Dish takes Blockbuster shot at reeling Netflix

[September 26, 2011]  SAN FRANCISCO (AP) -- The Blockbuster video store chain is seeking some revenge against old nemesis Netflix by offering a less expensive way to watch videos online and rent DVDs through the mail.

The attack announced Friday is being mounted by satellite-TV provider Dish Network, which bought Blockbuster out of bankruptcy court for $234 million five months ago.

Blockbuster, once the video rental king, had filed for bankruptcy when it couldn't counter the threat posed by Netflix Inc., whose DVD-by-mail service and subsequent expansion into Internet video streaming revolutionized home entertainment.

Netflix now reigns as the largest U.S. video subscription service with about 24 million customers, but it's in a weakened position after raising prices as much as 60 percent and announcing the spinoff of its DVD-by-mail service as "Qwikster." Those moves, made in the past two months, have triggered a Netflix customer rebellion that Blockbuster and Dish Network Corp. are preying upon.

The lure: a DVD-by-mail and Internet video package that Blockbuster and Dish Network are selling for as low as $10 per month. That's the same price Netflix charged until it split its streaming service from DVDs.

But there's a big catch. To get Blockbuster's new "Movie Pass," you have to subscribe to Dish Network's pay-TV service. Dish Network currently has about 14 million subscribers, but only half have the right set-top box to stream video, said Ira Bahr, the company's chief marketing officer.

In an attempt to widen its audience, Dish Network is dangling a one-year offer for $40 a month that will include more than 200 TV channels and the Blockbuster Movie Pass. The company eventually plans to offer Movie Pass to non-Dish subscribers, but it provided no details Friday.

Movie Pass will roll out to Dish subscribers Oct. 1, accompanied by a marketing blitz.

It appears to be an ideal time to introduce the service because so many Netflix customers have been canceling their subscriptions and exploring other options. Netflix expects to have 600,000 fewer U.S. subscribers at the end of this month than it did at the end of June, only the second time in its history that it has lost customers from one quarter to the next.

The only other time that happened was in 2007 when Netflix and Blockbuster were locked in a fierce price war. Blockbuster eventually retreated, buried in huge losses and debt.

Dish Network executives described the timing of the new Blockbuster service as serendipitous. The companies, the executives said, had been drawing up their plans well before Netflix enraged customers with its mid-July announcement about the price increases.

"No amount of planning can replace good luck," Dish Network CEO Joe Clayton said. "We will take all the luck we can get."

Netflix still sees its service as a better bargain because it doesn't require a satellite-TV subscription.

"We don't require a cover charge," Netflix spokesman Steve Swasey said. "That (Movie Pass) isn't a good value."

J.P. Morgan analyst Doug Anmuth wasn't impressed with Movie Pass either. "We don't believe the service poses a compelling alternative to broadly compete with Netflix at this point," he wrote in a Friday note.

Although the Movie Pass will compete against other pay-TV and streaming services, Netflix is clearly the main target. As if to accentuate that point, Movie Pass was unveiled at a press conference in San Francisco, about 50 miles north of Netflix's headquarters in Los Gatos.

Dish Network is based in Englewood, Colo. and Blockbuster is based in Dallas.

Netflix, meanwhile, must also fend off other new competition, including streaming services from Hulu.com and Amazon.com Inc. and $1-per-day DVD rentals from Redbox kiosks. That's one reason Netflix's stock price has plunged more than 50 percent since mid-July. Netflix shares gained 90 cents Friday to close at $129.73.

The video selections available through the Blockbuster/Dish service and a combination package from Netflix/Qwikster are similar. Blockbuster/Dish offers more than 130,000 movie and TV show titles on DVDs and Internet streaming. Netflix had nearly 32,000 selections in its Internet streaming library last month, according to a Dish analysis, and Qwikster's DVD selections exceed 100,000.

Blockbuster/Dish, though, thinks its service has convenience on its side. Its subscribers will only have to pay one bill, unlike people who get their streaming from Netflix and their DVD rentals from the upcoming Qwikster website. And subscribers to the new Movie Pass service will be able to exchange the DVDs they receive in the mail at a Blockbuster store.

It just won't be as easy to find a Blockbuster store as it once was. Blockbuster now has about 1,500 U.S. stores, down from 9,100 at the end of 2004 when Netflix had just 2.6 million subscribers.

[Associated Press; By MICHAEL LIEDTKE]

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