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Netflix and GameFly Beware: Blockbuster Adds Games to By-Mail Service

GameFly Blockbuster Netflix

In the world of subscription-based services, Netflix and GameFly (the Netflix of video games) reign king. But for how much longer?

Announced today, Blockbuster is adding games to its by-mail subscription service for no additional cost. Customers now have access to more than 3,000 titles on the Xbox, Xbox 360, PS2/PS3, and Nintendo Wii, in addition to the store's movie and television offerings. Games will be treated like any other movie or TV show DVD placed in your queue—there is no limit on the number of games that can be rented per month.

This news comes as a blow to GameFly, which has built its business on by-mail game subscriptions and is planning for its IPO. While the service offers some 7,000 titles, it costs $15.95 monthly for one disc, and $22.95 for two discs. Blockbuster's plans begin at just $8.99 for one disc, $13.99 for two, and $16.99 for three. How will this impact GameFly's business? What will the service do to protect its market share?

"I've known about this for about two minutes, but I can't think of one thing we'd do differently," GameFly's CEO David Hodess tells Fast Company. "The honest truth is that ever since we started the company, we've built it as if we had a major competitor. Until Blockbuster can do a better job with games than GameFly, everybody should subscribe to our service." Hodess could not comment on how this would affect the company financially or its upcoming IPO.

For Netflix, which is much more mainstream and established, this announcement shouldn't be as worrisome, but it does serve as yet another example of Blockbuster consistently gaining strategic advantages. Just a few months ago, the movie-rental giant inked a 28-day exclusive window with movie studios, which gave the company a four-week leg-up over Netflix for when its customers gain access to new releases. Blockbuster also offers in-store exchanges and free Blu-ray upgrades, all for the same price points as Netflix. While these features have yet to gain traction among consumers, will the addition of games to its service help bite back market share? Alternatively, when I last spoke to Blockbuster CEO Jim Keyes, we discussed whether the company was attempting to do too much in too little time. Is this just another example of Blockbuster spreading itself too thin?

"Are we doing too much? What I'm more surprised by is how little some of our competitors actually get away with doing," says Kevin Lewis, head of digital strategy at Blockbuster. "Netflix told their consumers: Sorry, we didn't ask you, but we're actually not going to let you rent movies from two-thirds of the studios for a month. Hope you don't mind. So I'm more surprised how little some of our competitors actually believe it's okay to do for their consumers."

Will movies and games be enough to sway Netflix subscribers from its popular online-streaming service? Will Blockbuster's much-less expensive model cut into GameFly's market share? According to Hodess, it all depends on whether Blockbuster can deliver on what it has promised.

"As in most business, I think it's really, really easy to make an announcement," the GameFly chief explains. "It's really hard to follow through day after day after day."

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