December 20, 2007 / 7:15 PM / 10 years ago

UPDATE 2-Blockbuster to raise Total Access prices

(Adds Citigroup note, updates stock prices)

By Gina Keating

LOS ANGELES, Dec 20 (Reuters) - Blockbuster Inc BBI.N said on Thursday it will raise prices for its Total Access subscription plans and lower prices for two DVD By Mail plans in an effort to pare losses and boost subscribers.

Prices for three Total Access services, which allows customers to rent DVDs either online or at Blockbuster stores, will rise $2 to $10 a month, depending on the plans.

The price adjustments come as Blockbuster’s new management struggles to find a balance between expensive investments in online distribution methods and boosting its mature in-store rental business, which still provides the lion’s share of its $5.5 billion annual revenue.

Blockbuster Chairman and Chief Executive Jim Keyes has said the company will shift its growth strategy from a heavy emphasis on online DVD rental to attracting customers through a variety of in-store and electronic offerings, and by changing the layout and merchandise mix at its stores.

The move was viewed as a positive for rival online DVD rental company, Netflix Inc (NFLX.O). Netflix shares rose $2.37 a share, or 9.5 percent, to close at $27.24 on Nasdaq.

Blockbuster edged up 5 cents, or 1.4 percent, to $3.55 on the New York Stock Exchange.

In a note, Citigroup analyst Tony Wible upgraded his rating on Netflix to hold, saying Blockbuster’s actions may create significant churn, or customer cancellation, for Blockbuster and provide Netflix with the ability to capture new gross subscriber additions with relative ease.

“Our scenario analysis assumes that half of Blockbuster’s total subscriber base will migrate,” Wible said in a note.

The in-store rental industry has seen revenue decline since 2005 due to competition from online rental and other forms of electronic and online entertainment.

Prices for Blockbuster’s Total Access $9.99 monthly plan, which allows customers to rent one DVD at a time, and the most popular $17.99 plan, for three DVDs at a time, will rise by $2.

The price of the premium plan -- three DVDs at a time and unlimited in-store trades -- will rise to $34.99 from $24.99 a month.

The price hikes will apply to new subscribers and some existing subscribers who are heavy users, starting Dec. 27, Blockbuster spokeswoman Karen Raskopf said.

“FAIR VALUE”

“We are working to provide a fair value to the consumer and a fair value for Blockbuster,” Raskopf said. “We think there is something here for everybody.”

Blockbuster also will cut the price of two of its By Mail plans by $1, to $3.99 for one DVD at a time for all subscribers and to $15.99 for three DVDs at a time for new subscribers.

The $15.99 price, which will be offered for a limited time, makes Blockbuster’s plan $1 cheaper than a comparable monthly plan offered by Netflix.

Netflix, whose plans include free online streaming of some movies, has no immediate plans to change its pricing but continues to test prices, spokesman Steve Swasey said.

J.P. Morgan analyst Barton Crockett said the cuts are “more meaningful for Blockbuster than I think it is for Netflix.”

Crockett said the new prices would help Blockbuster stem an estimated $135 million worth of free in-store swaps it will give away in 2007 as part of Total Access.

“More important than what they do with their online pricing, they need to come up with a way to grow revenue and earnings in their stores and answer everyone’s long-term secular questions about video rental,” Crockett said.

“They are trying to do that by moving more toward selling merchandise and being less reliant on video rental,” he said. (Editing by Brian Moss)

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