By Sue Zeidler and Anupreeta Das
NEW YORK (Reuters) - Blockbuster Inc will begin offering 99-cent DVD rentals in January to help customers chase away their post-holiday blues and other economic woes.
The largest U.S. movie rental chain is dropping rentals below $1 for the first time in the hope of luring cash-strapped consumers in tough times, even though Chief Executive Jim Keyes said the DVD rental business is weathering the economic storm.
Blockbuster is also renegotiating leases for at least one-third of its more than 7,000 stores to cut costs, Keyes told the Reuters Media Summit, as market conditions have clouded its ability to put a new bank credit facility in place early next year as originally anticipated.
Keyes said Blockbuster was still seeking the financing. Its stock fell 6 cents, or 4.8 percent, to close at $1.18 on the New York Stock Exchange.
"We do have plans in the month of January to more aggressively roll throughout the system a value offer that will include movies in the 99 cents price range," Keyes said.
"The 99 cents plan is targeted at the value-conscious consumer in this challenging economy," he said, noting the company has spent the last year testing various pricing plans.
Blockbuster, which has sought to reposition itself to compete in a market where viewers download videos or receive them by mail, now offers two-day rentals on new releases for about $5 and older films for seven days at lower prices.
Keyes said thousands of classics and older movies would be priced at 99 cents under the new scheme, which could include offering DVDs for a day or for several days across various markets.
Wedbush Morgan Securities analyst Edward Woo said he was encouraged by the new pricing scheme and Blockbuster's cost-cutting efforts.
"Cutting costs is prudent in this environment and to the extent that the 99 cents plan could drive more traffic to the stores, these moves could be derived as positives," said Woo.
Keyes declined to say how much Blockbuster would save by renegotiating store lease terms, but said industry estimates showed lease renegotiations could save a company between 10 and 15 percent. That could bring Blockbuster cost savings of as much as $67.5 million.
Blockbuster's store lease terms averaged about 2-1/2 years.
SLOWER REMODELING
Keyes said Blockbuster, which remodeled 600 stores this year, could slow down its aggressive remodeling plans for next year as it goes ahead with a capital management push to cut spending and maximize cash flow to help self-fund its business through 2009.
"In the context of challenging financial markets, we're looking at ways to further improve our cost efficiency," he said, noting Blockbuster pays about $450 million a year to lease store space around the country. Continued...
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