Blockbuster has been losing money on Total Access subscribers. Especially those who take advantage of their free in-store exchange benefit. For this reason, they are hiking prices.

Netflix, the DVD-by-mail pioneer, has done just the opposite. They lowered their prices and were awarded with more subscribers.

I have two problems with Blockbuster on this deal. And they having to do with the price hikes. Buit, we will get into that later.

Blockbuster Raising Prices for Service
 
Dec 21, 1:28 AM (ET)

By DAVID KOENIG

DALLAS (AP) - 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 of $2 to $10 will take effect next week and caused an immediate buzz on Internet boards.

The immediate beneficiary of the move was rival Netflix Inc. - its shares jumped more than 9 percent. Blockbuster shares barely budged.

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.

Netflix pioneered the online ordering and mail delivery of rental movies in 1999. Blockbuster followed in 2004, and cut into Netflix's lead during late 2006 and early 2007.

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 5 cents, to $3.55, in trading Thursday, while Netflix shares gained $2.37, or 9.5 percent, to $27.24.

As a video retailer, I can see their point of view. I had a rewards program that some took advantage of. For this reason, I had some "costly" customers.

Did I hike the prices on everyone because of a few? No, absalutely not. Did I single out some customers? Nope. My solution was to limit reward redemptions. 

If I were Blockbuster, I would dump the free in-store exchanges. Then, if need be, a flat price hike across the board. Thus, everyone is be treated equally.

- Paul