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Blockbuster Takes On Netflix With Online Movie Rentals

Blockbuster Inc., which has seen a decline in profits from stiff competition in the in-store movie rental business, launched on Wednesday an online service that will go head-to-head with DVD-rental pioneer Netflix Inc.

Under the new subscription service, customers can rent up to three movies at a time for $19.99 a month, which is $2 less than Netflix's service. Blockbuster's online customers also will receive coupons for two free in-store movie rentals a month.

"We think now is the opportune time for Blockbuster to enter the online rental business, and we plan to quickly establish ourselves in this arena by aggressively marketing, pricing and combining our online program and in-store capabilities," Shane Evangelist, vice president and general manager of Blockbuster online, said in a statement.

Blockbuster's move to the Internet comes as the Dallas-based company faces slowing demand for its in-store movies. In late July, Blockbuster reported a 24 percent drop in earnings for the second quarter, attributing the decline to a "challenging rental environment."

To promote its online business, Blockbuster has signed advertising deals with Microsoft Corp. and Time Warner Inc.'s America Online division, which will run banner ads and promotional links on MSN and AOL, respectively. Customers, however, will be able to manage their movie queues from either online service "within months," Blockbuster said.

Blockbuster also offers a subscription program that lets in-store customers take home as many as three DVDs or videos a month and keep them for as long as they want for monthly fees ranging from $24.99 to $29.99 a month. The company plans to combine the in-store and online services in 2005. In the meantime, online subscribers will only be able to return DVDs by mail.

Blockbuster is a publicly traded unit of Viacom Inc. The companies, however, are in the process of separating.

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