TK'S MORNING BUZZ: Are You Worried About the Class-Action Suit Against Blockbuster for Late Fees? You Should Be...

31 Aug, 2000 By: Thomas K. Arnold

If I were a video retailer, I'd be mighty worried about the class-action lawsuit against Blockbuster Inc. for allegedly charging excessive late fees.

Sure, Blockbuster might be generating a little more revenue than the average retailer (16.7% as opposed to about 10%) due to its longer rental periods and higher rental/late fee rates.

But the underlying premise of the suit--that in the copy-depth era, retailers have so many copies of new releases in stock that they're highly unlikely to run out, thus minimizing the risk of taking a financial hit from a lost rental--applies to just about everyone.

Back in the old days, when retailers paid $60 or $70 for each new release, they were a lot more conservative in their buying habits, bringing in just enough copies to satisfy the minimum expected demand. Thus, if a customer didn't bring a tape back on time, there was a very real possibility that the retailer would lose business.

But now, even red-hot new releases are purchased in such high quantities--and not just by the big chains, with their direct revenue-sharing deals, but by most everyone who wants to remain competitive--that at least a few copies are bound to sit on the shelf. Just look at our turns-per-copy chart--dem videos just ain't flying out the door the way they used to!

Accordingly, Blockbuster's legal team would be foolish to make financial risk the focal point of their defense. A much better strategy would be to redefine "late fees" as "extended rental fees," much like hoteliers will charge you for an extra night if you check out past the deadline and car rental agencies will charge you for an extra day if you don't bring your rent-a-car back on time.

On the surface, the suit appears frivolous. And yet I don't think it would have been filed if the whole copy-depth phenomenon hadn't happened. I tried calling the plaintiff's attorney yesterday, but he was "unavailable." I bet he knows a lot more about the business than his client does.

Comments? Contact TK directly at TKArnold@aol.com

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