Blockbuster to Offer 99-cent Rentals7 Dec, 2008 By: Erik Gruenwedel
Seeking to undercut current economic woes and threats from DVD rental kiosks, Blockbuster in January reportedly will begin offering movies starting at 99 cents.
The lower-priced rentals, which would be for one-day and two-day periods depending on the region, will be limited to classic and older movies and are part of ongoing pricing models the Dallas-based No. 1 DVD rental service has been testing, said chairman and CEO Jim Keyes.
Keyes was among several media and sports executive keynote speakers Dec. 5 at the Reuters Media Summit in New York discussing industry outlooks entering 2009.
“The 99 cents plan is targeted at the value-conscious consumer in this challenging economy," he said.
Blockbuster recently introduced a $99 set-top box that delivers movies from the Internet to the television. It is also testing proprietary rental kiosks and content downloads to scan disks and flash drives.
Edward Woo, analyst with Wedbush Morgan Securities in Los Angeles, said with the economic outlook remaining poor well into the early part of 2009, Blockbuster has to stay on the offensive across all aspects of its business strategies, which include kiosks.
"I have to believe that the 99-cent rentals are aimed squarely at both kiosks and this weak economy," Woo said.
Keyes said management was attempting to renegotiate leases in a third of its 7,000 stores, an effort that reportedly could save the company more than $67 million. Blockbuster currently spends about $450 million annually on store leases, which average about 2 1⁄2 years.
“What we’re in the 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.
The CEO said ongoing cost reductions could save Blockbuster from $100 million to $150 million, which is about the amount of a new credit facility (now in jeopardy due to market conditions) the company had hoped to implement next year.
Regardless, Keyes said the DVD rental industry and Blockbuster in particular remained well positioned to weather the economic recession.
“Entertainment we think will do well during this time and as far as Blockbuster, we’re comfortable with our continued trajectory,” he said.