Netflix Takes Another Blockbuster Bruising

"Current forecasts on Wall Street for 2008 don't reflect the effect of this price war on Netflix," Olson says.

Pacific Crest Securities analyst Chad Bartley says Netflix has been cautious in its earnings outlook, and he gives the company "the benefit of the doubt" for 2007. Eventually, however, he expects Blockbuster to take more share of the online-DVD-rental market.

Both analysts are neutral on shares of Netflix.

Arvind Bhatia, an analyst covering Blockbuster at Stern Agee & Leach, says he still expects the company to raise prices on its Total Access plan eventually, but he believes consumers are likely to pay a higher price for the added value of access to Blockbuster stores.

In the meantime, he says Blockbuster's aggressive pricing strategy is smart, and he has a hold rating on the stock.

"This is a relatively finite market, so the end-game is to gain as much market as possible," says Bhatia. "Blockbuster is right to take some short-term pain for long-term gain."

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