NetFlix (NFLX) will drop its DVD rental fees to match those that Blockbuster (BBI) charges for DVDs sent to customers through the mail. According to The Associated Press "Netflix will charge $16.99 per month for a plan that allows subscribers to keep up to three DVDs at a time with no limit on how frequently the discs can be mailed back."
NetFlix has 6.8 million subscribers, so the affect on it revenue may not be inconsequential.
Both companies may believe that cutting costs is necessary to increase market share, but it is also destroying shareholder value, at least short-term. So far this year, shares of Blockbuster are down about 19% and NetFlix is down slightly more. In the last quarter NetFlix net income was less than $10 million on over $300 million in revenue. Blockbuster last money.
Irrational prices does not work for very long.
Douglas A. McIntyre
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