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Blockbuster raising prices for online service

Blockbuster Inc. is boosting prices of its DVD-by-mail service for new customers and some existing ones by up to 40 percent.
/ Source: The Associated Press

Blockbuster Inc., which has been losing money on online movie orders, is boosting prices of its DVD-by-mail service for new customers and some existing ones by up to 40 percent.

The movie-rental giant began notifying customers of the increases — and some price cuts — early Thursday. The hikes will take effect next week and caused an immediate buzz on Internet boards.

Blockbuster shares barely moved on the news, but shares of rival Netflix Inc. jumped more than 5 percent.

Blockbuster declined to say how many of its 3.1 million online subscribers are facing rate increases.

Spokeswoman Karen Raskopf also declined to disclose which current customers will see price hikes other than saying, “We are taking into account the profitability of individual subscribers.”

Blockbuster lost half a million online customers in the July-September quarter. Chief Executive James W. Keyes said last month that many of those subscribers were costing his company more than they were worth.

The company spent heavily to advertise the online service, and it lost money when customers took their movies back to stores for free exchanges.

While Blockbuster was losing online customers over the summer — and said it would stop reporting the number of subscribers — Netflix cut prices and added 286,000 subscribers, pushing it over the 7-million mark.

Blockbuster offers several plans for subscribers who order movies online and receive them in the mail. The most popular plan lets customers keep three DVDs at any time and exchange up to five DVDs per month at a local Blockbuster store for a free rental.

That plan will rise from $17.99 to $19.99 per month for new customers and some existing ones beginning Dec. 27, the company said.

The top-of-the-line plan, in which customers can keep three DVDs out and get unlimited free in-store exchanges, will go from $24.99 to $34.99 per month, a 40 percent increase.

A basic plan that lets subscribers keep one DVD but doesn’t entitle them to free in-store exchanges will drop from $4.99 to $3.99 per month.

Spokeswoman Raskopf called the plans “a really good value for consumers” that must be balanced against “providing a fair return to Blockbuster.” She said the Dallas company hopes the increases won’t cause existing subscribers to quit.

“This is not a plan to drive people away,” she said. “We want to keep them all.”

A spokesman for Netflix said the Los Gatos, Calif.-based company doesn’t plan to change its standard pricing but continues to test different rates.

“The greatest convenience, selection and value continues to be with Netflix,” said the spokesman, Steve Swasey.

Blockbuster shares rose a penny, to $3.51, while Netflix shares gained $1.32, or 5.3 percent, to $26.19 in afternoon trading.