Blockbuster: Please, Please Change Your Habits

Blockbuster store closing

Blockbuster spent a significant part of last year ignoring its impending demise.

Then-CEO Jim Keyes argued that Netflix was not competition and that the startup had nothing to do with Blockbuster's financial troubles. Keyes said with a straight face that Blockbuster was undergoing an Apple-like comeback and that bankruptcy was out of the question. Astonishingly, Blockbuster's digital chief said the company is "strategically better positioned than almost anybody out there," and that "never in [his] wildest dreams would [he] have aimed this high"—even as the rental giant was mired in a billion dollars' worth of debt and only a month away from Chapter 11. (Head here for a complete rundown of Blockbuster's failures.)

But times have changed. After wasting millions of dollars more on an inconsequential ad campaign, Blockbuster, which its largest shareholder Carl Icahn called "the worst investment" he's ever made, sold to Dish Network for $320 million. (Only months earlier, I received an unexpected call from a panic-stricken Blockbuster investor begging to know whether I felt the company was doomed.) Things would be different now, right? Right?

A new service announcement from the revived company signals that Blockbuster hasn't yet learned from its mistakes. Today Blockbuster said it is launching a new program: rent-by-mail, without a subscription. Here's how it works: Just head to to find and rent a DVD, and Blockbuster will send it within the next day or two, no subscription required. After 7 days, pop the rental back in the mail or drop it off at a nearby Blockbuster store, and, well, that's that.

"Some of you out there are massive commitment-phobes. Seems like you don’t want to have a monthly subscription," Blockbuster wrote on its blog. "Why does commitment scare you so much? What are you afraid of?"

The answer to that question is obvious: Consumers are afraid of Blockbuster. Here's why.

Rentals, said a service rep that answered a call, will average about $5.99 each. Think about that: $5.99 for one DVD. Netflix offers a streaming plan at just $7.99 a month, and DVD-by-mail plans starting at only $9.99 a month. It provides instant gratification—by watching movies online—and unlimited, all-you-can-eat access to Netflix's library of content, without late fees.

Blockbuster's new service provides neither benefit—you'll have to wait for the DVD to be shipped, and then remember to send it back to Blockbuster within the allotted time period of 7 days.

I asked the service rep what happens if the DVD is not returned on time. There are no late fees, she promised, and no "additional daily rates," which is a euphemism Blockbuster has developed for late fees. However, "once we do not receive the title, you will automatically be charged for the title," the rep added.

Wait, say that again? "If in any case, we do not receive the title on the due date," she said, consumers will be charged for the DVD, which she said would be roughly $19.99. Wow, quite the nonexistent late fee.

We ran through some hypotheticals. Say you pop the DVD in the mail on the final day of your rental period. Blockbuster will then inevitably receive the DVD after the due date, correct? In other words, for a DVD-by-mail service, how could consumers ever hope to return a disc on time? The service rep said there was a three-day grace period.

But what happens if, for whatever reason, the postal service does not return the DVD in time, even if it was mailed back on the due date? Then you'll be charged $19.99, the rep said. Even if the DVD is no longer in your possession and has been shipped back to Blockbuster? Yes, you will automatically be charged $19.99, the rep said.

"It would be best to return the title at the store," the rep said, to avoid such issues. "It's better to return in store," she repeated.

To summarize: Blockbuster's new service has absolutely no late fees, yet if your DVD is not returned within the 3-day grace period—even if it was dropped in the mail in time, no longer in your possession, entirely in the hands of the postal service, and eventually returned to Blockbuster—consumers will be charged $19.99.

With such deceptive business practices and services, it's clear why Blockbuster's customers are "afraid" of purchasing a monthly subscription from the company.

But that's not even the most disconcerting aspect of the new service. As Blockbuster launches a new service for its by-mail program, Netflix has steadily been moving away from physical discs, recognizing an industry trend. Netflix has launched a $7.99 streaming-only plan; its CEO Reed Hastings has said that streaming movies and TV, and not DVDs, are the future of its business; and thanks to aggressive deals to boost its online content ilbrary, including plans to dabble in licensed original content, roughly 70% of users are now watching Netflix Instant.

Blockbuster, yet again, is heading in the wrong direction.

[Image: Flickr user The Consumerist]

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