Chain's new service aims to thwart Netflix

Blockbuster Video is charging into the DVD mail-order business, even though it may mean fewer vid renters visiting its stores.

The rental chain, which is in the process of being spun off from corporate parent Viacom, launched its long-awaited response to Netflix Wednesday with an online DVD rental service distributed by Time Warner’s AOL and Microsoft’s MSN.

Blockbuster is also undercutting Netflix on price, offering three movies at a time for $19.99 a month. Netflix recently raised its monthly fee to $21.99.

Netflix created the mail-order rental biz, which grew to $280 million in sales in 2003. It’s a small but growing sliver of the $8.2 billion U.S. movie rental industry, and Blockbuster believes it will appeal to several million U.S. households.

Blockbuster veep Shane Evangelist said he expects to win a “substantial share” of the online rental business by the end of the year.

In a gambit to keep those online DVD renters coming to Blockbuster stores, the company is giving away two free in-store rental coupons per month with the service.

The online subscription service will be integrated next year with Blockbuster Movie Pass, an in-store loyalty program the company launched in May.

Chain gets makeover

The online initiative is part of a broad campaign to remake the pioneering vidtailer, which has watched sales and rental revenue at its stores plummet. Wal-Mart now takes 33% of all new and used DVD sales in the U.S., and Best Buy is making inroads.

Blockbuster is by far the leader in DVD and VHS rentals, but that business, too, is dwindling. Net income fell 25% in the first quarter, with both same-store sales and rentals falling.

As part of its search for a new model, the chain launched an in-store used pic and game-trading service.

Topper John Antioco said the company expects 10% of its 17 million active renters to move online, accounting for 20% of revenue.

Company is expected to launch an exchange offer in September that will separate it from Viacom, which holds 81% of Blockbuster equity.

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