Wednesday, June 13, 2007

Blockbuster vs. Netflix

Citigroup upgraded Dallas based Blockbuster today on news that the company was cutting its online movie rental prices by 1$. Blockbuster will lower its three movies at a time rental package to $16.99, a buck cheaper than its biggest competitor Netflix. According to the associated press “at the end of the first quarter, Netflix had nearly 6.8 million subscribers, while Blockbuster had about 3 million subscribers enrolled in its Total Access program.” Blockbuster is aggressively seeking out new customers through advertising and now price cutting although Netflix is still the dominate player in the online rental market. Netflix will likely match the Blockbuster price cut in the near future lowering its profit margin.

Today’s news sent shares of Blockbuster (BBI) up over 10% while sending Netflix shares down over 5% (NFLX). With such thin profit margins it is going to be hard for either company to produce strong earnings.

No comments: