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Loss Of Late Fees Hurts Blockbuster

August 10, 2005
When Blockbuster Video dropped late fees in January, in an effort to settle lawsuits and win back customers lost to the Internet, it inadvertently revealed just how much it depended on consumers being late and forgetting to rewind the tape.

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The video chain reports it lost $57 million in the second quarter, and blames the loss of late fees for much of the decline.

Blockbuster has been fighting for survival, and has lost some of its business to NetFlix, which lets consumers order movies online and return them whenever they’ve watched them. At Wal-Mart and other discount retailers, consumers can buy movies almost as cheaply as they can rent them. As a result of the mounting losses, Blockbuster says it may close some of its 9,000 stores.

In March Blockbuster reached a settlement with forty-eight states and the District of Columbia, who charged it deceived consumers in advertising its "No Late Fees" program. Under the settlement, Blockbuster agreed to provide refunds, credits or coupons to consumers who lost money because of the misleading.

Under its new policy, consumers may rent a video at Blockbuster for seven days and not pay a late charge. However, if they keep the movie any longer, they’re required to buy it, minus the cost of the rental charges. Analysts say that policy could reduce profits by as much as 15 percent.

Meanwhile, Blockbuster is trying to recoup some of the lost late fees by increasing the price of one of its most popular rental plans by three dollars per month. The rate for three-movies-out-at-once rental plan will now be $17.99 per month, up from $14.99, and in line with Netflix charges.

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