Price Cuts Bloody Netflix

Netflix added only 481,000 net new subscribers in the first quarter.

The numbers reflect Blockbuster's aggressive marketing spending to promote its so-called Total Access plan. They also vindicate the company's aggressive pricing plan, in which it is sacrificing profitability in the short-term in order to weaken Netflix's early lead in the market.

Blockbuster's most popular offering allows subscribers to rent an unlimited amount of movies and have as many as three at one time for $17.99 a month. That matches the former price of a similar plan offered by Netflix, but it was more valuable to most consumers because Blockbuster Total Access members can exchange movies at the company's stores rather than wait for new movies to come in the mail.

Netflix has no stores -- only a Web site. Its price cuts put its three-at-a-time plan to $16.99 a month, bringing its prices in line with Blockbuster's mail-only offering, which doesn't allow in-store movie exchanges. It also lowered the price of its one-DVD-at-a-time plan to $8.99 from $9.99, also consistent with Blockbuster's mail-only plan.

"Instant gratification is king, and most Americans will be happy to pay an extra dollar so they can exchange movies on Friday night in a Blockbuster store," says Pachter. "[Netflix CEO] Reed Hastings will probably say tonight that Blockbuster will have to raise its prices soon to survive, but Blockbuster's new CEO, Jim Keyes, will say that they won't raise prices when they report quarterly results on Thursday."