Posted on: Saturday, October 16, 2004
Blockbuster empire strikes back at Netflix
By David Koenig
Associated Press
DALLAS — Blockbuster Inc. says it will undercut rival Netflix Inc. on the price of renting DVDs over the Internet, and the stock of both companies fell yesterday — Netflix shares plunged 41 percent — as investors reacted to a budding price war.
Netflix announced late Thursday that it will cut its monthly subscription for DVD rentals to $17.99 from $21.99 on Nov. 1 and expected only to break even next year because of tough competition. That would make Netflix cheaper than Blockbuster, which charges $19.99 a month.
It took Blockbuster less than 24 hours to respond. Yesterday, chief executive John Antioco said in an interview that later this month Blockbuster will cut its price to $17.49 for customers who keep up to three DVDs out at a time.
The price war broke out less than two months after Dallas-based Blockbuster, the world's largest movie-rental company, jumped into the online-ordering, mail-delivery DVD business that Netflix pioneered.
"We're flattered that it has only taken them seven weeks to blink," Antioco said.
Several analysts downgraded Netflix's stock, saying the price cut would hurt the company's profitability.
Shares of Netflix plummeted $7.13 to $10.30 on the Nasdaq stock market. Blockbuster shares fell 49 cents or more than 6 percent, to $7.46. They have dropped 66 percent in the past year.
Netflix said it had 2.2 million customers as of Sept. 30, including 590,000 new trial customers in the previous three months, and had raised prices in June by about $2 a month.
Netflix CEO Reed Hastings, discussing his price cut, said Thursday that he learned from several sources, whom he didn't identify, that Internet retailer Amazon.com is likely to start online DVD rentals. Amazon hasn't announced whether it will, but Wal-Mart Stores Inc. already offers the service.
Blockbuster won't say how many subscribers it has for the online service, and Antioco declined to say whether the price-cutting would reduce earnings.
