost money. He's not going to get that back."
Marla Backer, an analyst with Soleil Securities, called Blockbuster's move a positive step that will improve the chain's image. Backer said she was still worried about the weak rental market, however.
In August, Blockbuster launched an Internet-order, mail-delivery service like Netflix. Antioco said he expected to lose some subscriptions but still hit a goal of signing up 10 percent of its store customers by the end of next year.
Blockbuster, Netflix and Wal-Mart Stores Inc. are locked in a brutal price war that has raised questions about the profitability of online-ordering services.
Blockbuster said it would spend about $50 million to promote the end of late fees, mostly on advertising.
Link To Story (http://www.forbes.com/home/feeds/ap/2004/12/14/ap1711900.html)