DALLAS – 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.”
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.
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.
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.
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