Blockbuster Loses Latest Battle

Over the summer, Blockbuster rolled out aggressive price cuts on its online subscription fees in an effort to reduce Netflix's early lead in the market.

The company also announced several changes in its offerings, one of which limited subscribers of its most popular Total Access plan to a maximum of five in-store DVD exchanges every month. Beyond that, subscribers have to pay an additional $1.99 for each in-store rental, allowing Blockbuster to recoup some losses from its low prices but potentially driving away some of its heavy-use customers.

The company downplayed the subscriber decline in its earnings release by reporting year-over-year growth in its subscriber count. But with its rival thriving, Blockbuster's subscriber drop marks a defeat.

With its own price cuts, Netflix reported a blowout third quarter, reversing perceptions on Wall Street that Blockbuster was making in-roads against the online DVD rental pioneer.

The Los Gatos, Calif., company rebounded from a dismal second-quarter performance to report a third-quarter jump in subscribers and earnings that demolished expectations. Netflix also cranked up its outlook for 2007 and 2008, reflecting a dramatic swing in its public view of its own prospects.

For its part, Blockbuster attributed its third-quarter revenue declines to the closure and sale of 526 of its stores, partially offset by a $79.2 million year-over-year increase in revenues from its online rental service.

The company said it has implemented a plan to lower yearly overhead costs by about $45 million through job cuts, and it's considering outsourcing some corporate functions.