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.
Last updated: February 13, 2012: 06:42 AM
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Reader Comments (Page 1 of 1)
2-06-2008 @ 7:31PM
Wolf said...
Soon as Blockbuster raised it's price they made a conscious business decision to cut back on the speed and quantity of videos they send to it's members who might be dropping them off at the store a little quicker than they would like. They don't live up to their "ship next business day" and hardly ship on Mondays anymore. This is to "throttle" these customers who might normally have videos shipped on Monday, receive them on Tuesday, then return them to the store on Wednesday (which would mean Blockbuster is supposed to ship more videos on Thursday or Friday). They also "cubbyhole" your videos ... that is, to say they shipped on Tuesday, but not mail them until Wednesday. With these practices, they can cut a member down to 6 videos a week (3 by mail, 3 in-store trades). If what they are doing is not considered fraud, it is at least misrepresentation. Netflix invented the throttle .... Blockbuster seems determined to perfect it.
12-21-2007 @ 4:45PM
ed georgia said...
As of today I am an ex blockbuster customer. They raised my monthly rate an sent me directly to Netflic. Great business model. They lost a long time paying customer for 25 bucks a year. Hw dumb was that?
BB will be out of business by the end og 2008 adios BB waves goodbye. Hello Netflix!
12-23-2007 @ 1:35PM
TampaMikey said...
Blockbuster upper management went to business school to make this decision? You got to be kidding me! What a bunch of overpaid idiots.