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Blockbuster Brings Back Late Fees

1 Mar, 2010 By: Erik Gruenwedel



Fiscally challenged Blockbuster has quietly re-instituted late fees on store-based movie rentals — with a capped rate.

Beginning March 1, the new-release movie rental period for $4.99 titles has been reduced to five days from seven days, with a $1 per day late fee assessed for up to 10 days thereafter.

The $1 daily fee also applies to one-day standard DVD, Blu-ray Disc and previously viewed rentals.

Previously, following the rental period, consumers were given a 10-day grace period and charged a $10 fee thereafter.

The Dallas-based rental chain late last week informed company-owned stores and franchisees, according to personnel contacted at local Blockbuster locations.

“The cool thing about it is that theoretically you could return a movie up to a year later and only be charged that $10,” said a local Blockbuster store employee, when asked about the changed policy.

Redbox charges $1 per day of rental (until 9 p.m. the following day, local time), plus tax, for up to 25 days, when it would consider the rental a purchase.

Blockbuster spokesperson Michelle Metzger downplayed the notion that elimination of the grace period represented a return to late fees.

Metzger said the additional daily rate is consistent with what the industry is “expecting” and in line with what Redbox charges. She said the new term is not like previous policies that also charged restocking fees.

She said 80% of Blockbuster rentals are new releases, with the average customer keeping rentals 4.7 days.

“If a customer is keeping a release out past the initial rental agreement, they are keeping that title away from somebody else,” Metzger said.

Nonetheless, the concept of late fees represents a dual-edged sword for Blockbuster, which is struggling to cut costs and generate revenue in order to implement a multiplatform distribution channel.

Netflix largely rose to prominence on a “no late fee” platform underscored by a monthly subscription program that actually benefited from titles not returned on a timely basis.

Blockbuster, under its previous management, relied heavily on uncapped late fees for incremental revenue — a stigma some critics harp about to this day.

“This is not a late fee. This is an additional daily rate and if the customer is choosing to keep out a movie past the due date, then they are going to charged [accordingly],” Metzger said. “If you keep a rental car out an extra day, the rental car company has to charge you.”

Indeed, following a fiscal quarter whereby it lost nearly $435 million in adjusted net income and had to revise downward fiscal year earnings and revenue projections, Blockbuster had to make changes, analysts said.

“At $1 per day, it’s very fair and comparable to what Redbox charges per rental,” said Edward Woo, analyst with Wedbush Morgan Securities in Los Angeles.

Colleague Michael Pachter said that given Blockbuster’s financial situation, they had to come up with ways to generate revenue.

“Their [previous] pricing made no sense, and every little bit helps,” Pachter said.
 


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