No more video late fees

Blockbuster: After a seven-day grace period on late movies or games, the customer will be charged for a purchase.

December 15, 2004|By KNIGHT RIDDER/TRIBUNE

Blockbuster is tired of being the butt of jokes on Leno and Letterman. And, closer to home, it wants to eliminate what the company's president calls "those unpleasant conversations at the register."

So, beginning Jan. 1, the Dallas-based video chain plans to end late fees on video and game rentals. Of course, laggard renters won't get an entirely free pass:

Past due on that Chuck Norris video? You'll have a seven-day grace period to return late movies, DVDs, or video games before Blockbuster Inc. duns your account for the price of the item, less the rental fee.

So, what if you really don't want to own Delta Force 2 ?

Bring it back within 30 days. The purchase price, charged to your credit card or Blockbuster account, will be credited back and you'll be charged a $1.25 "restocking fee."

In test markets, Blockbuster employees reported a huge surge in their morale when they no longer had to give customers the bad news on their late fees. The fees were so reviled that consumers sued over their legitimacy and Blockbuster settled several lawsuits.

The end of the fees is Blockbuster's latest effort to protect its embattled movie and game rental store empire from competition by online subscription services, led by Netflix Inc., and mass merchandisers such as Wal-Mart Stores Inc.

Blockbuster and two other suitors are also bidding to acquire the rival Hollywood Entertainment video rental chain.

The fee elimination will reduce the Dallas company's revenue up to $300 million next year, but it hopes to make up for it with more business from customers, Blockbuster CEO John F. Antioco said yesterday.

"We hope that customers' perception of us will improve, and that they'll spend more time with us," Antioco said.

For the first nine months of 2004, video rentals, which make up 75 percent of Blockbuster's sales at its 4,500 stores, fell 3.1 percent to $3.28 billion. In comparable stores, those open at least a year, rental revenue declined 6.6 percent as a result of weak rental traffic industrywide.

`Why now?'

"Based upon our continued belief that the size of the video rental market has contracted as a result of the simultaneous availability of rental and retail product, we expect the rental market to decline throughout the remainder of 2004," Blockbuster said in a third-quarter securities filing.

One industry analyst, Jim Hurley of Bear Stearns, questioned the timing of Blockbuster's announcement.

"Why now?" he said. "The industry has known of the late-fee problem for the entire history of the rental business."

Antioco acknowledged that the rise of video subscription businesses such as Netflix, which don't charge late fees, played a major role in Blockbuster's decision to scrap its late fee.

A $40 late fee

Reed Hastings, founder and CEO of Netflix, said yesterday in response to Blockbuster's move that, "I'm not sure that customers will consider it an improvement if they are charged a purchase price for the entire product."

Hastings founded San Jose, Calif.-based Netflix five years ago after a $40 late fee at a video rental store. "A gym charges you the same monthly fee, whether you work out a lot or very little," he reasons.

Using online sales brands such as Amazon.com as a model, Hastings developed Net- flix. For a monthly fee of $17.99, customers can order up to three DVDs at one time - deliverable within a day from one of 30 warehouses - from a catalog of 25,000 titles.

Most important, as Netflix never ceases to remind customers, there's no late fee. Instead, customers simply are barred from ordering another title as long as they still have three unreturned DVDs.

Netflix has developed a subscription base of 2.5 million, up 70 percent in the past year.

`Growing rapidly'

Blockbuster, in response, as begun its own online subscription service that now has about a half-million customers. That has led to predictions that the video rental store is a dinosaur.

"I don't know if the video store is obsolete yet," Hastings said, "but the online market is growing rapidly."

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