Blockbuster Video Looks To Save Business By Alienating Customers

It's been predicted that Blockbuster Video will be bankrupt within two years, and the company has responded in an interesting way. After focusing on their Total Access online video business since Netflix came on the scene, probably the major reason for their current financial problems, they've decided to alienate the online customers that have remained loyal to the video giant by jacking up online video rental prices.

Originally Blockbuster charged $17.99 for a 3-DVD plan, that let you have 3 DVD rentals at once, with unlimited mail exchanges and 5 in-store exchanges per month. Netflix was able to charge $16.99 for the same deal, but Blockbuster was losing money. The company elected to up the price to $24.99 per month for the same plan, but allowed unlimited in-store exchanges for the extra $7 per month. They still lost money. Although they boosted their subscription rates for the Total Access service, they found they were attracting the most "price-sensitive" and "heaviest consumption" customers with the in-store exchanges. Because the economics of subscription services means that money is made off of subscribers who don't actually use the service alot, Blockbuster actually made a mistake by offering a service of great value that attracted the most active of movie buffs.

To remedy this situation, Blockbuster has now upped the price of the 3-DVD subscription to $34.99 for new customers for unlimited exchanges by mail and in-store, and from $17.99 to $19.99 for the 5 in-store exchange deal. The real exasperating changes came upon the company's existing customers however. Depending on how much existing customers use the Total Access service, the price for the 3-DVD unlimited exchange plan will be anywhere from $19.99 to $34.99 per month. And you can bet that Blockbuster's most loyal, most active customers will take the heaviest hit to the pocketbook.

Maybe this is part of a greater business strategy that will benefit existing customers in the long run. That remains to be seen, but if not, two years to bankruptcy is starting to sound just about right.

Via New York Times

December 22, 2007

Blockbuster Video Looks To Save Business By Alienating Customers