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Blockbuster Stock Continues to Surge

5 Mar, 2010 By: Erik Gruenwedel

Shares of Blockbuster stock continued to rise for a second day as investors appeared to buy into CEO Jim Keyes’ statements that the venerable brand is shifting from a store-based business to multiplatform distribution, including kiosks and digital.

The Dallas-based company’s stock March 5 was up nearly 5% to 42 cents per share in mid-morning trading, the day after shares skyrocketed nearly 33% when Keyes told CNBC that Blockbuster was moving away from “total reliance” on DVDs and transitioning to a blend of physical and electronic media.

While the message wasn’t new, the impact was an unexpected positive for Blockbuster, which started the week quietly re-instituting “additional daily rates” on movie rentals, a move critics characterized as a return to late fees.

Moody’s then lowered Blockbuster’s already battered (junk status) stock rating another two notches, to “Caa3” from “Caa1.”

Rival Netflix, which came to prominence with a “no late fees” monthly subscription plan, also suffered a rare setback when several analysts concluded the online DVD rental pioneer’s stock had crested in value (at $70 per share March 2) and promptly lowered their ratings.

Indeed, Nat Schindler, analyst with Bank of America/Merrill Lynch, said Netflix shares represented an overly “optimistic view” given increased opportunities for consumers to consume Hollywood entertainment digitally.

He was alluding to recent actions by Wal-Mart and Best Buy to launch digital properties whereby consumers could rent/buy new release movies from the Internet.

“This optimistic scenario ignores the increased competitive risk as consumers begin consuming more and more video content online, likely reducing the value of Netflix’s unique DVD distribution capabilities over the long term,” Schindler wrote in a note to clients.

Netflix shares were down slightly at $68.31 in mid-morning trading.

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