A blockbuster rebuttal

Vidtailer publicizes war

Netflix moved in for the kill, but Blockbuster is firing back.

After Netflix filed a patent lawsuit against the vidtailer last week, Blockbuster has taken the unusual step of taking the trial to the court of public opinion — a move that helped the stock climb back to respectability.

In a regulatory filing, Blockbuster made several pointed comments about its chief competitor. “The timing of this lawsuit appears to confirm that Blockbuster Online has emerged as a real competitive force in the online rental industry,” said Shane Evangelist, general manager for Blockbuster Online.

In the suit, Netflix cited patents it held for renting DVDs by mail under a subscription model and for its “queue” system, which allows customers to make wish lists of discs that Netflix then sends them. Company asked a judge to award damages and shut down Blockbuster Online.

In its statement, Blockbuster listed portions of the suit that it said supported its points. Among them are the fact that Netflix received one of its patents several years ago and that Netflix has “singled out Blockbuster and no other online competitor for litigation.” Blockbuster is the largest and only serious challenger to the company.

Netflix has made no secret of its desire to obliterate the physical rental biz. But the suit was company’s first serious blow against online competish.

If it succeeds, it could cripple Blockbuster’s physical operations by neutralizing one of the company’s only areas of growth.

While companies that are being sued often don’t comment, Blockbuster may have a larger endgame: winning the PR war.

Even if Blockbuster can fend off a shutdown or avoid a steep payment, press generated by the suit will highlight Netflix’s advantage — and could put a further crimp in Blockbuster’s attempts to win over customers.

Blockbuster spokesman Randy Hargrove said the company was speaking out because it felt Netflix suit had misrepresented the company’s online biz.

Blockbuster trails Netflix in the online customer race by a significant margin — about 4.2 million to roughly 1 million at last disclosure. But experts feel the market for new subscribers is still relatively untapped, likely prompting Blockbuster to keep fighting despite Netflix’s head start.

Vidtailer has recently tried to lure new customers by offering in-store promotions for online subscribers.

But experts say it’s more than just the size of the customer list that matters, and Blockbuster is seen as far less dexterous at using its database to target customers.

Netflix, meanwhile, may have an endgame of its own in mind. Eliminating competition for any mail-order service is key for Netflix as it faces fresh challenges from Amazon.com, which recently announced it would offer downloads, and from beefed-up studio initiative Movielink.

Online rentals have been Blockbuster’s Achilles heel. But on Monday the firm actually got a boost from an analyst’s belief in its efforts. Our “analysis leads us to believe that investors are overly discounting BBI’s online assets,” Citigroup analyst Tony Wible wrote in a note.

Analyst, who recently initiated coverage of the stock, upgraded his recommendation to buy. It’s too early to talk of a comeback, but shift marks the second upgrade for Blockbuster in less than a month.

Combined with the lawsuit rebuttal, it helped bump the stock 31¢ to $4.50, a gain of about 8%.

But even that increase may have a dark lining: Blockbuster’s stock may be getting a buy recommendation because the price is so low: Even with the jump, it has lost more than half its value in the past year.

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