Blockbuster raises prices -- time to sell!

I've been a bear on Blockbuster (NYSE: BBI) for a while, but if for some insane reason you still happen to own the stock, this latest news should be enough to make you a seller.

The company has decided to raise prices on its DVD-by-mail service for new customers and some existing ones by as much as 40%.

That's a great way to boost sales. The announcement sent shares of Netflix (NASDAQ: NFLX), another stock you shouldn't own, soaring to a new 52-week high. In the quarter that ended in September, Blockbuster lost half a million subscribers, and this latest move will do little to help with that trend.

Blockbuster is facing declining revenue, and its brick-and-mortar stores are losing their relevance. At $1 per night, Redbox is a great alternative for hot, new releases. On the mail-order business, Blockbuster lacks any particular competitive advantage and appears to be locked into a price-war with Netflix, which is profitable and better-capitalized for a long battle.

But in the long-run, it doesn't even matter. As Jim Chanos said, "Consider the concept of having little old ladies in warehouses stuffing envelopes with DVDs. That might be a business for the next two or three years, but then it won't work. Why anyone would pay twenty-seven times earnings for that is beyond me." [Emphasis added.]

In Blockbuster, it's even worse. Investors are getting an unprofitable company operating a business that won't exist in a few years. There will be ups and downs along the way, but it's hard to imagine Blockbuster doing anything other than fading into oblivion long-term. For now, it can try to stop the bleeding with price increases, but that will only hurt sales.