DALLAS – Blockbuster Inc. (BBI) introduced a new Internet-only DVD rental service Tuesday priced below a similar Netflix Inc. plan, sending shares of Netflix (NFLX) down almost 8 percent as the online movie rental war heated up again.
Shares of Blockbuster, the No. 1 video rental store chain, fell about 1.5 percent after it rolled out an unlimited three-DVDs-out-at-a-time plan at $16.99 -- $1 cheaper than Netflix's most popular plan.
The two companies have been battling over the fast-growing online DVD rental market since 2004, when Blockbuster launched its online rental service to compensate for shrinking store rental revenue.
The lowest-priced Blockbuster By Mail plan will now start at $4.99 per month for two rentals per month -- the same as Netflix's lowest-priced plan. Blockbuster sweetened the deal with one coupon for a free in-store movie or game rental per month.
The new prices apply only to a new service that the company is calling Blockbuster by Mail to differentiate it from its Total Access plan, which gives online subscribers free in-store rentals when they exchange their DVDs at Blockbuster stores.
The Blockbuster By Mail plans lets subscribers cut the time between DVD deliveries by allowing them to return DVDs in stores, but does not provide free in-store rentals.
A Netflix spokesman could not be reached immediately for comment.
Earlier this year, Netflix struck back at Total Access by adding a free Instant Viewing feature to its Web site that lets subscribers watch an unlimited number of streamed movies.
Blockbuster has been losing money since launching its Total Access Plan late last year, but the plan has gained the company market share at Netflix's expense.
Blockbuster had 3 million subscribers as of April 1, and projected Tuesday that the online rental market would grow by 43 percent this year.
Netflix said in April it had reached 6.8 million subscribers but cut its year-end subscriber forecast to 7.3 million to 7.8 million from its January outlook of 8 million to 8.4 million.
JP Morgan analyst Barton Crockett said in a note to clients Tuesday that the new price scheme does not exclude a later price hike for Total Access plans. He said the company maintained its forecast for a $170 million investment in Total Access and said it would not spend more to promote the new prices.
Crockett, who downgraded Netflix shares Monday, said the move was "negative for Netflix."
Shares of Netflix were down 6.3 percent, or $1.36, at $20.56 in early afternoon trade on Nasdaq. Shares of Blockbuster fell 1.5 percent, or 6 cents, to $4.01 on the New York Stock Exchange Tuesday.
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