Flaws in Blockbuster's Revival

To send the ultimate all-is-forgiven message, they've granted Blockbuster a forward price-to-earnings ratio (19.1) on par with that of Netflix (19.8).

And Blockbuster rewarded investors for that faith. In its fourth quarter, it not only posted its first profit in three quarters, that profit was 4 cents above the 5 cents a share that the Street had forecasted.

Total Access, it seemed, was now behind of the wheel of the truck -- with Netflix in its sights.

But this month brought evidence that Total Access may not be the slam-dunk that Blockbuster investors hoped for. It's even starting to look like the Total Access ball is still rolling around the rim -- maybe it will drop through, maybe it won't.

The first red flag came in the form of a trial balloon from Blockbuster that quickly found its way onto blogs devoted to the online DVD-rental industry. The site HackingNetflix, which despite its illicit-sounding name has become something of a clearinghouse for Netflix and Blockbuster tipsters, said Blockbuster may be raising the subscription fees for Total Access.

At first blush, this seems like a boon for Blockbuster: CEO John Antioco would love to justify his income by telling shareholders he's bringing in even more revenue without weighing down margins.

But the truth is that this strays from the secret formula of hitting Netflix where it's weak. In fact, it's hitting Netflix where it's strong. After a few missteps in its early years, Netflix finally hit on the delicate balance in subscription fees. It learned the hard way that raising fees can drive customers away.