NEW YORK (Reuters) - DVD rental company Blockbuster Inc said it will offer 99-cent DVD rentals for the first time to lure customers in tough economic times, and it is also renegotiating one-third of its store leases to cut costs.
“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,” Blockbuster Chief Executive Jim Keyes told the Reuters Media Summit on Thursday.
“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, had not yet determined final details of the 99 cents plan, which could include offering DVDs for a day or for several days across various markets.
The company’s shares fell 4 cents or 3.23 percent to $1.20 a share on the New York Stock Exchange.
Blockbuster now offers two-day rentals on new releases for about $5 and slightly older releases for seven days at slightly lower prices.
Keyes said thousands of DVDs, including many classic older movies, would be priced at 99 cents under the new scheme.
The leading U.S. movie rental chain is also renegotiating leases for at least one-third of its more than 7,000 stores and could close underperformers as part of cost-cutting plans.
Keyes said Blockbuster, which remodeled 600 stores this year, was slowing 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.
It is implementing the plan because market conditions have clouded its ability to put a new bank credit facility in place early next year as once planned.
Keyes said Blockbuster was still seeking the new facility, but hopes to eliminate between $100 million and $150 million of debt on its books as part of the cost-cutting plan.
“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.
“What we’re in process of today is to renegotiate many of our leases to look at the opportunity to either extend our lease and reduce the cost or perhaps consider an alternative location,” he said.
Keyes declined to say how much Blockbuster would save by renegotiating 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.
(For summit blog: summitnotebook.reuters.com/)
Reporting by Anupreeta Das and Sue Zeidler, editing by Tiffany Wu and Matthew Lewis