Holiday Cheer Heats Up Netflix

Not only is Netflix shaping up for a strong quarter, but it's performed a remarkable turning of the tables with rival Blockbuster in 2007.

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Earlier this year, Blockbuster looked to have Netflix in a suffocating headlock with its Total Access plan, which not only beat Netflix on subscription rates, but let customers exchange their online rentals for a free rental in Blockbuster stores. It worked very well in a way: Blockbuster subscriptions soared, while Netflix's disappointed.

But early on, there were signs that Blockbuster's triumph might be a Pyrrhic victory. Losses grew faster than subscribers, and Netflix soon matched the lower rates on a risky bet that Blockbuster could tolerate its losses for only so long.

Now it's starting to look like that bet was smart. Starting Thursday, Blockbuster has raised the price of its most popular plan -- three DVDs at a time and five free in-store exchanges -- to $19.99 a month from $17.99 a month. A "premium" plan that allows three DVDs out at a time and unlimited free in-store exchanges is going to $34.99 a month from $24.99 a month.

The good news is that a few plans are lowering prices. For example, rent one DVD at a time while foregoing any free in-store rentals and you'll pay only $3.99 a month, down from $4.99 a month.

But in all of these details lie one of the drawbacks of Blockbuster's Total Access plan: It's a complex array of options, and tweaking prices only makes them seem that much more complicated.

Netflix has long made simplicity a byword of its operations, and its subscription rates look, by contrast, that much simpler next to Blockbuster's changes.

And that's much more attractive for movie lovers. Netflix has long been accused of "throttling" -- slowing down DVD shipments to its most active customers -- but nothing sends a loyal customer packing more quickly than raising prices by as much as 40%.

The new pricing is the second change that Blockbuster has made to its Total Access program this year. The company lost a half-million subscribers in the third quarter after it scaled back the unlimited free in-store exchanges for most accounts.

A blog post authored by Ernest Pettie, who says he works at a Blockbuster store, summed it up: "The first change to the pricing structure didn't increase all the customers' prices, it just reduced the value they were receiving. This new change seems to be the first move's complement. Now, customers will be receiving less value at a higher price compared to a year ago."